Capital MarketsCash & Working CapitalCOVID-19

Beyond Revolvers: What NeuGroup Members are Talking About Now

By March 26, 2020 April 16th, 2020 No Comments

More of Joseph Neu’s takeaways from virtual meetings dominated by talk of cash and liquidity.

The waterfall of insights cascading from NeuGroup’s virtual meetings this month requires expert judgment on wringing out and distilling what matters most. One expert is NeuGroup founder and CEO Joseph Neu, who on Tuesday offered his take on tapping credit lines. Here are some of his other takeaways:

Converts as an option. Industrial companies said they are looking at the convertible debt market as a financing option. Typically, these are the domain of tech and life sciences firms, so investors are said to be looking for diversification.

Reviewing cash flow models. It pays to have a good cash flow model and members report reviewing those and watching key metrics. For example, recurring revenue companies: An increase in churn and pricing declines. Scenario plans are also being layered on top of these. “We are fine for a few months, but eight months is another matter,” one member said.

Cash forecasts not good enough. Even the best forecasters are challenged with the demand and supply shocks set off by this crisis. If you are hedging forecasted exposures, it really pays to be a hedge accounting whiz with hedged item designations and your effectiveness testing methodology. Even then auditors may want to put you into the penalty box, so be prepared to push back.  

Can you still concentrate global cash? Evaluate cash positions across the globe and the ability to centralize it under various contingencies, including currency controls being reimposed or tightened. This will become a bigger risk if FX rates continue to weaken.

Supply chain finance. Treasury should be working with banks and supply chain finance solution providers to take efficiency to the max level in onboarding and matching invoices for early payment to support key suppliers so they can focus their own balance sheet efforts on the most vulnerable suppliers that don’t have invoices to factor. One member noted the irony that a bank can hold their paper backed by supply chain finance obligations, but not its CP, which is a regulatory anomaly versus a credit risk economic issue. The member also noted that bank and investor demand for commercial-trade/invoice-backed financing for suppliers is said to be holding up well. This is huge given this context.

Signing documents. Tell banks and others allowing DocuSign (and other digital signature tools) that are allowing them as a temporary crisis fix that they should be good enough for the future, too. People to do company chops or process documents needed for cross-border transfers might not be available, which could delay cross-border transfers (see above).

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Antony Michels

Author Antony Michels

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