As the economy revives, companies pay down revolvers, resume buybacks and assess counterparty risk.
At a recent NeuGroup meeting of treasurers at retailers, sponsored by U.S. Bank, members discussed stock repurchase programs, paying down revolvers and monitoring the impact of capital structure changes on leverage ratios and credit ratings.
- Members discussed moving from preparing for worst case scenarios in April and May (by increasing liquidity, initiating new revolvers) to more recent moves made in anticipation of returning to more normal operations.
Stock repurchase programs. After almost every company suspended ongoing or planned stock buyback programs, some have started up again while others are contemplating not if, but when their plans will resume.
- One member’s company announced the resumption of a buyback program in September which had been suspended in March.
- There was widespread acknowledgement that restarting buyback programs can send a signal to the market that requires consistency with messaging by investor relations and other stakeholders.
Repaying revolvers. Most companies responded to the pandemic by quickly drawing down revolvers to increase liquidity in the late spring and early summer.
- One member asked the group, “How many of you have publicly stated leverage targets, and how much did it impact the strategies you selected to respond in this environment?”
- The end of lockdowns and signs of recovery have prompted most companies to largely pay back these defensive draws as concerns have abated.
Counterparty policies. Some members need to adjust counterparty risk policies after bumping up against volume and proportion limits with some of the banks they were using to deploy the excess cash.
- This has kicked off critical decisions about how to balance maintaining banking relationships while increasing the scrutiny of the credit risk exposure to their most important counterparties.
