Speculative-grade default rates around the world have risen steeply, according to credit rating agency Moody’s.
More than £1.1bn of fraud came before the UK courts last year, the second highest level recorded in 21 years and exceeded only in 1995, according to KPMG Forensic.
At a time when the global liquidity crisis is expected to fuel new merger and acquisition (M&A) activity this year, a report has claimed that failure rates remain at a high level despite the growing corporate experience of mergers over the last seven years.
With the bubble in commodities prices having finally burst, cash and not debt is the name of the game, according to Xstrata, the world’s leading acquisitive mining company.
If deleveraging of corporate balance sheets is to be one of the running themes of 2009, then Smurfit Kappa is in the industrial sector’s vanguard of companies shedding debt through buybacks.
Proven strong cashflows are the key to successful bond issues at present,according to international pharmaceuticalsgiant Novartis.
The ACT has been able to report on the impact of the changed banking and market conditions on the treasury plans of large UK companies, following a series of in-depthinterviews with ACT members in FTSE 350 companies.
The Bank of England has published a market notice detailing how it intends to operate its £50bn asset purchase facility to channel state funds directly to the corporate sector. The idea is that it will also underpin secondary market activity,reduce the liquidity premium on high-quality corporate bonds and so remove obstacles to corporate access to capital markets.
Indexation to count as a cash outflow. The true cash cost of debt linked to the Retail Price Index (RPI) is the subject of new ratings criteria from Standard & Poor’s, issued on 10 February 2009.
What are the key issues in cash and liquidity management? Speakers from the recent ACT Cash Management Conference give their views.
Sterling is down by more than 20% on the trade-weighted index (TWI) over the past year, but its fall against the dollar and the euro has been as deep or even deeper – close to 25%. In the past, sterling declines of this order would rapidly lead to rising prices and a subsequent rise in interest rates to control them, which would weaken the economy and so help keep inflation pressure in check.
The success of the treasury profession was recognised at a dinner to mark the winners and the highly commended in the 2008 Deal of the Year Awards and the Treasury Teams of the Year.
After more than 12 months of extremely difficult credit markets we are beginning to see a loosening in market conditions for the largest corporate issuers. Mid-sized and smaller companies, however, are unlikely to benefit. Since the government is unable to solve funding problems for all companies, it will largely fall to treasurers to find alternative means of financing, including sourcing funding from pension funds and insurance companies rather than simply looking to their banking syndicates.
In the midst of the credit crunch are the debt markets. In the midst of the debt markets lies structured finance, and in the midst of the alphabet soup of structured finance products lurk toxic assets. Within this morass are investors facing losses. How did it come to this? And, faced with a loss, what avenues of redress are available?
I was recently at a gathering of financial directors hosted by a private equity house when one proclaimed: “Now is the time that FDs really need to know what is in their facility documentation.” With hindsight, I will give these FDs the benefit of the doubt as they were mainly interims, had probably not originally been involved in the setting up of their facilities, and just had to live with what they had been given.
Money market funds have become increasingly popular with UK corporate treasurers, pension funds and other institutional investors in recent years.
Achieving more with less was the theme of the conference and more than 100 delegates heard from a range of corporate and market participants about how they had turned that slogan into a reality. The cash-is-king mantra has driven treasurers to involve themselves in all aspects of business processes: centralised versus decentralised treasury policies, liquidity and asset management, supply and sales chain structures and systems development – both internally and in the wider financial community. In short, treasurers have added the function of business process managers to their growing list of responsibilities.
Back in the relatively trouble-free days of summer 2007, this magazine carried a piece on mid-cap corporates by Citi’s Sean Hanafin, who observed: “The financing strategies of UK mid-sized corporates are set to change dramatically over the next 18-24 months.” His message was that it would be prudent for mid-sized corporates to diversify their funding sources ahead of the credit cycle turning.
Whereas previous talkingtreasury events – held across Europe and in Hong Kong – were almost completely comprised of treasurers and corporate finance professionals from non-financial corporates, the delegates in Dubai also encompassed a wide range of governmental and government-owned organisations and enterprises reflecting local and regional business culture. What remained uniform, though, was the enthusiasm of delegates for the sharing of professional knowledge and experience.
John Hawkins, Director of Foresight Trustees, tells Peter Williams how he came to be helping administer the will of a wealthy victorian brewer.
At the tail end of 2008 the dislocations in the funding markets, which even affected the banks themselves, triggered a new concept in the pricing of lending to corporates – namely, the idea of pricing at a variable margin over Libor with the margin based on the credit default swap (CDS) spread. While this is no longer flavour of the month, it is still worth considering the pros and cons of such a basis for loan pricing. For most borrowers certainty on the credit margin is important while for others there may be a trade-off to be made to increase the supply of willing lenders. Some may expect their CDS price to be declining and therefore see an advantage in CDS-based pricing compared with a (higher) fixed margin.
The recession represents an opportunity and a threat in equal measure for anyone involved in risk management. While the downturn allows an even sharper argument to be made for the ability of enterprise risk management (ERM) to help companies remain buoyant when the going gets tough, the pressure on costs may persuade firms to save money by downsizing their risk management investment. It is essential that everyone involved in risk management should be able to demonstrate and communicate the value of their role.
The erratic course of sterling has shown little sign of stabilising in the opening weeks of the new year, even if its most recent progress has been more encouraging. The decision by the Bank of England’s monetary policy committee early in February to cut interest rates to an all-time low of 1% had little impact on the market. After almost reaching parity at the end of 2008, the pound has since recovered some ground against the euro.
As the economic rollercoaster continues to plummet, this is a good time to reflect on the value that treasury can bring to a company, in all circumstances, but particularly now. As credit remains tight (and some banks are shutting down lines almost indiscriminately), treasury has to be in the centre of the frontline within companies. The number of CEOs and CFOs spending ever more time with their treasurers continues to rise. For some this is an exciting, challenging time, for others it’s hugely stressful. For some FDs, the reality has yet to sink in about current spreads and pricing but they will have to bite the bullet sooner rather than later. So how is treasury adding value in these volatile times?
Stephan Sturm, chief financial officer of global healthcare company Fresenius, is sometimes approached by former banking colleagues and asked whether he misses the dealmaking. Sturm’s reply is that he is doing more deals now than he did as a banker.
