Background
The Policy and Technical team continue to speak with treasurers to understand what issues they are facing and in what areas the ACT can help. We are also talking with the main banks to understand how they are responding to the COVID-19 crisis. At the same time, we have held a number of conversations with HM Treasury, the Bank of England, the CBI, the City of London and UK Finance. Through these forums we have been able to ensure that the views of the treasury community are heard by policymakers through a number of different channels.
A list of useful material from the ACT, the regulators, government, and others, can be accessed from the ACT Knowledge Hub.
General overview
Writing this 5th weekly blog on COVID-19, I’m reflecting on how April has flown by. We started the month with announcements of the Coronavirus Corporate Financing Facility and the Coronavirus Business Interruption Loan. Based on conversations with the treasury community, the ACT, along with other institutions, highlighted some of the challenges it had heard (including the lack of an existing credit rating for those wishing to participate in the CCFF and the requirement for personal guarantees for the CBILS). We also highlighted the problem with a large group of companies left out of these schemes – the “stranded middle”.
Since then we’ve seen welcome updates to these two facilities and the addition of new ones - CLBILS and the most recent Bounce Back Loan scheme (see below). The Job Retention Scheme went live on April 20 and many members have, or plan to, access this for their furloughed staff. The range of facilities and the funds committed are a testament to the speed of the government and the banking ecosystem in responding to the pandemic.
Now our focus for the existing schemes is helping to highlight any blockages in the pipeline for getting the new funding into businesses.
From our latest discussions with treasurers it seems that for many treasurers, they have found a new rhythm to working from home, managing a virtual team, getting familiar with ways of working for other teams and key people, and building new processes (such as for cash forecasting).
Many are more confident over the future and able to look beyond the most urgent issues and start planning for the rest of the year. As mentioned last week, this includes:
- Going concern statements
- Dealing with exceptional items
- Considering revisions to hedging strategies
- The implications of some or all of the business units go into hibernation
I spoke with one of the large Treasury Management System vendors last week and she shared the following points:
- Their cloud-based solution has allowed corporates to continue to have access and continuity to databases and processes
- They have been successful in ensuring their solutions are sufficiently agile to cope with new security protocols from corporate IT teams
- They have significantly increased their support teams to ensure that:
- New users are able to use basic features of the software
- Experienced users are able to improve the level of automation available to them (which they may not have utilised for a variety of pre-COVID-19 reasons)
- Users are able to the software and databases to address new questions from stakeholders. This includes greater use of scenario planning and understanding cash conversion cycles better
Interestingly, she said her firm had recognised the financial constraints that clients were facing today and were willing to discuss deploying additional modules at a heavily discounted price compared to normal until the crisis had substantially abated.
We have been in discussions with some money market funds and feedback is included in the notes below on liquidity management.
Caroline Stockmann and I joined the bi-weekly catchup with treasurers in America and as always it’s useful comparing the similarities and variations in different geographies. Feedback from these conversations can be found at the end of this blog.
We have heard from treasurers based in the Middle East who are facing the additional challenge of low oil prices and general lack of demand for most products.
We are starting to hear from firms that have been able to access the CCFF programme; we provide anonymised feedback to the Bank of England. If you’d like to share your experiences, please drop an email to technical@treasurers.org.
Latest feedback from Treasurers
Banking:
- One treasurer had resisted pressure from the board to draw down on their RCF by drawing down on only 20% of the facility as a test case and then subsequently repaying the loan. They felt the cost of carry was unnecessary.
- Another treasurer felt the cost of carry, by drawing down on the RCF and then depositing the proceeds, was a cost-effective insurance policy.
- Covenant waivers continue to be a concern especially worries about amendment fees and increased borrowing costs (though some of this may reflect higher capital requirements as banks mark down credit risks)
Cash forecasting / modelling
- Cash forecasting beginning to settle down though some treasurers continuing to struggle with the quality of data sources
Liquidity management
- While many businesses have faced a slow-down in sales receipts from customers, it is encouraging that other organisations are adopting a more positive range of approaches to paying their supply chains with some:
- Paying all suppliers more quickly than their agreed payment terms to accelerate funding of their supply chains
- Being more selective about which companies they are supporting through early payment
- Monitoring supplier financials more aggressively with agreed metrics forming part of Early Warning Indicators on the state of the immediate supply chain
- Treasurers continue to invest in Money Market Funds with no evidence of any net significant outflows which suggest that any withdrawals are at least being matched by investment proceeds from bond issues and drawdowns of committed bank borrowing facilities. There seems to be no issues with any downgrades within their portfolios. The biggest risk is if we move to negative interest rates in the UK or the US.
Access to government schemes
- The number of successful applications to all of the government schemes remains relatively low, with the exception of last week’s high take-up of the Job Retention Scheme. Part of this is the time it takes to complete the necessary documentation and also a number of applications have failed key criteria (such as minimum drawings). Our ‘temperature check’ survey suggests 5% of applicants to all schemes have failed.
- Some of the larger companies with access to a variety of funding channels are ignoring the Bank of England CCFF programme.
- Some companies had reported that many of the supply chains remained confused by the various government programmes, and the numerous changes to these schemes, and as a result had still not accessed any programme.
- The lack of a standard application process across the different funding providers had been seen as a constraint and one corporate found the quality of submissions poor and had helped key elements of their supply chain with their own funding application.
Capital markets
- The markets remain open to large companies with strong balance sheets. However, rates seem to have increased with one quoting 7-year bonds rising from 0.5% pre-crisis to 2%. This is sector-specific and for good credits it appears that rates are returning to pre-crisis levels.
- Some companies are continuing with their equity fundraising programmes – especially those with well-regarded customers such as governments and the largest multinationals.
Quotes we have heard from treasurers include:
- Even if you don’t need the money, you should at least try to access one of the government facilities as you never know when you need to utilise the programme
- September will be a key turning point
- Although the board has agreed that we should not draw on the RCF this still comes up at every board meeting
- Safeguarding of cash is the no.1 priority, followed closely by profits
Update from the UK regulators
- Bounce Back Loans scheme for small businesses due to be launched on 4 May offering:
- Opportunity to borrow between £2,000 and £50,000 and access the cash within days
- Interest-free loans for the first 12 months
- Online application process using a short and simple form
- The Government (23/4) announced temporary measures to safeguard businesses from aggressive rent collection during their closure due to the COVID-19 outbreak. The Government will temporarily ban statutory demands made between 1 March and 30 June and wind up petitions presented from 27 April to 30 June, where companies cannot pay their bills. The measures will be included in the Corporate Insolvency and Governance Bill
- We have continued to highlight issues where COVID-19 crisis may require regulatory forbearance, especially in the context of the interim deadlines for LIBOR transition.
Views from across the world
As a member of the International Group of Treasury Associations, and the European Association of Corporate Treasurers and working with our colleagues in the US National Association of Corporate Treasurers we are keeping an eye on developments overseas.
Items that caught our eye include:
• The EU technical expert group on Sustainable Finance (TEG), advising the EC on the implementation of the Action Plan on Financing Sustainable Growth, has published a statement (27/4) on the tools needed to achieve a sustainable recovery from the Covid-19 crisis, also citing the role of the private sector.he IASB opened a consultation on the amendment to IFRS 16 Leases Standard with the aim of helping companies with COVID-19-related rent concessions. The IASD has proposed a short comment period running until 8 May to allow for the quick provision of support to stakeholders
- The French Ministry of Finance has created (27/4) a psychological support unit to help business owners cope with the crisis. It has also launched (24/4) a delegation to find a solution on the rents of small businesses
- The ECB announced (22/4) that marketable assets and issuers of these assets that met the minimum credit quality requirements for collateral eligibility on 7 April 2020 will continue to be eligible in case of rating downgrades, as long as their rating remains at or above credit quality step 5 on the Eurosystem harmonised rating scale. Future issuances from grandfathered issuers will also be eligible provided they fulfil all other collateral eligibility criteria
- The European Commission published a list of free online courses focusing on the automotive industry and e-mobility to offer workers an opportunity to learn about new topics and upskill their competences through distance learning and home education as many workers in the industry are facing job security issues.
As mentioned earlier, Caroline Stockmann and I joined a call with the National Association of Corporate Treasurers in the United States. Key comments included:
- One treasurer resisted pressure from the board to draw down on their RCF fearing the signal it could send to the banks and also reflecting pressure from banks who had called him up to suggest he didn’t draw down on the revolver. Was also worried about increasing credit risk by depositing the money with any financial institution
- One large company had drawn down on its RCF at the start of the crisis to avoid any operational challenges with finding appropriate signatories in their company and at the bank
ACT Liquidity Survey
Please take a few moments to answer four questions that will help the ACT Policy & Technical team to weekly assess the liquidity landscape. All information is provided in confidence and the anonymised responses will be shared.
Take the survey.
ACT Liquidity Survey - weekly responses
View last week's results from our ACT Liquidity survey here.
Engaging with the treasury community
Thank you to those who completed our survey on initial responses to the COVID-19 crisis. We are analysing the results and will share these with you shortly. Please continue to answer the 3 quick questions in our “temperature check” so that we can share with you the trends week on week.
We welcome conversations with our members on:
- How you’re dealing with the crisis
- What you’d like us to raise with the various bodies we are in regular contact with
- How the ACT can support you during this challenging time.
Send an email to technical@treasurers.org and either James Winterton, Naresh Aggarwal or Sarah Boyce will be in touch with you.
If you have found any resources which you feel we should add to our COVID-19 site, please email us with details.
Naresh
