Credit Crisis, Companies, and the Economic Outlook
New Greenwich Associates survey out on how credit market problems are hitting companies of all sizes, both in terms of their ability to get capital and in their economic outlook:
- Forty-five percent of large U.S. companies say their access to commercial paper markets has decreased as a result of the current market turmoil.
- More than 70% of companies say pricing on commercial paper programs has increased, including 22% that report their pricing has increased “significantly.â€
- Forty-three percent of companies with more than $5 billion in annual sales say their access to commercial paper has been reduced, and among companies with annual sales of $500-$999 million, that share jumps to approximately two thirds.
- Almost a quarter of U.S. companies say these historic shifts in credit conditions have increased their needs for credit to fund ongoing operations.
- Smaller companies are feeling the pinch the most. One third of companies with annual sales of $500-$999 million say market turbulence has increased their need for operational funding.
- Among the industries with the highest proportion of companies saying they’ve experienced an increased need for operational funding are consumer goods (36%), industrial/transportation (28%) and financial institutions (26%).
- Forty-two percent of large U.S. companies also say their ability to secure revolving credit facilities has decreased or significantly decreased as a result of the current crisis in global credit markets, and more than two thirds say pricing on these facilities has increased.
- Hardest hit have been companies with credit ratings of BB or below, more than half of which say their access to revolving credit facilities has been reduced.
- Sixty-two percent of companies say their ability to issue long-term bonds has been curtailed, including 64% of companies with more than $5 billion in annual sales.
- Seventy-seven percent of companies say pricing on long-term bond issues has increased, including 30% saying their costs of funding have increased “significantly.â€
- It is interesting to note that companies with investment-grade ratings are more likely than their lower rated counterparts to say they’ve experienced an increase in pricing on their long-term bonds, at 83% to 66%.
And then on the economic outlook:
- Only 4% of companies think the economy will turn positive in the next six months; 47% expect the slowdown to last for 18 months or longer.
- Not a single company with annual sales of less than $1 billion thinks there’s any possibility of an economic rebound in the next six months.
- Mid-sized companies are especially gloomy in their outlook. Among companies with annual sales of $1-$5 billion, nearly 50% say the economy will not begin to recover for at least the next 18 months.
- Demand for the funding of capital expenditures is slowing. Sixteen percent of U.S. companies — including a quarter of consumer products companies and almost 25% of natural resource companies — say current market conditions have led to a decrease in their need for cap-ex financing.
