Money for Nothing

Bank credit is easy, maybe too easy. Don't pass it up.

Given their sanguine outlook, it’s lenders who urge CFOs and treasurers who haven’t already refinanced this year to jump on the bandwagon before it leaves town. “My assessment is that we are probably at or very close to the top of the market from a borrower’s perspective,” says Wells Fargo’s Houlahan. “There’s little room for banks to reduce pricing or provide greater flexibility or more-attractive structural terms. Anyone who hasn’t done a five-year deal by now is probably remiss.” In short, why push your luck?

Brad Hardy suggests that companies also take the pulse of their bank group and assess whether individual members are getting adequate compensation, in the form of other, more lucrative business, for the low-margin credit they are offering. “If banks feel they are getting an adequate return, then when the market tightens up, they’re more likely to stick around and stay supportive.”

The bank credit market doesn’t get any better than this.

Randy Myers is a contributing editor at CFO.

The Fed on the High Wire

How long can the Fed raise rates without triggering a credit crunch?

In three prior Fed tightening periods — 1988, 1994, and 1999 — companies actually borrowed more, not less, than they had in the prior year, by an average annualized rate of 6 percent, according to an article published in late 2004 in AFP Exchange magazine, by a trio of Citigroup executives.

Certainly, there is precedent for easy credit conditions lasting longer than two years. The Federal Reserve’s quarterly Senior Loan Officer Opinion Survey shows that during the five-and-half years from 1993 to mid-1998, for example, banks steadily loosened standards for commercial and industrial loans. Not coincidentally, that period correlated with steady and robust economic growth (see “As Low as They Can Go?” at the end of this article). — R.M.


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