Investors Say No Thanks to Commercial Paper

And those who do buy the short-term debt are getting better prices.

Forty-five percent of large U.S. companies say they are finding fewer buyers for their commercial paper, according to new research from Greenwich Associates. And more than 70 percent of the 291 companies surveyed say their cost of issuing the short-term debt is increasing, including 22 percent that report it is up “significantly.”

Companies of all sizes are being affected, according to Greenwich, a financial-services consulting firm. For example, 43 percent of companies with more than $5 billion in annual sales say their access to the commercial paper market has been reduced, and two-thirds of companies with sales of $500 million to $999 million say so.

A report issued this week by JPMorgan chase notes that the volume of commercial paper outstanding fell by almost $95 billion for the week ended October 1, though about two-thirds of that decline was in the paper of financial-services firms.

“What we are now experiencing is something different and deeper than perhaps anyone imagined,” says Steven Busby, a consultant with Greenwich, which conducted its survey from September 16 to September 24. “This is a true crisis of liquidity — even the strongest companies are struggling to get short-term financing. It may not be long before companies are forced to curtail operations due to lack of funding and the full consequences of this crisis become evident in the broad economy.”

Forty-two percent of the surveyed companies say their ability to secure revolving credit facilities has decreased. This is a problem even for the largest companies, 43 percent of which are seeing this effect. Companies with a credit rating of BB or below have been hardest hit: more than half say their access to revolving credit facilities has been reduced, according to Greenwich.

When it comes to securing term loans, 52 percent of companies surveyed say their access has been reduced and almost three-quarters say their costs have risen. In addition, three-quarters of the smallest companies in the survey say it has become more difficult to secure term loans; 60 percent with a below-investment-grade credit rating say so.

The story is much the same for the long-term bond markets. Nearly two-thirds (62 percent) of the companies say their ability to issue long-term bonds has been curtailed, including 64 percent of those with more than $5 billion in annual sales. Little surprise, 70 percent of companies say the cost of issuing long-term bonds has increased, including 30 percent whose costs have risen “significantly.”

Interestingly, companies with an investment-grade rating are more likely (83 percent) than their lower-rated counterparts (66 percent) to say they’ve experienced an increase in the cost of long-term bonds.

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