All Eyes on Treasury

The function that no one likes to think about is now getting plenty of attention, and even a little respect.

The closed-off credit markets are making the assessment of strategic investments “agonizing,” says one West Coast treasurer whose company relies on access to securitized debt. The company’s biggest worry is that a request for a credit-line drawdown won’t be honored or the bank will demand a new rate based on its cost of funds instead of LIBOR. “When there was an abundance of credit we took advantage of opportunities as quickly as we could,” says the treasurer. “Now we don’t know if the credit markets will respond to our needs. It affects the company’s entire strategic direction.”

Even companies awash in credit and cash concerns are slicing project outlays — and letting business units know about the cuts upfront. At Cypress Semiconductor, projects have to go through a capital review board consisting of the CFO, the financial-planning and -analysis manager, the controller, the treasurer, and four executive vice presidents. The board meets every two months to examine new proposals. By communicating capital cuts upfront for 2009, Buss says he avoided having people “waste time with the song and dance in front of the review board.”

Once the board OKs an expenditure, investments over $100,000 are subjected to a return-on-capital business case. The board even reviews projects that have already been greenlighted, in effect zeroing out the budget every 90 days. “It gets people to rejustify what they need,” Buss says.

Zurich Financial is also being more diligent in the capital-project screening process for 2009. Determining the correct time horizon is crucial in the cost-benefit analysis, CFO Sharma says, as is assessing the strategic value and necessity of a project. “We’re looking for ‘must-haves’ that are strategic, versus a ‘nice-to-have’ that’s strategic,” he says. “The nice-to-haves might not get funded.”

Many companies are scotching capital-expansion programs altogether. Since such programs can be the largest users of cash, a slowdown amounts to a “cash management” strategy. The dangers of being too conservative: forgoing projects that could generate cash flow, operating earnings, and potential cost savings. Also, in this environment, organic growth may offer the only hope of a boost to a company’s share price. Many companies have slashed buybacks and dividends, although the conversations about them continue. Blackboard’s stock was off 50 percent year-to-date last November and its bonds traded in the low 70s. “Investors are asking us why we aren’t buying back stock at these levels,” says Stanton. “You can make a good argument for that, but you’d be giving up financial flexibility at a time when the term-loan market doesn’t exist.”

The Nature of the Job

Treasury covers a lot of ground, and that can trip up even the most solid operation. It’s hard to be good at everything. CFOs “want to be completely comfortable with the whereabouts of every dollar or dollar equivalent on [their] balance sheet on any given day,” says World Fuel’s Birns. But at the same time, they want treasurers to keep their heads up and closely track the safety of cash investments and the soundness of counterparties.

Plagued by increasing demands for information, data, and analysis — and rarely given additional resources to meet these requests — many treasury departments risk missing the next turn in the financial markets. To do so, even by a hair, can be costly. That’s the true calling of a treasury department, says Buss. Getting ahead of the curve — forecasting, for example, the timing of when credit markets will loosen and when it will be wise to free up more capital for investment — is a key part of treasury’s risk-management role. Even if treasury does manage to succeed at that delicate task, it may not alter its status within the corporation. Says Craig Jeffery, managing director of Strategic Treasurer: “Treasury is in a position where you can only get into trouble. If you do well, people expect it.”

Maybe so, but if treasury can help a company navigate through such unprecedentedly perilous times, it may get what is currently a rare commodity: credit.

Vincent Ryan is a senior editor of CFO.


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