At the time, remember, Unilever was doing a lot of its financing with short-term money, commercial paper. If you use commercial paper there’s really not a lot of difference between the cost of capital for a BBB rated company which has long debt versus an A rated company which has commercial paper.
The big difference is that from A , you have room to go down several notches, whereas at BBB you can’t go very far down without moving out of investment grade. My own attitude is that I don’t want to be a CFO of any business which is not investment grade. I’ve been on the boards of companies which are not investment grade, and I know that it’s not fun.
You really get smacked around. You want to have a little safety measure, and BBB is at the bottom of it. When you’re up at AA or AAA you probably are incurring a high cost of capital. So we’re really talking about a pretty narrow window: BBB , A-, A, A , and if you’re prepared to flex the use of commercial paper the actual difference in the cost of capital is very, very low.
The one advantage to A is that you are fortified. We’ve been through the black swan event of last fall where we were close to a financial meltdown, and we made it through. We not only made it through-we actually signed up our line of credit right in the middle of that, which was really something.
You said in your talk that “treasury has moved to the top of the agenda in a way it hasn’t in many years.” How will that affect your role at finance?
Well, there’s no question that access to credit is vital now and that the financial markets have been dislocated. As a consequence, you can’t assume things are just going to proceed steadily as they have in the past. People aren’t used to needing to worry about, do I get paid? Or, how fast could I pay you?
So now you think about it: that’s what I mean by the year of the treasury. It’s being sure that we have access to funds. So in September and October, I spent a lot of my time with the banks getting them to agree to sign up to our credit facility. In a normal year I wouldn’t do that at all. I wouldn’t spend any time with it. But I just spent the time working with our treasurer on that.
Even with our line of credit we’ve become a little squeamish about being so reliant on commercial paper. So we’ve done this five and ten year U.S. dollar issue and we’re going to do another issue probably before the end of the year which is long in nature and take out some of that commercial paper. All of that is activity which, in a normal year, would not really be done by the CFO.