Corporations Rush to Borrow Money While They Still Can

Mish

There's a sudden surge in commercial and industrial loans.

Why?

Three Things It's Not

  1. It's not for business expansion.
  2. It's not for buybacks.
  3. It's not to pay dividends

Two Possibilities

Companies are tapping credit lines now because they might not be able to do so later.

Companies need money to pay upcoming bills.

Mike "Mish" Shedlock

Comments (32)
No. 1-15
michiganmoon
michiganmoon

I honestly heard someone touting a debt jubilee where everyone's debt is wiped clean.

Shame on me for being frugal and avoiding debt.

Sechel
Sechel

It's hunkering down. Businesses hate uncertainty.

AbeFroman
AbeFroman

Hard to make payroll when sales fall off a cliff.

Six000mileyear
Six000mileyear

Borrow money to pay bills now, but how will the new loan be repaid? Eventually the money runs out, and bond holders become shareholders.

DBG8489
DBG8489

It's really very simple...

If you're uncertain about the future, but have the ability to borrow a shitload of money, why not do it?

The smart play would be to borrow it and then do nothing with it. If it all blows over, you pay it off, and if not, you may not have to.

Personally, I don't do debt and I am not going to start now even if it think I might get "free money". My partners will be taking advantage of the PPP however. And I don't begrudge them that - I see it as an opportunity to get back some of the tax money we've all been paying.

thimk
thimk

really just exemplifies the "fragile" state are corps are in. Gee can't withstand a few months of downtime . Our corps have been looted and strip mined .

abend237-04
abend237-04

A rule of thumb I never saw violated: Your Line of Credit is only good as long as you can prove that you don't need it.
I'd bet a lot of CFOs are starting to think they're going to need it.

Another reliable indicator of suppliers in trouble was when they started factoring receivables. I wonder how that's looking.

Russell J
Russell J

I just read a non bank called Kabbage has suspended all lines of credit indefinitely.

Greggg
Greggg

I don't see air traffic in holding patterns anymore... we used to have 20-30 planes an hour flying in circles to land at DTW. Went up to view planes in the sky in our area and there are no holding patterns. They fly straight in and others fly straight out. Every one of those planes that are now parked have become a huge drain on airlines.

Carl_R
Carl_R

Do these loans include the SBA "loans" to small business? Those became available Friday, and they are funded within 10 minutes of the application, supposedly. I'm sure sure banks have lines to make the applications.

Casual_Observer
Casual_Observer

The loans will show up at 0% interest and cash on corporate balance sheets. In fact many of these loans will turn into tax carveouts in the form of tax credits or rebates. This will force the Fed to monetize more of the national debt and deficit. Modern monetary theory by another name. Monetization.

Tengen
Tengen

Are these corporations borrowing at near zero or at the usual 2-3% rate? Loading up on cash in a potentially deflationary environment could be smart and they may as well feed at the trough while it's still there.

I suppose the next order of business is to focus on M&A opportunities to see if they can become TBTF. Otherwise, maybe they could be gobbled up by somebody bigger and score a golden parachute on the way out. When you're sitting in the c-suite, corporate America rules!

JonSellers
JonSellers

I believe the stimulus bill allows corporations to borrow money to keep employees on the payroll while they are not working. Subsequently, the federal government will pick up the tab and pay off the debt. That assurance of payment is why banks are very willing to lend.

It's an important mechanism to maintain the myths of American capitalism. Benefit comes from the private sector, not the government. And people who work for a living are the ones who will primarily benefit, not people who refuse to work for minimum wage.

Much of our welfare system: unemployment insurance, pensions and 401ks, medical insurance, earned income tax credit, etc... is based on that concept.

Duncan Burns
Duncan Burns

Wonder who Blackrock picks as recipients of the $4.5 Trillion...Mmaybe some of these folks already know?


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