Corporate Health Check: 'Starting to See' Need For Cash Again, Lender Says

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Some may remember that U.S. companies raised about $1 trillion in investment grade debt in May this year, several hundreds of billions more than in all of 2019. 

Companies were cash-strapped and in need of a bridge to re-openings and stronger underlying demand. They raised fresh liquidity and this made investors confident that employees could be rehired. A vicious up-move in stocks and treasury yields ensured. 

Now, "you're starting to see that," said Don McCree, head of commercial banking at Citizens, in response to the question of whether companies will need another round of short-term financing. 

Consumer confidence remains at its lowest point since 2016 and consumers, while spending more in second half 2020 over the first half, are still hoarding a lot of cash as a result of fiscal and monetary stimulus, according to data from several strategists. With the pace of the economic recovery recently slowing down, companies only have so much time before they need some degree of assistance covering operating costs. 

McCree told TheStreet offline that much of the loan demand in the near-term will likely come from smaller companies with relatively limited access to capital markets and that those companies will raise short-term debt (one to three years). McCree said he is not seeing long-term debt raises against new projects, as companies are uncertain about future demand as virus cases tick up, re-openings are slow, fiscal stimulus is delayed and vaccine approvals processes are ongoing. 

Strategists at Barclays wrote in a recent note that their interest in small and mid-cap stocks has been piqued, partly because of "capital raising in the low rate environment." Plus, the Russell 2000 has lost about 3% for the year, against the S&P 500's slight gain. 

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