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Treasury & Taxation

Repatriated Cash Will Help Pay Down Corp Debt

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February 22, 2018

Stock buybacks get the headlines but a majority of companies in a NeuGroup survey say they will pay off debt with repatriated cash

BenjaminsTax reform has opened the floodgates when it comes to stock buybacks, according to reports, and it’s getting a lot of press. But according to NeuGroup research, one area could see even more cash thrown at it: paying down debt. Other areas include M&A and capex.

The swelling of cash put toward debt, buybacks and M&A follows the new reform’s lower taxes on repatriated cash. Companies are eager to deploy the new source of money and likely are getting ahead of bringing the money back by using current cash reserves.

Currently the news of the first couple months of 2018 has pointed out the more than $170 billion in stock repurchases conducted by the likes of eBay, Pepsi, Wells Fargo and Applied Materials among many others.

But a survey of 31 companies in NeuGroup’s mega-cap and large-cap groups (the Treasurers’ Group of Mega-Caps and the Treasurers’ Group of Thirty Large-Cap Edition) shows that 56% of peer group members plan on paying down debt. This compares with 52% of companies in the survey that plan to use their repatriated funds to repurchase stock and for M&A activity.

And when it comes to paying down their debt, a majority of respondents in NeuGroup’s survey, 63%, said they plan on reducing commercial paper balances, while 44% plan to “target shorter maturities” and 25% plan to “reduce debt across the curve.”

Overall, nearly 80% of surveyed companies expect their leverage levels to remain stable or improve due to tax reform, with the majority targeting the front-end to the extent proceeds are used to pay down debt.

When will the cash get deployed? Most respondents to the survey, 30%, remain undecided, while 26% think they will get started in the next 6-12 months. Another 22% plan on doing something with the cash in the next two years.

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