By Ted Howard
The March issue starts with a look at what lies ahead for corporate refinancing in the next few years. The volume of investment-grade and speculative-grade corporate debt maturing over the next five years is at or near all-time highs, in each case just topping $1 trillion. This essentially means refunding risk is very high compared to a year ago, mainly because rates and volatility have increased. In addition, a global economic slowdown could put a damper on lender enthusiasm.
“Eventually the economy will turn and these companies will need to refinance,” says Chris Padgett, head of leveraged finance research at Moody’s Investors Service. And at that point, “the climate will be more difficult.”
In the March issue’s Anticipated Exposures section, payments network SWIFT, wades into the market for easing the pain of know-your-customer rules. The organization recently announced that all 2,000 SWIFT-connected corporates will now be able to join its KYC Registry. Also, finance execs are seeing all the ways faster payments tech can help them but also are seeing increasing operational and cybersecurity challenges. The good news is that they are aware; the bad news is that many are not rising to the challenges. Finally, treasuries still face some of the same old challenges they have faced for years when it comes to improving exposure forecasting. That is, getting a comprehensive overview of exposures at a level granular enough that they can be hedged in compliance with hedge accounting requirements remains elusive.
Founder Joseph Neu discusses what makes China a formidable rival when it comes to manufacturing. “China does a great job of thinking about the big picture by considering problems holistically and setting out to address them end-to-end,” he writes. As an example, he cites a recent story in the New York Times that describes how efforts to manufacture Apple’s Mac Pro in Texas have been hampered by the inability to quickly source enough tiny screws. This doesn’t happen in China. “Manufacturers find China so attractive…because the demands of even the most sophisticated among them can be met with a responsive supply chain that can scale thanks to end-to-end planning,” Mr. Neu writes.
This month’s NeuGroup meeting summary is from the Treasurers’ Group of Mega-Caps, or tMega. Meeting in Foster City, Calif., in the fall of 2018, members discussed a range of issues that have taken center stage since the US tax overhaul in late 2017. Chief among them are capital allocation and how multinational corporations (MNCs) are putting to use cash once trapped overseas that can now be deployed for share buybacks, strategic acquisitions and other purposes.
In “Resource Constraints Can Spur Innovation,” we explore how whether the issue is trade friction, the need to do more with the same (or less), digitalization or expansion via acquisition, admitting you have resource constraints can help promote innovation and treasury transformation.
Finally, we look at how new regulations aiming to clarify recent tax reform could significantly impact US companies’ cash and reveal more fundamental issues that could alter corporates’ use of debt and diminish the law’s incentives to bring overseas earnings back to the US.