Big banks have cash to help some industries in short-term crisis, but for others the pain may come later

As the coronavirus pandemic paralyzes the country, some companies need billions of dollars to pay the bills.

The country’s largest investment banks say they’re ready and willing to give it to them. That means the biggest corporate pain won’t be felt from a short-term squeeze. It will likely come later. 

Leveraged-finance bankers who spoke to CNBC from some of the largest Wall Street banks say stress tests and the capital requirements imposed on them by the Dodd-Frank Act in the fallout of the Great Recession put in place a cash cushion that prepares them well for the massive amount of liquidity companies will soon demand.

Bankruptcy bankers, meantime, expect the bigger carnage to come later, after the impact has been fully absorbed.  

The most imminent problem is for travel, leisure and hospitality companies. Airlines and cruises, in particular, have seen their bookings dry up but not the costs of managing and owning their equipment. 

Carnival’s Princess Cruises on Thursday announced it is suspending operations for two months and will allow its guests with bookings a free refund. United Airlines on Tuesday reported a 70% drop in domestic demand and said it expects to cut May flights by 20% from its original plan.

Already, some companies have begun to tap the well.

Boeing plans to draw down the full amount of a $13.8 billion loan. Wynn Resorts plans to draw down a portion of its $850 million revolving credit line, according to Bloomberg. Hilton Worldwide Holdings is planning to draw down the remaining amount under a $1.75 billion revolving credit line, according to a regulatory filing Wednesday. 

Bankers say to expect more such moves in the travel, leisure and energy industries, all of which are facing pressure.  There may also be requests from those who supply the airline companies, as they see their own demand dry up. 

Notably, General Electric, one of Boeing’s biggest suppliers, has a $35 billion revolving facility, according to its latest regulatory documents.

But bankers who spoke to CNBC said they are not concerned about companies overdrawing the well from the country’s largest banks.

“This is not a financial crisis,” Citigroup CEO Michael Corbat said Wednesday during a meeting at the White House. 

“The banks and the financial system are in strong shape and we are here to help.”

Beyond the cash cushion they’ve established for themselves, bankers note that, so far, the credit requests are largely limited to the travel, hospitality and energy industries. 

And there are other sources of capital, such as private equity, that continue to wait in the wings. They may offer their liquidity in cash infusions known as private investments in public equity. Private equity firm Silver Lake on Monday struck a deal with Twitter that included a $1 billion investment in the company.

And in times of financial strain, suppliers that have the power to put the squeeze on a struggling company are more willing to offer flexible financial terms than let everything come toppling down at once.

The government, meantime, has weighed its own intervention to help the travel and energy industries. The airline industry, in particular, is considered by bankers and politicians alike a critical U.S. industry. 

Article source: https://www.cnbc.com/2020/03/12/big-banks-have-cash-for-some-industries-in-crisis-but-not-for-others.html