Wall Street Is Quietly Telling Companies Not to Draw Their Loans – By Michelle F Davis and Paula Seligson (Bloomberg) / March 30 2020
- Profitability, more than liquidity, is driving force of push
- Some lenders offering clients short-term bridge loans instead
The biggest U.S. banks have been quietly discouraging some of America’s safest borrowers from tapping existing credit lines amid record corporate drawdowns on lending facilities, according to people familiar with the behind-the-scenes conversations.
For Wall Street, it’s not an issue of liquidity so much as profitability. Investment-grade revolvers — especially those financed in the heyday of the bull market — are a low margin business, and some even lose money. The justification is that they help cement relationships with clients who will in turn stick with the lenders for more expensive capital-markets or advisory needs.
That’s fine under normal circumstances when the facilities are sporadically used. But with so many companies suddenly seeking cash anywhere they can get it, they’re now threatening to make a dent in banks’ bottom lines.
So far, it seems some corporations are willing to oblige, turning instead to new, pricier term loans or revolving credit lines rather than tapping existing ones. McDonald’s Corp. last week raised and drew a $1 billion short-term facility at a higher cost than an existing untapped revolver. The rationales will vary from borrower to borrower, but market watchers agree that for most, staying in the good graces of lenders amid a looming recession is important.