The View from the Treasurer's Office

Corporate treasurers along with their CFOs, are increasingly taking center stage as the economy has imploded, and previously workaday tasks, such as issuing commercial paper, have become headline news.

The U.S. economy usually hums along, and most treasurers can be reasonably confident of securing the funding their firms need to operate, says Tom Deas, speaking as a board member of the National Association of Corporate Treasurers. Deas also is vice president and treasurer with $2.6 billion FMC, the Philadelphia-based chemical company.

Now, just about every upheaval that can happen has happened, Deas adds. Short-term interest rates are up, with the three-month LIBOR rate zooming from about 2.8 percent in early August to more than 4 percent by early October. The commercial paper market has been going crazy, with the spread between AA nonfinancial commercial paper and 30-day A2/P2 skyrocketing from around 80 basis points for most of 2008 to 400-plus basis points as of October, according to data from the Federal Reserve. At the same time, the amount of asset-backed commercial paper outstanding plummeted from $1.2 trillion in early 2007 to less than $800 billion as of this fall.

“What we're hearing is that only the highest-rated, most widely known companies in our group are able to access the commercial paper market on a consistent basis for the maturities they typically need,” Deas says. Most companies prefer to issue paper maturing at least 30 days out, but this has become more difficult. The amount of AA nonfinancial commercial paper maturing in one to four days more than doubled between August and October, increasing from $470 billion to $949 billion. Conversely, the volume of paper coming due in six months or more dropped by one-third, from $129 billion to $82 billion. “The vast majority of members are finding that they've only been able to issue overnight,” he adds. “It becomes a hand-to-mouth existence that companies haven't had to endure since right after September 11.”

While the past 18 months have been a rough time, these events have been particularly unsettling and forced treasurers to re-examine all of their assumptions about the markets, says Irina Simmons, senior vice president and treasurer with $13 billion EMC Corporation. “You have to make each decision carefully and not rely too much on the past.”

Simmons and her colleagues noticed the beginning of the upheaval in mid-2007, as the meltdown in mortgages and then auction-rate securities gained prominence. While EMC's core businesses generate enough cash that the company hasn't needed to access the short-term credit market, they still decided to position the company defensively. “Our reaction was to maintain liquidity and not hang our hats on things getting better in a hurry.” Since year-end 2006, EMC's stash of cash and short-term investments has grown from about $3.4 billion to $5.9 billion.