![]() ![]() It is an incredibly low multiple for the company, historically speaking. In a similar way, Monday’s declines were fed by an oil surprise-Saudi Arabia’s decision to increase output, exacerbating the problem of falling oil prices resulting from weakening demand.īoeing, for its part, traded at about eight times estimated 2022 earnings at points on Thursday. ![]() It signals tough times ahead.Įverything is related to the coronavirus, but Thursday’s stock declines were fueled, in part, by such credit surprises. It might be a smart decision for any one corporation, but it is a problem for investors. Companies might feel it is better having the money now, despite paying interest, so they can have the money on hand before debt covenants become problematic. Often, companies have to pass earnings and capital tests to qualify for the money. One question investors are struggling with is, Why draw? Shouldn’t the existence of the lines be enough? Why draw and pay interest if the home-equity line is already approved?Ĭompanies might draw on facilities because revolving bank debt usually comes with caveats. Wynn and Hilton were down 15% and 7%, respectively, on Thursday. (HTL) are also drawing down credit facilities. “We are evaluating the financing needs of a small number of companies directly impacted by Covid-19.” ![]() “There is no firm wide directive to our portfolio companies to draw upon credit lines,” a Blackstone representative told Barron’s in an emailed statement. (CG) have encouraged their portfolio companies to draw down credit lines, according to media reports. Boeing choose not to comment on individual credit instruments when asked about the revolver. The stock was halted Thursday at one point because of trading volatility. Instead of calming nervous investors, the move-along with the viral outbreak and the continuing 737 MAX drama-sent Boeing shares plunging.īoeing is down more than 20% over the past two trading sessions, far worse than the comparable drop of the Bloomberg reported that the company drew down its recently created credit facility on Wednesday. (ticker: BA) appeared to set off the latest wave of moves. It is harder to get credit when times are tough. As anyone ever laid off from a job knows, most of the time, it is possible to borrow money only when you don’t need it. What’s true for consumers is true for corporations-they have to prepare for credit access before they need it. Part of responsible corporate fiscal management, of course, is having ample cash accessible. That is a big potential cash call for lenders. (A revolving credit facility is the corporate equivalent of a home-equity line.)Ĭompanies have about $1 trillion in credit lines. If everyone draws on revolving credit lines all at once, the credit system might become stressed. Roughly speaking, it means making decisions that, while sensible for an individual, exacerbate problems for the whole. It is a term that became popularized during the 2008-09 financial crisis. ![]()
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