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Airplane maker Boeing Co <BA.N>, hotel operator Hilton Worldwide
Holdings Inc <HLT.N> and theme park company SeaWorld
Entertainment Inc <SEAS.N> are among the companies that drew on
or upsized their credit lines this week, as the market rout
triggered by the coronavirus pandemic fueled fears about a
potential liquidity crunch.
Hilton said in a regulatory filing on Wednesday that it had
drawn on $195 million left untapped in its $1.75 billion
revolving credit facility "to increase its cash position and
preserve financial flexibility in light of current uncertainty
in the global markets resulting from the COVID-19 (coronavirus)
outbreak."
The other two companies did not name the coronavirus as a reason
for lining up more credit, and did not respond when asked by
Reuters whether the outbreak influenced their considerations.
However, investment bankers and corporate finance professionals
said many companies are driven by fears that the banks may not
fund agreed credit lines should the market turmoil intensify,
either because they will not be able to meet demand or because
they may seek a reason in the credit agreements and covenants
not to.
"That is the concern. The uncertainty is forcing companies to
draw down the revolvers now," said Ryan Maupin, principal at
accounting firm Grant Thornton.
Bank of America Corp <BAC.N>, Citigroup <C.N>, JPMorgan Chase <JPM.N>
and Wells Fargo <WFC.N> are some of the biggest providers of
credit lines to companies. They declined to comment.
No industrywide data on the utilization of credit lines is
available. So far, drawdowns have largely come from companies in
the sectors hit hardest by the coronavirus outbreak, such as
hospitality, energy and travel, analysts and bankers said.
The U.S. banking sector is capitalized at its strongest levels
since the 2008 financial crisis, according to credit rating
service S&P Global. Banks are required by regulators to keep
enough high-quality liquid assets to cover projected cash
outflows for 30 days in a short-term stress scenario. They also
have other access to cash, such as from the Federal Reserve and
the Federal Home Loan Bank system.
Yet this has not been enough to reassure many of their borrowers
and industry analysts.
"A flood of corporate drawdowns could force the entire banking
system into becoming a deficit agent," Credit Suisse research
analyst Zoltan Pozsar wrote in a note earlier this month.
(Reporting by Joshua Franklin and David Henry in New York;
Additional reporting by Elizabeth Dilts Marshall in New York;
Editing by Leslie Adler)
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