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Funding during the Covid-19 crisis

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How do corporates issue new debt during a global pandemic? Two medical technology companies with immediate funding needs spoke to EuroFinance about the challenges they faced during unprecedented market disruption.

by Julian Lewis

Published: 11 May 2020

With the coronavirus pandemic driving demand for vital products like medical oxygen and ventilators to unprecedented heights, suppliers needed to ramp up production quickly. Yet to access funding companies have had to navigate a host of difficulties.

Even the sector’s very highest rated names, like Johnson & Johnson, had to contend with higher rates and wider credit spreads, as well as limited issuance windows.

For lesser or unrated credits like Air Liquide of France and Sweden’s Getinge the menu of challenges also included restricted central bank support, near-closure of short-term debt markets and the time required to update debt documentation.

Moreover, to offer so-called ‘social bonds’ to investors with ESG mandates, they would have to invest time and money in cumbersome labelling frameworks and verification.

Finding ways through

Nonetheless, Air Liquide and Getinge each found ways past these obstacles, attracting notable investor support.

The world’s first corporate issuer of a social bond back in 2012, Air Liquide opted to not label its recent €1bn five and 10-year offering, which refinances debt falling due this year and “reinforces our liquidity position”, according to Jacques Molgo, deputy chief financial officer.

This decision reflected the deal’s urgency. “We needed to act very swiftly,” says Molgo. “We could not afford reviewing the last topics of our social bond framework, how we would report the use of proceeds for some projects – we needed to be very simple and act quickly to save the opportunity window.”

Despite the lack of formal label, Molgo argues that investors are aware of the significance of the company’s health care operations. “They know it is an important part of the business and that it serves hospitals and patients at home.”

Jacques Molgo, Deputy Chief Financial Officer, Air Liquide

Moreover, the crisis has strengthened the company’s commitment to sustainable finance and ESG values. “The crisis has not altered but increased the importance of it,” observes Molgo, who notes that “we have collaborators committed night and day to delivering many times more than normal volumes of oxygen and partnering with other companies to deliver respirators for patients.”

Meanwhile, Getinge opted to simply label its SEK1bn six-month commercial paper offering a ‘Covid-19 issue’, though it believes it meets the criteria of the Social Bond Principles (SBPs) administered by the International Capital Markets Association (ICMA), according to Peter Hjalmarson, Group Treasurer.

To demonstrate its alignment with the SBPs without losing a very uncertain issuing window, the company and its dealer SEB put together a six-page ‘Covid-19 Financing Framework’ at short notice. This was ‘to provide disclosure and transparency to investors on the direct link between this financing and the use of proceeds for the expansion of production capacity’.

To save time, Getinge did not solicit the ‘second-party opinion’ that usually verifies social and green bonds.

Getinge, which produced around 10,000 of its advanced ventilators in 2019, is temporarily ramping up to 26,000 units this year. “The situation is so serious. We are getting ventilators out to ICUs [Intensive Care Units] around the world as fast as we can,” notes Hjalmarson.

The company sold the product to around 100 countries in Q1 20 through distributors and its own sales companies.

The ramped-up production effort – which also covers ‘extra corporeal life support’ (ECLS) equipment and ICU monitors – will inevitably strain Getinge’s working capital as it pulls in components from its global supply chain for assembly in Stockholm. The CP will cover this need before the company’s fairly short conversion cycle delivers cash for its sales.

Central bank obstacle

While CP was an obvious choice for its speed and simplicity of execution, the Swedish market (where Getinge’s pre-pandemic outstandings were some SEK600-800m) had largely seized up as the crisis worsened – like its US and European counterparts.

Peter Hjalmarson, Group Treasurer, Getinge

Although the Riksbank followed its international peers in committing funds to buying the product to remove the blockage in this important financing channel, its restrictions excluded Getinge and many others. The central bank’s SEK300bn programme was only available to rated firms.

For this reason, Getinge explored having its UK subsidiary establish a programme that would be eligible for the Bank of England’s purchase programme. This accommodates unrated credits too.

In the event, however, SEB unearthed domestic demand from institutions such as Swedbank’s asset manager, Robur. Pricing was attractive – albeit at “meaningfully wider” spreads than earlier, as Hjalmarson puts it. The deal was then put together in a few days.

“It was phenomenally good for us to be able to make use of a market that was not really open, and it serves a good cause,” he judges.

Since Getinge’s need was for short-term financing, it is unlikely to term the debt out – in contrast to Air Liquide. This would also require updating its domestic MTN programme, which could take several weeks (including regulatory approval).

Planning pays off

Molgo is “very happy” Air Liquide had invested significant time and resources in its scenario-based business continuity planning ahead of the pandemic. This was in the face of a widespread view in Europe that this was a largely theoretical exercise around events with only a miniscule probability of coming to pass.

Accordingly, it was able to quickly have its entire team – based in Paris and four regional hubs around the world – managing all treasury business from home. Besides short-term liquidity, its focus included paying on time to support smaller suppliers, monitoring markets, keeping awareness of fraud risk high and continuing timely reporting to the executive committee.

The company’s remote treasury capacities drew heavily on a major investment in enterprise digital tools as much as four years earlier. Combined with the growth of digital roadshow and order book tools, its preparedness enabled its new bond to be mandated, marketed, priced and allocated across more than 500 investors with all participants working from home.

“This crisis reinforces the need for agility and digital processes, and strong business continuity since unfortunately it might happen again” judges Molgo, who observed “no substantial differences” with previous office-based deals – although “if you had told me 10 years ago that this would be possible, I wouldn’t have believed it!”


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