• commercial paper
  • Covid-19
  • liquidity
  • RCF

Securing liquidity in a crisis

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Food retailers and software companies may have fared better than others during the Covid-19 crisis – but firms like Walmart and Citrix have still faced plenty of challenges, from securing liquidity to forecasting future cash flows.

by Rebecca Brace

Published: 3 November 2020

During the Covid-19 crisis, not all industry sectors have been equally challenged. As a recent EuroFinance article outlined, earlier this year treasurers in sectors like aviation, travel and oil found themselves at the back of the queue for bond issuance, with their organisations labelled ‘Covid businesses’.

Treasurers of food retailers and technology companies may have had a different experience – but that doesn’t mean there have been no challenges, as speakers from US companies Walmart and Citrix outlined at the recent EuroFinance Virtual International Conference.

Indeed, Matthew Allen, VP, Assistant Treasurer at retailing giant Walmart, likens 2020 to a game of Whack-A-Mole – “It’s just been one issue popping up after another.” These issues, he says, included commercial paper and bond market disruptions, operational disruptions, banks being flooded with credit facility draws, and even coin shortages in the US. What’s more, in a highly challenged market, the treasury had to “get creative with changing capital markets and business operations.”

Issuing debt in a crisis

Like many companies, Walmart has focused closely on liquidity during the pandemic. As Allen explains, the company utilises commercial paper as a short-term funding source. “It’s primarily used for our seasonal build ahead of holiday, so our peak models tend to be around October and November – but generally we’re using commercial paper throughout the year,” he adds.

Walmart maintains revolving credit facilities in addition to cash and short-term investments to support its liquidity and commercial paper program. The company’s $10 billion 364-day facility renews in June each year – so when the commercial paper market began to experience challenges in March, it was a clear sign to accelerate the renewal. Despite the uncertain market, Walmart worked with its bank group to do so.

While the company was at a point in its cash flow cycle where the need for commercial paper was not as great, Walmart was able to issue and test the market by working with a number of broker-dealers, and talking directly with Investors. “Despite a very challenged market we were able to find pockets of liquidity,” says Allen.

Cloud computing company Citrix had a somewhat different experience at the beginning of the crisis. Bruce Edlund, Senior Director, Assistant Treasurer at Citrix, says the company had renewed its five-year revolving credit facility in November 2019. What’s more, Citrix was one of the last companies to issue in the bond market before the crisis began to escalate at the end of February.

Bruce Edlund, Senior Director, Assistant Treasurer, Citrix
Bruce Edlund, Senior Director, Assistant Treasurer, Citrix

“We were very fortunate with the timing on that,” says Edlund. “We were going into the bond market and spreads looked pretty good – interest rates hadn’t yet dropped as significantly as they did during the crisis.” He says that while it seemed like a normal day, “we weren’t getting the usual price improvement that you would normally expect, and we had to make a decision.” The company went ahead with a $750 million 10-year senior notes offering.

While the issuance was completed successfully, Edlund notes that Citrix’s liquidity requirements had been somewhat alleviated by the 2017 US tax reform, which enabled the company to repatriate cash from its offshore operations. “If that wasn’t in place, we’d have had to rely on more debt funding,” Edlund comments. “We’d probably be OK – but it’s definitely been a big help during this crisis.”

Forecasting future flows

With funding secured, both companies have also focused closely on cash forecasting. While Citrix does not experience much daily volatility in its flows, Edlund notes it is still important to make sure cash is in the right place. “So we spent a lot of time stress testing our forecast and trying to figure out what’s different now,” he says. This meant looking closely at accounts receivable in order to estimate how much the company would collect week by week.

For Walmart, meanwhile, forecasting became a challenge. The company currently forecasts out every day for the coming year. “To further complicate things, we have a large global business – it’s comprised of some wholly owned entities, some joint ventures and some public companies,” says Allen. “We’re not only forecasting in the US – we’re forecasting in each of those markets.”

While some of its international retail businesses were forced to close during the crisis, Allen notes that the company still continues to pay costs. “So we partnered across the organisation to identify and analyse business impacts that were happening, and effectively rebuild our forecast models,” he says.

Lessons learnt

Reflecting on the experiences of recent months, Edlund observes that the last crisis left treasurers better equipped for this one. “A lot of us learned a lot of lessons during the financial crisis, and became more conservative in terms of our investment policy – so I think that really benefited us. We didn’t revert to some of the old ways of doing things.”

Allen, meanwhile, emphasises the importance of being mindful of any kind of short-term rollover risk for commercial paper or bond maturities, and making sure that facilities are spread out as evenly and efficiently as possible. Likewise, he recommends taking steps to align inflows and outflows where possible.

Last but not least, Allen says it’s important to understand your reliance on both committed and uncommitted credit facilities in international markets. “Given the complexity of some of our structures internationally…funding on a day or two’s notice is not as easy,” he says. “And in some of those markets, banks’ balance sheets can be challenged as well.”

Consequently, he says, it is important to consider the different global pockets of liquidity available and have robust communication with banking partners.