• cash management
  • Covid-19
  • liquidity
  • Loan facilities

Top S&P 500 companies added $81 billion of cash in Q1 2020

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Big US companies drew down loans and built up Covid-19 cash war chests at the end of March.

by Manpreet Singh

Published: 29 May 2020

As the COVID-19 pandemic spreads across the globe, businesses are facing an impact on business cash flow and revenues. Many US companies have halted their share buyback programmes while many corporates have deposited their cash in large US transaction banks. As the Covid-19 crisis creates increased demand for liquidity amongst companies, the top 30 companies at the S&P 500 index as ranked by their amount of investment holdings at the end of 2019 have raised their cash holdings by $81 billion making it to $461 billion which is highest since 2014 and 21% higher than 2019.

However, the bond holdings of these companies fell by 5.5% from 2019 to $642 billion which is lowest since 2015. The total investment holdings amounted to $1.1 trillion at the end of Q1 2020.

The biggest gain in cash holdings was seen in Intel, where it increased by 171% to $11 billion at the end of Q1 2020. Procter & Gamble, Coca-Cola, General Motor, PepsiCo and UnitedHealth Group saw a growth of 145%, 109%, 102%, 101% and 95% respectively. In absolute terms, General Motor’s cash went up by $19 billion, the highest increase among companies followed by General Electric and UnitedHealth Group with $10.8 billion and $10.4 billion respectively.

“We ended the quarter with an intentionally higher excess cash balance and a higher than normal debt-to-capital ratio,” said John Rex, Chief Financial Officer at UnitedHealth Group. “As markets become more normal, we will return to our previous cash management and leverage position”.

Ford’s cash went up due to “opportunistic unsecured issuance” and draw down of over $15 billion of credit while General Motors and PayPal drew $16 billion and $3 billion respectively of credit for additional liquidity measures. Procter & Gamble issued $5 billion term and also approached the US commercial paper market to issue $3 billion of three-month paper to improve its liquidity position. For Mastercard, temporary suspension of its share repurchase program improved the company’s cash position.

“In light of the uncertainty, we took some actions to dramatically strengthen our liquidity position that we felt were prudent. We raised $10.3 billion in debt to further underpin an already strong balance sheet and we suspended our share buybacks,”   said Robert H. Swan, Chief Executive Officer at Intel Corp.

Out of total investments held by companies in Q1 2020, 42% were in the form of cash and cash equivalent while other 58% were in marketable securities.

The composition of cash and bond holdings in these companies has been changing over the years. Cash holdings have increased over the years as a proportion of total investments while bond holdings saw a decline. Since 2018, these companies have added $95 billion in cash while they pulled out $107 billion in marketable securities from their investment portfolio.

Many of the companies during their investors call said that they had enough cash and bond holdings that they can survive in this crisis while some had unused credit facilities which could be used if needed. Particularly, tech companies namely Apple, Microsoft and Alphabet hold $192 billion, $137 billion and $117 billion in cash and bond holdings which are top three in the S&P 500 index. Despite the increase in revenue in Q1 2020 for Amazon, its cash holdings fell by nearly $9 billion.

The mean cash holdings for the companies at the end of Q1 2020 were $15.3 billion which is the highest since 2014 while mean bond holdings were at $21.4 billion, the lowest since 2015.