• corporate bonds
  • Covid-19
  • liquidity

When the going gets tough


After the pandemic sent shockwaves through funding markets in March, corporates scrambled to secure liquidity, while some partner banks proved to be fair-weather friends. Treasurers survived by deft tactical footwork, while learning to craft a longer-term narrative that reassured investors, unlocking a spigot of cash.

by Ben Poole

Published: 3 August 2020

Liquidity was top of treasurers’ minds when the Covid-19 pandemic turned into an economic crisis following a global stock market crash on 20 February.

Mark Kirkland, Group Treasurer, Constellium
Mark Kirkland, Group Treasurer, Constellium

“We asked most of our banks to extend credit at that time, but three or four of our banking counterparts just walked away” says Mark Kirkland, Group Treasurer at Constellium, a developer of aluminium products for sectors such as aerospace and automotive. “Only a week before the crisis, we were going to refinance and had already assigned roles to all the banks, many of whom were earning multiple millions in fees from a high yield bond deal where they take little or no risk. It was amazing that a few weeks later, when we asked them to extend US$3 million of credit, they didn’t want to”.

The actions of the company’s banking partners at that time have had consequences in the following months as the markets have steadied.

“We were recently able to do a bond deal, and the markets are now enthusiastic” Kirkland explains. “We executed an eight-year, noncallable three bond, which was unsecured at five and five eighths, so nearly at the pre-crisis levels. Of course, we were slightly more choosy who we assigned roles and paid the fees to, in light of what had happened previously”.

Flying through the storm

Airlines have been one of the worst hit business sectors as a result of the Covid-19 pandemic.

Christine Rovelli, Group Treasurer, Finnair
Christine Rovelli, Group Treasurer, Finnair

“It was not just being impacted by what happened but also being impacted by the uncertainty the effect it had on our suppliers, our customers, our employees and our working capital” says Christine Rovelli, Group Treasurer of Finnair. “It was quite a big task initially to secure the liquidity that we needed.”

A key part of Finnair’s quest for liquidity came through a rights issue designed to strengthen the company’s equity. When the final results of the oversubscribed rights offering came through in July, the airline had secured net proceeds of approximately €501 million.

“Once you secure the liquidity, you then have to secure the solvency” Rovelli adds. “By the end of March, we were already starting to look at the longer term capital structure. You must keep that in mind at all times.”

Successfully squeezing the timeline

Many corporates looking to issue bonds around the start of the crisis found themselves victim to the early collapse of the financial markets. For Avery Dennison, a materials science and manufacturing firm headquartered in California, the timing of the crisis could not have been worse.

Ramon Tolk, Senior Treasury Director, Avery Dennison

“We acquired Smartrac Group at the end of February for approximately US$250 million, and also had to finance a bond that was maturing in mid-April for the same figure, so we had planned to go out with a US$500 million bond in the US market” says Ramón Tolk, Senior Treasury Director at Avery Dennison. “The aim was to do that immediately after our annual report and 10-K filing at the end of February, but just as we planned to go to the market, the whole world seemed to collapse”.

For days following the stock market crash there were no bond issuances from other issuers. The banks advised Avery Dennison to put its project on hold and monitor market developments, but then the briefest of opportunities emerged.

“On 4 March 2020, we saw a small window of opportunity as the market temporarily stabilised and some other issuers went to the market” Tolk explains. “That morning, we decided to go for it. We had our Go/No-Go call early in the morning US time, after which the banks immediately worked on the marketing and the book building and we got the pricing done in that afternoon. We were able to squeeze the whole process into one day, achieving a good oversubscription on the bond, which we were able to place at a very attractive market rate.”

Without seizing that sliver of an opportunity, treasury would have had to have waited until after the company’s Q1 results two months later.

An opportunity for social bonds

Pearson, a global provider of educational content and digital services, found its triple-B rating limited its access to the market in March. But that was not the only reason behind the company holding off its bond issuance until May.

James Kelly, Group Treasurer, Pearson

“By delaying the issuance until May we were able to talk about the short-term impact of Covid-19 related measures on the business in much more detail than we would have been able to in March” says James Kelly, Group Treasurer at Pearson. “At that stage we were modelling a variety of scenarios based on the length of lockdowns and severity of impact, whereas by May the picture was starting to become clearer.”

In the light of uncertainty in March about when markets would once again be receptive to an issuance, Pearson put in place a bridge facility and secured additional facilities to ensure that short-term liquidity would remain strong. It then received significant disposal proceeds in April, which gave the company a strong financial footing to go to market in May for its inaugural £350 million, 3.75% 10-year education-linked social bond.

“The focus of our social bond was around investing to deliver online education and how that helps people that can’t get to school” explains Kelly. “That obviously resonated around the globe as everyone was going through similar experiences and having to try online learning for the first time.”

By the time that the bond was issued in late May, investors had become a bit more comfortable with life under Covid-19, which allowed Pearson to take a little bit more time in its presentations.

“We did a two-day virtual roadshow, where previously I’d been looking to do a train-led roadshow in order to limit the environmental impact compared to a plane-led one” says Kelly. “Covid obviously meant that we couldn’t travel at all, so our CO2 footprint was brilliant. We were very pleased with the outcome of the bond, but it also allowed us to diversify away from the bank market which we had seen was under huge demand. It’s been an interesting journey”.