PrefBlog

The amount of US Commercial Paper outstanding is shrinking dramatically. Bloomberg reports:

For now, companies are willing to pay higher rates to ensure access to capital after watching credit dry up almost overnight as the subprime mortgage contagion spread in 2007 and 2008 and Lehman Brothers Holdings Inc. collapsed in September.

More than 60 companies sold bonds this year to repay commercial paper, including Con Edison, Verizon Communications Inc. in New York and Kellogg, the 103-year-old maker of Keebler cookies and Rice Krispies cereal, according to data compiled by Bloomberg. Non-financial companies have sold $306 billion of investment-grade bonds this year, a record pace.

“Treasurers aren’t sleeping at night because they don’t know if they can roll over commercial paper,” said Anthony J. Carfang, a partner at Treasury Strategies Inc, a Chicago consulting firm. “They’d rather lock in money for five years and pay a little more.”

Maybe it’s not so much a bad thing. With all the new emphasis on liquidity management and the example of CIT impossible to ignore, maybe these treasurers are wondering ‘What if we’re completely locked out of the capital markets for a year?’

Speaking of CIT …. bondholders are reportedly discussing a debt-for-equity swap:

Pacific Investment Management Co., CIT’s largest bondholder based on regulatory filings, was to host a call, and debt owners are considering hiring financial and legal advisers, said the person, who declined to be identified because the discussions are private. The company hasn’t proposed an exchange offer.
…
“CIT indicated that it needs at least $2 billion of rescue financing in the next 24 hours or it would likely file,” CreditSights analysts Adam Steer, David Hendler and Pri De Silva wrote in a report. “We believe the figure is in the range of $4 to $6 billion plus, making outside capital sources shy away.”

This would presumably wipe-out the participants in December’s $2.4-billion swap. The company, rather predictably, has issued a press release stating:

that its Board of Directors and management, in consultation with their advisors, are continuing to evaluate alternatives to improve the Company’s liquidity. CIT is in discussions with potential lenders to secure financing.

The Company is continuing to serve customers. CIT appreciates the strong support it has received from many of its 1 million small business and middle market customers, industry associations and dedicated employees.

Another day of strong performance for preferred shares, on continued good volume. I don’t know what happened to the MFC PerpetualDiscounts – their decline was unmatched by the MFC FixedResets and common. Just another one of those pref thingies, I guess…

This entry was posted on Thursday, July 16th, 2009 at 8:17 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.