Highly rated companies are finding it easier to obtain short-term financing from banks after a tense year in which costly fees and tight terms prevailed, if loans could be found at all.
Though prices remain higher and the length of credit shorter than they were before the credit crisis, corporate treasurers and bank officials say conditions are easing and will continue to do so as companies look to refinance loans made in headier times.
So far this year, investment-grade companies have lined up more than $10 billion of bank credit facilities, better than double the volume at this time in 2009, according to Thomson Reuters LPC. In all of last year, top-rated companies took out $229 billion in bank loans, the lowest amount since 1992, as they waited out the tumult.
Meanwhile, investment-grade loans totaling more than $1 trillion are expected to mature from 2010 through 2012.
Claire O'Connor, who heads the loan capital markets group at Barclays Capital, estimates that refinancings will drive a 20% increase in volume this year. Peter Hall, Bank of America Corp.'s head of investment-grade loan syndications, said he expects 2011 to show a 15%-20% increase over 2010.
"There will be a race among all of us with large facilities coming due not to be the last one through the door," said Jim Abel, treasurer at the energy company PPL Corp.
Companies use these lines of credit for operating funds or as backstops for the short-term unsecured borrowing known as commercial paper.
PPL Energy Supply's $3.2 billion five-year bank loan matures in 2012. Abel said he is "very confident" it will be renewed, but he plans to start working on the process by the end of the year, which would be earlier than usual.
In the meantime, PPL, as did other utilities, turned to alternatives to traditional bank credit. For example, PPL is finalizing a $750 million five-year facility secured by liens on generating assets.
Those that were forced to refinance bank credit at the height of the crisis found it very expensive, and could only do it for short periods of time. Five-year bank loans were common in 2007, but no bank offered them to U.S. companies last year. Most limited lending to 364 days.
In the past few months, however, three-year loans have become the new standard as banks have grown more comfortable.
Indeed, some corporate treasurers say they recently had to turn down banks who now saw opportunities — and profits — in lending. Such an attitude from banks is a departure from before the crisis, when banks saw credit as a "loss leader" in order to establish relationships with companies in hopes of ultimately landing lucrative underwriting or advisory business.
"It was a challenge" to secure a $1.5 billion 364-day loan in 2008, said David Braden, assistant treasurer to Cargill, the privately held food processor. But when the company refinanced a 364-day loan in late 2009, some banks that had dropped out the previous year returned to bid, and "we actually added some banks to our facilities who weren't there before," Braden said.
Still, the competition hasn't yet translated to a steeper decline in fees. A triple-B-rated company that fully taps its 364-day line of credit, for example, must pay an amount four times higher than it paid at the end of 2007.
With the memory of frozen markets still fresh, companies have maintained cash balances and sold long-term bonds when that avenue of financing opened up. Indeed, high-grade companies raised more than $1 trillion in bonds to extend the maturities of debt and loans last year. That could be a factor for lower loan fees as banks look for business.
"Big companies are not necessarily going to be banging on the door asking for money," said Errol Harris, treasurer of International Paper.
