Bankers have a message for America’s debt-laden companies: raise money now, because things could get a lot worse.
The gradual reopening of businesses after months-long shutdowns and a pick up in manufacturing activity have given investors reason for optimism in recent weeks. But underwriters who cater to heavily indebted corporations are offering their clients a bleak preview of what may lie ahead.
The long list of worries includes a new wave of coronavirus contagion in the fall, an extended period of double-digit unemployment, a spike in defaults and a slower-than-expected economic recovery as businesses around the globe adapt to the realities of prolonged social distancing.
Of course, pitching bond sales to companies is part of the job description, and corporate treasurers expect nothing less from bankers whose bonuses are tied to how many deals they do. Still, the grim warnings to stockpile cash reflect how the rally that credit markets have enjoyed since the Federal Reserve took action may be obfuscating an economic picture still fraught with risks.
“We are telling virtually every private equity firm and issuer out there they ought to get to market,” said Peter Toal, global co-head of fixed-income syndicate at Barclays Plc, one of the major underwriters of loans and bonds for highly leveraged companies.