Seeking Alpha

Companies rush to borrow amid "wall of money"

  • With borrowing costs about the lowest on record, and investors lending first and asking questions later, corporate finance officers are busy taking out loans.  "My treasurer tells me always borrow when you can, not when you have to," says Shell CFO Simon Henry. "There are huge liquid pools at whatever tenor we need ... There's more capital out there than we can consume."
  • The average yield on corporate debt has fallen 61 basis points this year to 4.4%, nearing last year's pre-bond bear market low of 4.1%.
  • “The market is pretty hot,” says George Dessing, treasurer of Dutch business-to-business publisher Wolters Kluwer NV which raised 10-year money this month. “We have a preference for longer maturity and especially right now at these low costs it was a no-brainer.”
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Comments (19)
  • Lakeaffect
    , contributor
    Comments (1227) | Send Message
     
    GM did this at the last cycle low in interest rates around 2005. Three years later their creditors got their bankruptcy filing. "Lend first, ask questions later" - an obvious warning bell?
    20 May 2014, 11:53 AM Reply Like
  • dectra
    , contributor
    Comments (605) | Send Message
     
    Lake,

     

    I don't think you can accurately equate borrowing, per se, to corporate failure. GM failed due to bad products and overly expensive labor cost, but NOT from 'borrowing money'.
    21 May 2014, 11:24 AM Reply Like
  • David Jackson
    , contributor
    Comments (1275) | Send Message
     
    This is why it makes so little sense for companies like $AAPL to be sitting on so much cash.
    20 May 2014, 12:16 PM Reply Like
  • ads7w6
    , contributor
    Comments (44) | Send Message
     
    No this is exactly why it makes sense for a company like $AAPL to be sitting on so much cash. Apple can either borrow money at record low rates domestically and use the proceeds to fund dividends and buybacks or they can pay 35% tax and repatriate overseas earnings and use the proceeds for dividends and buybacks.
    20 May 2014, 01:32 PM Reply Like
  • fliper2058
    , contributor
    Comments (2401) | Send Message
     
    Well you have to expect to make at least 5% to cover interest expense and hopefully more pre year for 10 years. Ask a few firms like Eastman Kodak and Xerox and....if it was a good idea? JCP did a massive share buy-back in the $30's....whoops.

     

    There was a reason Jobs didn't play these games. If deflation hits, you don't want a pile of debt you don't earn anything on.

     

    Just because you can get debt, doesn't mean you should take it either.
    20 May 2014, 05:03 PM Reply Like
  • june1234
    , contributor
    Comments (3364) | Send Message
     
    wait till rates go up and they want to roll all that over
    20 May 2014, 12:59 PM Reply Like
  • Tack
    , contributor
    Comments (14298) | Send Message
     
    j:

     

    Lots of long-term debt and perpetual preferreds issued, so who needs to roll over?
    20 May 2014, 01:02 PM Reply Like
  • bbro
    , contributor
    Comments (10702) | Send Message
     
    "There are huge liquid pools at whatever tenor we need ... There's more capital out there than we can consume."

     

    These are not conditions before a recession arrives....
    20 May 2014, 12:59 PM Reply Like
  • StepUp
    , contributor
    Comments (519) | Send Message
     
    "These are not conditions before a recession arrives...."

     

    Most companies are not using this money to increase capital expenditures and hire new employees. They are using it to buy back shares and prop up their EPS. That house of cards will fall soon enough IMO....
    20 May 2014, 02:17 PM Reply Like
  • Lakeaffect
    , contributor
    Comments (1227) | Send Message
     
    bbro, all it means is that the next recession won't be caused by a liquidity crunch like the last one was. Liquidity crunches don't cause many recessions anyhow... --- ...
    20 May 2014, 02:38 PM Reply Like
  • bbro
    , contributor
    Comments (10702) | Send Message
     
    Overexpansion usually does..we are not in a condition of too many houses built,too many cars built, business spending overextended,year over year ROC of people Quitting their job declining,etc etc etc....none of these conditions exist....
    20 May 2014, 11:45 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (10000) | Send Message
     
    Time to borrow!

     

    Deflation has its benefits.
    20 May 2014, 03:12 PM Reply Like
  • ads7w6
    , contributor
    Comments (44) | Send Message
     
    Deflation would mean it is not a time to borrow, rather a time to save.
    20 May 2014, 04:53 PM Reply Like
  • DeepValueLover
    , contributor
    Comments (10000) | Send Message
     
    Deflation = high bond prices = low bond yields = low corporate borrowing costs = borrow now!
    ----------------------...
    Inflation = low bond prices = high bond yields = high corporate borrowing costs = don't borrow now! (but an excellent time to BUY debt)
    21 May 2014, 06:15 AM Reply Like
  • Tobias Schmitz
    , contributor
    Comments (538) | Send Message
     
    Money is only money when it has a relative scarcity. It then has value and people think hard about how to use it most efficiently.
    When money is thrown around in abundance it is wasted and if overdone it even ceases to be money.
    We have it coming...
    20 May 2014, 03:34 PM Reply Like
  • Claude49
    , contributor
    Comments (42) | Send Message
     
    Money money everywhere, nor a drop of cash based upon/backed up by tangible
    assets and equity so I think I shall be driven to drink.
    Money money everywhere and all the hoards of cash did shrink.
    Money money everywhere just who has been fraudulent posting the ink.
    Money money everywhere and All The Boards did was blink. :-)
    Money money everywhere and now they have taken everything including the kitchen sink.
    Money money everywhere just when we thought we were in the black, we discovered the cash jinks has put us in the red among the dead.
    So next, just Press on. . .
    20 May 2014, 04:00 PM Reply Like
  • samuraitrader
    , contributor
    Comments (882) | Send Message
     
    The finance people in Corp America have become another herd, with a herd mentality. This is an old story as they have been borrowing for a few years to finance the stock buybacks and support the EPS.

     

    Astute investors will wait patiently for this game to blow up and it will soon. Following the herd at this late stage is too risky.

     

    Just another step in the demise of the US$ and its role as the single global reserve currency.
    20 May 2014, 05:20 PM Reply Like
  • evan.prospect
    , contributor
    Comments (701) | Send Message
     
    What has China been doing, if not seeing its shadow lenders fork over money to people to build and buy housing? They've had more malinvestment in the last 5 years than the USA has.
    20 May 2014, 10:20 PM Reply Like
  • Shaduc
    , contributor
    Comments (2102) | Send Message
     
    " more malinvestment in [Cn] the last 5 years than the USA has."

     

    Can you reference this?

     

    Thanks!
    20 May 2014, 10:55 PM Reply Like
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