NEW YORK (Reuters) – Banks have hundreds of billions of dollars in credit lines extended to corporate America. Some companies are no longer banking on them.
Airplane maker Boeing Co (BA.N), hotel operator Hilton Worldwide Holdings Inc (HLT.N) and theme park company SeaWorld Entertainment Inc (SEAS.N) are among the companies that drew on or upsized their credit lines this week, as the market rout triggered by the coronavirus pandemic fueled fears about a potential liquidity crunch.
Hilton said in a regulatory filing on Wednesday that it had drawn on $195 million left untapped in its $1.75 billion revolving credit facility “to increase its cash position and preserve financial flexibility in light of current uncertainty in the global markets resulting from the COVID-19 (coronavirus) outbreak.”
The other two companies did not name the coronavirus as a reason for lining up more credit, and did not respond when asked by Reuters whether the outbreak influenced their considerations.
However, investment bankers and corporate finance professionals said many companies are driven by fears that the banks may not fund agreed credit lines should the market turmoil intensify, either because they will not be able to meet demand or because they may seek a reason in the credit agreements and covenants not to.
“That is the concern. The uncertainty is forcing companies to draw down the revolvers now,” said Ryan Maupin, principal at accounting firm Grant Thornton.
No industrywide data on the utilization of credit lines is available. So far, drawdowns have largely come from companies in the sectors hit hardest by the coronavirus outbreak, such as hospitality, energy and travel, analysts and bankers said.