spectrum. They're either swimming in the MAC pool of dog paddlers or the MAX

as in maximum pool of the Olympians of the moment.

The MAC splashers that is, companies trying to

avoid the Material Adverse Change clause that allows banks to withdraw credit or

renegotiate are hoarding their liquidity after cleaning out their bank credit

facilities in the wake of Sept. 11. Airline CFOs and treasurers are not giving

interviews these days, but it's no secret that only hours after hijacked

planes hit the World Trade Center towers, they had drawn down every cent of

their available bank credit and stashed the cash out of the reach of the banks.

It was an industry phenomenon, not limited to United Airlines and American

Airlines, owners of those doomed jumbo jets. And it wasn't limited to airlines

either.

Banks already were tightening

their underwriting standards (fists) before Sept. 11 and have been squeezing

clients

even tighter since then, says Dale Greene,

executive vice president for corporate banking at Comerica Inc. Too many companies, including a lot of well-known names,

over-leveraged their balance sheets during the boom times, he says. Lower

rates are helping them some, but they're struggling to cut costs, de-leverage

and right-size their operations. He names no names, but Detroit-based Comerica

is well known as bank to the automakers. As

a lender, this is the most interesting downturn I've seen in 30 years. It has

left virtually no one untouched, Greene notes.

On the other end of the spectrum, companies with

solid investment-grade credit ratings don't need the banks, and bankers began

reporting a drop in demand for credit as early as October. Even if a company has

been downgraded and closed out of the commercial paper market, it still can

exploit a great opportunity to offer bonds at historically low rates. This is

true even when they don't need the cash which is the case most of the time. Generally,

corporations are not borrowing now because they need the money. They're

borrowing because they think these are the best rates they're likely to see

for quite a while, explains John Lonski, chief economist at Moody's Investors

Service in New York. And virtually every treasurer with longer-term, fixed-rate

debt is using the current market to refinance whenever possible, he notes. It's

the best year for refinancings since 1993, he says.

Limited Time Offer on Rates

Even companies that don't think it makes sense

to borrow today are looking at ways to lock in current rates. We're not in the market for new debt right now, reports

Clarence Otis, senior vice president and CFO of Darden Restaurants Inc. in

Orlando, but we might be in the

next 12 months and we like the current rates, so we're looking into a forward

rate agreement to lock in these rates for future borrowing.

Not everyone is jumping on the long-term

bandwagon. Greg Weigard, assistant treasurer of Air Products & Chemicals

Inc. in Allentown, Pa., is sticking with short-term debt. Rates

are even lower on the short end of the curve, he points out. This

yield curve is as steep as any we've seen in five or six years, and selling CP

for just over 2% is pretty attractive. Studies have shown that a steep yield

curve historically overstates future rates, so we think short-term debt is a

good buy, and that's where we're doing our borrowing. Although Air Products

is now split-rated, A1/P2, CP is still our

most cost-effective source of funds, he concludes.

Junk Issuers Suffer

However, companies that have fallen into the

below-investment-grade ranks are struggling and finding that debt is not cheap,

if they can get it at all. Credit spreads are very wide now, Lonski says,

although it's not yet as serious

a credit crunch as we saw ten years ago. In the first 11 months of 2001, Lonski

notes, $85 billion of high-yield bonds were sold, compared to just $2.7 billion

in all of 1990. And credit downgrades are running at twice the rate of credit

upgrades, well below the 8-to-1 ratio at the peak of the last recession, Lonski

reports.

No doubt, it is the kind of uncertain time that

encourages finance executives to look at alternatives that would have seemed

silly prior to Sept. 11. I've

heard about insurance companies offering contingent credit lines, kind of as a

form of liquidity insurance policy, reports Air Products' Weigard. We didn't have much interest before Sept. 11, but now we all

recognize that the worst-case scenario is more probable than we ever imagined. I

haven't investigated it yet, but I intend to.