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Debt Strategy Dilemma

Treasurers weigh whether to renew credit facilities at high rates now or risk getting crowded out later.

By Richard Gamble | Updated on January 05, 2010

Treasurers are peering farther into the future when it comes to credit. Take for example this unidentified treasurer’s question to a banking panel at the recent Association for Financial Professionals annual meeting in San Francisco, as reported by Bruce Lynn, managing partner of the Financial Executives Consulting Group. The question: “I have a $1 billion revolver coming due in 2013. My pricing today is Libor plus 75 basis points. My banks will extend my loan at Libor plus 300. What should I do?” The bankers’ answers: Make sure the $1 billion is still needed and cut back, if possible; go to the bond market for longer term money; and expect to pay more when you do renew, says Lynn.

While a 2013 maturity date seems a comfortable timeline, treasurers are wondering what to do about credit facilities that still have a year or two or even three to run. Normally, you don’t renegotiate to add two or three percentage points to your spread and double or triple your fees, but these are not normal times. Over the next three years, massive amounts of bank credit will run out.

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