Companies beef up contingency plans ahead of US debt-ceiling deadline By Reuters

By Laura Matthews

NEW YORK (Reuters) – Some corporate treasurers are stepping up their contingency plans to address any upcoming funding and liquidity needs to get ahead of the risk of debt default as talks in Washington drag on, finance executives and advisors said.

With the U.S. Treasury Department warning that the federal government could run out of money to pay all its bills as soon as June 1, some companies are now timing their bond issuance and are moving to secure enough liquidity in advance in the event a default occurs and seizes up the market.

“It’s better to avoid hitting the debt capital markets around the debt ceiling, given the uncertainty” said Alvaro Ortega, vice president of finance at Avangrid (NYSE:), a sustainable energy company based in Orange, Connecticut.

Ortega said Avangrid has about 13-months of liquidity at hand to conduct its business, and that communication with the company’s banks is ongoing. Ortega did not name the banks his company deals with.

Avangrid has a committed revolving credit facility, which allows committed access to liquidity at any moment. It uses this type of credit to support its commercial paper, an unsecured promissory note that pays a fixed interest rate, that can be used to finance short-term liabilities such as capex, operating expenses and payroll.

With little time to spare to head off the risk of default, President Joe Biden and top congressional Republican Kevin McCarthy on Thursday appeared to be nearing a deal to cut spending and raise the debt ceiling.

Amol Dhargalkar, global head of corporates at Chatham Financial, also said he is seeing contingency planning across the board with the firm’s clients.

Companies are “fine to still do issuances this week”, but are avoiding an issuance the first week of June.

“Companies don’t want to do it () banks don’t want to be underwriting deals either, because investors may not end up funding those deals,” said Dhargalkar.

Avangrid’s Ortega said his banks have been sending out a calendar showing when to avoid debt issuances.

“We know those specific dates around the debt ceiling situation there will be uncertainties. So, they recommend, for instance, not to hit the market on those dates with bonds,” Ortega said.

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