Nonfinancial Corporations Sitting On Record Pile Of Cash

Nonfinancial corporations are sitting on a record amount of cash assets, hitting a record $2.1 trillion at the end of June, up 30 percent over 2019, The Wall Street Journal reported on Friday (Dec. 4), citing a Moody’s report. 

AT&T and Delta Air Lines were the biggest cash hoarders, with over $15 billion each at the end of June. The previous record was close to $2 trillion in 2017.

Cash hoards swelled this year after companies issued record-breaking amounts of debt to bolster their balance sheets against the COVID-19 pandemic’s disruptions. 

“It doesn’t make sense for cash-laden companies to pay down debt in this interest-rate climate,” David Kotok, chief investment officer at Cumberland Advisors, told the WSJ. “That cash is going to be put to more shareholder-friendly uses.”

Nonfinancial S&P 500 companies are holding an estimated $1.9 trillion in cash assets, the most held by that group since 1980, according to data by S&P Dow Jones Indices. Investment-grade borrowers monitored by BNP Paribas indicate that 2020 liquidity is 86 percent in Europe and 97 percent in the U.S.

“The unintended consequence of this situation is all of a sudden, companies have a lot of cash,” Thomas Majewski, managing partner at Eagle Point Credit Management, told the news outlet. “That money burns a hole in companies’ pockets quickly, so they will be looking to be acquisitive next year.”

Stoxx Europe 600 firms are experiencing a similar situation, with liquidity ratios anticipated to end the year at 172 percent, up from 159 percent at the end of last year. S&P 500 companies are forecast to end 2020 at 192 percent, up from 170 percent.

Deere & Co, Booking Holdings and Southwest Airlines are anticipated to have the highest growth in liquidity ratios in the U.S. In Europe, Ferrari NV and Volkswagen AG have the highest growth in liquidity ratios, according to FactSet.

“As of Nov. 30, U.S. companies had sold more than $2 trillion of investment-grade and high-yield bonds — the most on record in data going back to 2006,” according to LCD, a unit of S&P Global Market Intelligence.

A May PYMNTS survey indicated that roughly 25 percent of firms that applied for loans through the federal Paycheck Protection Program said the funds would be necessary to their survival amid the coronavirus pandemic.

In July, some 32 percent of firms indicated that they were planning to unload most cash assets by the next quarter. About 24 percent of businesses said they were planning to increase their cash holdings.