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Some Companies Began Preparing for a Downturn Before the Pandemic…


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Some Companies Began Preparing for a Downturn Before the Pandemic…

Finance chiefs were preparing for a downturn long before the coronavirus roiled the global economy; however, few expected it to be as swift or severe.Many resorted to a tested playbook that included tapping additional liquidity, extending debt maturities and identifying areas for potential cost-cutting.“After 11 years, we were expecting a slowdown or a recession,” said…

Some Companies Began Preparing for a Downturn Before the Pandemic…

Finance chiefs were getting ready for a recession long before the coronavirus roiled the international economy; however, few expected it to be as swift or extreme.

Many resorted to a tested playbook that included tapping additional liquidity, extending financial obligation maturities and identifying areas for potential cost-cutting.

” After 11 years, we were anticipating a downturn or an economic downturn,” stated Max Brodén, chief financial officer of

Aflac Inc.,

an insurance provider.

Last fall, Columbus, Ga.-based Aflac issued brand-new debt and retired some higher-interest bonds that were set to grow in 2022.


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” We took a number of actions to prepare the company for weak points in the economy, although we certainly did not see this [a global pandemic] coming,” Mr. Brodén stated.

Aflac developed a tool set, which included stress-testing parts of business to choose just how much financial obligation to raise and when, Mr. Brodén said. In March, the company offered about $540 million in yen-denominated financial obligation, followed by a $1 billion bond sale in the U.S. More than 70%of the business’s service is produced in Japan. Aflac will not require to gain access to capital markets further, according to Mr. Brodén.

Around 50%of CFOs at U.S. companies last year stated they anticipated an economic downturn at some point in 2020, according to the Duke CFO Global Service Outlook, a quarterly study carried out by Duke University. CFOs’ expectations were a moving target. Each quarter participants pressed out when they believed an economic crisis would begin, from the second quarter of 2020 to the fourth quarter.

CFOs responded to the weakening outlook by cutting expenses, stockpiling cash, scaling back and postponing financial investments.

business finance

Jaap Tonckens, primary monetary officer of Unibail-Rodamco-Westfield SE.



Image:.

Carla Gottgens/Bloomberg News.

A recession is specified as two successive quarters of declining performance across an economy. U.S. gdp grew by 2.3%in 2015, the slowest rate given that 2016 however in line with the typical speed of the recovery that began in mid-2009 GDP contracted at an annualized rate of 4.8%in the very first three months of 2020, and economists anticipate an even lower reading for the second quarter.

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By the end of March, three-quarters of participants in the Duke study were less optimistic about the U.S. economy and 56%were less positive about the outlook for their own company, compared with the previous quarter.

More executives were being proactive in planning for a recession; nevertheless, they weren’t as aggressive in dealing with “the extreme downside that we are seeing now,” stated John Graham, a professor of financing at Duke University who supervises the study. “From the second quarter of 2019 onwards, we saw dark clouds on the horizon.”

MSCI Inc.,

the New York-based index service provider, in November offered 2 sets of bonds– each with a volume of $500 million and set to mature in 2029– to contribute to its liquidity buffer and, in part, to re-finance older, more expensive financial obligation.

” We had actually seen an expansion that had gone on for more than 10 years,” stated Linda Huber, the business’s chief financial officer. “Market conditions don’t go on permanently.”

MSCI produces about 80%of its profits from subscriptions– it charges fund supervisors for the use of its indexes in their portfolios, including the MSCI World stock exchange index– but nonetheless might face challenges since of the recession, Ms. Huber said.

The business went to the capital markets once again at the end of February to raise additional debt, Ms. Huber said.

Unibail-Rodamco-Westfield SE,

a real-estate company that runs mall in the U.S. and Europe, in the last few years took steps to extend its financial obligation maturities, stated finance chief Jaap Tonckens. URW presently has more than EUR117 billion ($127 billion) in cash and undrawn line of credit. “It’s an advantage to have low-cost debt and long maturities,” he stated.

All 3 financing chiefs said the actions they took prior to the pandemic and up to this point suffice for weathering a downturn– although the depth and the period of the coronavirus-induced downturn is hard to anticipate.

” When the sun is shining, you plan and make the most of that,” Ms. Huber stated.

Write to Nina Trentmann at Nina.Trentmann@wsj.com

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