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Corporate Bonds

Virus shock puts corporate finance system to the test

The corporate sector was not at the centre of the 2008-9 financial crisis — banks were. This time, it is companies of all kinds that are first in the financial markets to feel the stress of the coronavirus pandemic. Measures to control the infection have stopped many businesses’ revenues, completely and suddenly, and put others under severe strain. In such a situation, the quality of a company’s financial planning and management are revealed. Tested just as much are the financial networks that surround a company: its banking relationships and ability to finance itself in a variety of markets.

At the end of May GlobalCapital brought together the treasurers of four companies, a credit investor and a corporate debt banker to discuss how corporate financing had fared under the pressure of Covid-19.

What shone through was the importance of having planned in advance for shocks. The experience of the last financial crisis has taught companies to be prepared. The coronavirus has brought a new and unprecedented kind of disruption — even forcing financial business to be conducted from people’s homes. But treasurers who have built their companies’ financing arrangements to be resilient — and even stress-tested them — have been able to cope.

Opinions differed in the group on how much companies should depend on banks, and how much cash they should carry. Some argued the crisis has shown how well the banking system — backed up by central banks — has strengthened itself in the past decade; others prefer not to rely on banks and see capital markets as the best partners.

Participants also debated why short-term markets such as commercial paper have been wobbly.

On one point all agreed: the best insurance policy for companies, whether investment grade or high yield, is having diverse sources of finance.

Participants in the panel were:

Fredrik Altmann, director corporate finance, steering treasury center, BMW Group

Jörg Boche, group executive vice-president, head of group treasury, Volkswagen

Hans Niethammer, head of corporate investment grade origination, UniCredit

Thomas Nystedt, group treasurer, Vasakronan

Jörg Pässler, group treasurer, Sappi Ltd

Pierre Verlé, head of credit, Carmignac

Moderator: Jon Hay, corporate finance and sustainability editor, GlobalCapital


GlobalCapital: After the 2008-2009 crisis, the orthodoxy of corporate finance changed. Everybody said: “Relying on banks for your liquidity and debt is out of fashion. It didn’t work. We were vulnerable. What we need to do is use the bond market for the bulk of our funding and have a revolving credit facility that we just keep in the cupboard because the rating agencies tell us to.” All companies of a certain size have followed this path. Has this proved to be the right model? And is 2020 going to introduce a new model?

Jörg Boche, Volkswagen: Well, the model with a bank financing and particularly the RCF seems to work quite well this time. During the last crisis, we couldn’t really use the RCFs, because the banks were not in a position to let us draw on them. This seems to be really different this time. The banking sector is in a much better shape. 

Pierre Verlé, Carmignac: I agree. I think we cannot ask all businesses to sit on half a year of revenues in cash on their balance sheets. So revolvers have been available. I’m not aware of any bank not honouring its commitment.

In terms of what is going to change, we will probably see more demand for revolvers. If I had to bet, I would say commitment fees are probably going to get more expensive in the near future. But as Jörg said, the banks entered this in a much better shape and with much better solvency than 12 years ago.

If anything changes, it will probably be more demand for business interruption insurance with no exclusions, so probably it will affect the insurance business more than the banking sector. And as no single entity can guarantee such a systemic risk, I wouldn’t be surprised to see financial markets sooner rather than later offering some sort of insurance for this type of business interruption — a bit like a cat bond but for pandemics.

Fredrik Altmann, BMW: At BMW, we do not prefer bank loans when it comes to financing the group. We have a syndicated loan in place. This serves, as we all know, as a back-up facility for commercial paper and defines our core banking group. 

We decided immediately when the crisis started not to ask for additional bilateral loans or bank support. And, as of today, we have not called any bank asking for bilaterals, nor have we ever thought about drawing on the syndicated loan.

We have over many years built up our capability to reach out to the global capital markets. And this is what we have done so far. We bridged a couple of weeks with some commercial paper issuance. We qualify, for example, for all central bank commercial paper programmes — the European Central Bank, the Bank of England and the Federal Reserve in the United States.

GBIF Virtual 2020 | Fredrik Altmann

GlobalCapital: That’s very interesting: in a way, you protected the banks. It’s rather an odd idea that you went to what is effectively government support through the central bank, ahead of the commercial option.

Altmann, BMW: But that’s not government support, these are central bank purchase programmes. If the ECB buys bonds or commercial paper, it’s not a big difference. 

I know the Bank of England will change its rules at the beginning of June. We are in close discussion with the BoE to better understand what impacts this will have on us. One thing is sure: BMW will not draw on state aid. We focus on central bank money and we consider this very wisely. We have paid back most of our commercial paper so far. 

The thing that has worked best for us in this crisis is what we had prepared for during good times — we have designed and implemented an intercompany, combined external financing structure. We have stress-tested this structure monthly for many years now.

Within the BMW Group there are two subsidiaries with banking licences. Through them we have access to central bank open market funding operations, the Fed and customer deposits. The group financing is designed so that we under-utilise these paths of financing in good times. It’s all designed for crisis times.

In good times we finance our bank bodies with an adequate amount of intercompany financing. During a crisis this can be repaid early when the bank bodies use central bank funding, through open market operations, mostly.

Also, for a couple of years, we have had the capability in house to structure securitizations. We have been able to build our own ABS transactions within five to 10 days, which are then classified as high quality liquid assets, and we have brought them to the repo market.

This crisis is also different from what we saw 10 years ago. Supply and demand are dysfunctional at the same time and consequently the financial services portfolio is shrinking. Customer redemptions are actually generating cash for the company, which can be used to cover periods of turnover shortage.

GlobalCapital: Jörg, Volkswagen is in the same industry — is what Fredrik is describing similar to what you’ve done?

Boche, Volkswagen: It’s a little the opposite of what was just described. Generally, what we did as the crisis hit is use a lot of short-term financings. We did use our RCF, we did go into bilateral lines. We increased our gross liquidity quite strongly, using mainly short-term instruments, which are obviously also cheaper. We have used CP, to the extent that the market has been available. 

That was phase one. Now phase two is coming, which is more a terming out phase. We need to look for opportunities in the bond market, to term out the lending we have taken on.

But we also need to find out what is the ideal level of gross liquidity we need, because right now we are sitting on a record level, for security’s sake. The question is: “how long will the crisis last? And how deep will it be?”

How long we will need to have this high level of gross liquidity, what part of it we need to term out and what part we will pay back to the banks is an open question.

Jörg Pässler, Sappi: I’m the only treasurer here in a non-investment grade company. My perspectives are from double-B territory, and would be different from those fortunate treasurers in triple-B and single-A companies. It’s a different world down here. There are two key lessons we have learned (and I think many other high yield companies have learned them as well). 

In 2009, the big realisation was that markets can actually close for long periods. Until 2009, all of us, especially in high yield, would just leave maturities until they were fairly close, and then refinance them in a market that was always available.

The big lesson from 2009 was: refinance your maturities well ahead of time, because anything can happen at any point. Whenever there’s a risk-off period, the market’s closed for two or three days for investment grade; but for non-investment grade, it’s closed for months at a time. 

So if you have a maturity coming up, the market is just not there for you. It’s no longer about cost. It’s about access to the market. And that is a problem. 

Since then, we have been refinancing our maturities two to three years ahead of time. Last year, we refinanced a 2022 bond. To some of you that might seem strange, but when you’ve gone through an experience where markets close and you can’t refinance, that is the way you change your strategy. 

This year, the big realisation is all around liquidity. It’s the fact that efficient liquidity is not always comfortable.

Having a lot of cash on the balance sheet is not efficient. We should rather use it in the business, or to pay back debt, or distribute to shareholders. And an RCF is expensive. 

But the key lesson from this crisis, especially in high yield, is that liquidity is not only about efficiency, but about survival as well. So I am sure that we and many others will in future just have more liquidity available, and a balance between cash and committed facilities, to make sure we don’t get caught by any sudden seizures and closures in the market. So those, I would say, are the key lessons from each of these two crises.

GBIF Virtual 2020 | Jörg Pässler

Verlé, Carmignac: This year has been very different from 2008 because we haven’t had a liquidity crisis. Or, to be more precise, we haven’t had a lasting liquidity crisis in credit markets. We had probably one or two days around March 19 when markets were frozen by the uncertainties around us and probably also by logistical issues. Banks were transitioning from the office to the traders’ homes, and the systems were not in place.

But within days we had a secondary market — very expensive, I mean, very wide — but functioning, and decent volumes coming back. And within days the investment grade primary market re‑opened. 

In the US, within a few weeks, the high yield market re‑opened; in Europe, the double-B market stayed shut for a few weeks — but not months, as in 2009.

We haven’t had a lasting liquidity crisis, because central bankers remembered the playbook of 2008. But instead of waiting for months to apply it, they applied it immediately, not thinking about moral hazard. They injected as much cash as possible immediately. We can understand why they didn’t think twice about moral hazard. First, because the uncertainties and risks for the economy were too large. And second, because— unlike 2008 — it wasn’t a crisis triggered by greed. The financial world was not responsible for this one.

We will have solvency issues and there will be defaults, but I am not aware of any large, listed business with publicly listed instruments that is going to default, despite being solvent, because of a lack of liquidity.

GlobalCapital: Thomas, has liquidity been the dominant worry for you?

Thomas Nystedt, Vasakronan: We entered the crisis with an extremely good cash balance, because we had an upcoming dividend to our owners (which are four Swedish government pension funds).

Because we are using support from the government to subsidise rent for our tenants, we decided to withdraw the dividends. So we have a strong balance sheet.

We are active in the Swedish commercial paper market, and it shut down immediately. So we have found some secured bank financing and issued a couple of bonds in the local Swedish and Norwegian markets, to have a good cash balance. We have a lot of commercial paper out in the market, so we want a buffer for that. We don’t know how long this crisis is going to last.

GBIF Virtual 2020 | Thomas Nystedt

GlobalCapital: Hans, you have no doubt been talking to a lot of companies over the past few months and have a pretty good sense of what corporate Europe has been going through. Has it shocked you how quickly a crisis can overtake the markets and shut parts of them down?

Hans Niethammer, UniCredit: It goes without saying that the situation has been shocking for everyone in the market. But what has struck me even more is the comparison with 2008 and 2009, when it took a long time to get back to something halfway normal. Back in 2008 the iTraxx Crossover was at 400bp-ish in September, when Lehman happened. It then gradually edged up and everyone was concerned about liquidity — we only reached a peak in February. That was a very long period. Banks were part of the problem because no one really knew what was going to happen with them.

This time we have been able to get back to some kind of normality relatively quickly. Covid-19 began to affect capital markets at the end of February and the beginning of March. We saw the first companies coming to the bond market in early March, with the announcement of the Pandemic Emergency Purchase Programme following later that month. This helped to re-install trust into the system to a huge extent. 

We saw a new issue volume of €46bn in the European corporate bond market in March. April is the strongest month on record, with €66bn, and May is north of €60bn again.

GBIF Virtual 2020 | Hans Niethammer

Boche, Volkswagen: Yes, and this is really a result of the learning curve regulators and central banks have enjoyed since the last crisis. The banks are safer now. They have more capital; that pays off and the central banks are acting much faster. So we are getting a big payoff from this learning curve. 

That makes it possible for the real economy to have much more efficient strategies to manage the crisis. We have come a long way from the last crisis and big thanks are due to the regulators and the central banks; they have created framework conditions in which markets can work efficiently and help the economy deal with the crisis.

Altmann, BMW: I tend to agree, I think there’s a huge difference compared with 10 years ago. What bothers me a bit is that state aid and central bank liquidity through purchase programmes need to be distinguished very clearly. One is operational market liquidity, for economic stability, and is designed for corporates that are going concerns. State aid is really the lender of last resort when you are prepared to take all the consequences.

GlobalCapital: Fredrik, I take your point. But at the same time, ultimately, if a company that has received funding from the central bank or from the government defaults, the loss is on the public sector, one way or the other. It’s very interesting that we are all now talking about markets in which we expect the central bank to be there at the centre, almost running the show. Everybody is pleased that the central bank is doing so, but it’s very different from the way we conceived of markets 10 years ago or more.

Verlé, Carmignac: I agree, but this is a path that was taken 12 years ago and there is very little you can do against it. It’s too late — particularly this time, when there is no moral hazard involved in the crisis. We have witnessed central bankers as saviours for the market more than once in the past 12 years, when we had this kind of accident; if they hadn’t made those immediate, massive interventions, they would have reneged on everything that had been done over the past 12 years.

GBIF Virtual 2020 | Pierre Verlé

GlobalCapital: Jörg Pässler came out clearly and said a lesson from this crisis was that companies need to have more cash. So I’d just like to hear from the others: are you and companies in general going to be keeping more cash after this? And is having an RCF the right way for a corporate to have access to liquidity?

Boche, Volkswagen: I think the question is: who provides the ultimate insurance? We are talking about contingent capital or contingent liquidity. It’s almost a systemic question. 

You can either source it from the market, if the market works, including the banking system and the capital market — or you have to have it on your own balance sheet. It depends what faith you have in the functioning of the system. 

This time, the market including the banking system has proved to be efficient in providing this liquidity insurance. And therefore we could draw on it.

So I don’t think the lesson is necessarily to carry more liquidity on the balance sheet. Rather the opposite: to the extent that the system works, the banking system works, the lines work and the central banks are there to help in a situation of crisis, that allows you to be more efficient in your capital structure and to carry less liquidity.

Maybe it’s premature, but my working hypothesis is that the system works quite well, so we can be more efficient. So after the crisis, maybe we won’t need that much liquidity on our balance sheets because we can rely on the banking system or the central banks to step in when we need them.

Pässler, Sappi: You’re going to get different views of this from investment grade and high yield companies. When a crisis starts, or any risk-off period starts, the first impact is in the non-investment grade sector. Immediately when this crisis started, we talked to banks and bond investors and shareholders.

Everybody only had one question: “What is your liquidity? Do you have enough cash and access to RCF facilities to get through this crisis?”

We wanted to speak about the business, the underlying drivers, what we are doing, and all they wanted to know was: “Do you have enough liquidity?” 

So it will be a different perspective, if you don’t have the access to the markets that you think you have, to raise your liquidity.

Nystedt, Vasakronan: Yes, a lesson the rating agencies learned from the last crisis was that companies had far too little liquidity; they needed to have more access to it. And I think this trend will become even stronger.

All the real estate companies I have talked to are having to send reports to Moody’s just about every week now, with how much cash balance they have, how long it will last and what their access to credit facilities is. This trend will continue and be even stronger. We’re depending on credit facilities and cash on books.

GlobalCapital: Hans, you’re at the centre of all this: the banks are the masters of liquidity. Jörg Boche alluded to the point that in a way a deposit and a liquidity facility are the same thing: a company relies on a bank to give it money when needed. Is it your view that the way companies use those two instruments will change?

Niethammer, UniCredit: Time will tell. But there’s one pattern which probably is never going to change. As soon as we enter a crisis, the first asset class which will come under pressure is short-term liquidity.

This time money market liquidity pretty much dried out. The CP market was functioning but not providing the volumes which would have been needed. So, it all comes down to whether you have a strong banking group by your side, providing extra liquidity.

You could argue that if you enter a crisis and there is sufficient liquidity in the debt capital market, which is obviously the case now, then you could try to print a bond. 

But that is not the position you want to be in as a company. It may be possible to raise funds in the debt capital market, but that will certainly come at a cost. You would be printing in the thick of a crisis when new issue premiums and spread levels are rising in tandem. You would be cornered.

So you need extra access to liquidity from banks and it is, of course, a fair way of acting to make use of this. 

Then you can play with the other tools in your refinancing toolbox. You can assess which market is open, which provides the deepest demand. But in seeking that first crisis flexibility, going to the capital market can be a pretty painful experience. 

We all have to wait and see how this crisis will play out. But as long as corporates have a stable banking group standing by their side, ready to help if needed with extra liquidity, then that really spurs their financial flexibility. 

I assume that if corporates have access to this kind of liquidity they will use it, and for good reason. 

GlobalCapital: Several people have mentioned disruption to short-term markets. Both the euro and US commercial paper markets were quite disrupted. It does seem paradoxical. The investors in those markets get paid next to nothing, because they are taking only very short-term risk. Yet, as soon as there’s some actual risk, that’s the market that breaks. Thomas even said he could issue bonds in Swedish kronor, but not CP, which doesn’t really make sense. CP is such a reliable market, except when it’s needed, isn’t it?

Verlé, Carmignac: No, it makes perfect sense, because for the investor it doesn’t make sense to invest for zero or a very tiny yield if you bear some risk. At the height of the crisis, on March 20, I was much happier to buy a 30 year bond than a three month bond — because if things deteriorate, you have essentially the same risk, which is frontloaded. But if things go well, you make a lot of money in your 30 year bond. 

So it’s not abnormal that at times of crisis — either a financial market crisis or even for an issuer in crisis — the curve is inverted. It’s precisely because investors in the CP market are not paid for the risk that they don’t want to take it. So as soon as there is some sort of risk coming, it dries up. We shouldn’t expect that to change, though it’s a problem for the issuer.

Later you get a lot of money flowing in from the central bank and more negative rates, and when the situation stabilises there is a search for short dated, yielding instruments.

Nystedt, Vasakronan: One of the problems is the investor base in the CP market: there are a lot of corporates buying commercial paper, instead of holding cash on deposit at zero or negative interest rates. And suddenly the corporates want liquidity, so they are not placing extra liquidity in commercial paper. They are punishing themselves, instead of having a functioning market where you lend to each other.

Altmann, BMW: It seems that we at BMW have a completely different view from what I have just heard. We did see the commercial paper market dry up a little bit, but we have not experienced severe problems.

As a general direction, we want to stay away from bank financing as much as possible. We would never establish a liquidity risk management approach that relies on bank financing. There are many reasons, including past experiences, that argue that bank financing is not the most efficient way to finance. 

I’m thinking, among other things, of the effective documentation framework we have in place. For example, we never guarantee companies in the group. If you have an immediate need for liquidity and ask banks for support, their basic first reaction is: “Ah, now we need to talk about documentation.” Suddenly you run the risk of having to rethink your whole structure of corporate finance.

Another reason is that we have a €130bn hedging book for FX and commodities and we want to keep our bank credit lines free for that.

For financing, capital markets are the best partners. It starts with CP on the short end. It continues with the bond market for longer dated debt. And we are not talking the euro market only, but the US, China and some smaller markets around the globe as well. 

A major part of liquidity management is, of course, managing your maturity profile. If, for example, you use CP heavily in good times and run into a sudden refinancing risk, you have huge liquidity pressure. 

GlobalCapital: Hans, do you think Fredrik is right that banks are a difficult partner?

Niethammer, UniCredit: Well, hopefully banks are not that much of a difficult partner when it comes to documentation. 

It is always very helpful to have various sources of financing at hand. Obviously, it is advantageous if you have a broad spectrum and don’t have to make use of a single product in a stressful situation. That being said, we have held thousands of calls with companies — our loan colleagues are pretty busy nowadays providing bilateral loans and liquidity facilities, to ensure and increase financial flexibility for corporates.

The liquidity banks can provide will help companies put themselves in a position to tackle the right markets — be it euro, dollar, sterling, or whether it’s the bond, Schuldschein or money market — at some point in the future, when it isn’t quite so dried up.

Banks are part of the solution to this problem for many companies. If a company is flexible in its refinancing and has good access to various alternatives, that’s great — and if we are not needed, it’s even better. 

But if the banks are needed, we are there to help and play an active role in becoming part of the solution this time — rather than being part of the problem, like we were in 2008.

GlobalCapital: Jörg Pässler, you have emphasised that it’s tougher for a high yield company in the bond market. From your perspective, on this point about banks versus the capital market, which is the more reliable partner?

Pässler, Sappi: You need a balance between the two — it’s very important. It’s very difficult to arrange term facilities in the bank market. 

We are a pulp and paper manufacturer. Pulp and paper factories are very capital-intensive and cyclical. These assets have a 60 year life. You can’t finance that with two year RCFs. So you do need the bond market for longer-term facilities. We’ve got 10 year bonds, 30 year bonds, just to match the debt to some of these long-life assets. 

So we certainly need the bond market. But also the bank market has been very supportive to us. We use the RCF really as a backstop liquidity facility. So it’s really about having a good balance between both bond and bank markets.

But further diversification is equally important — securitization, supply chain funding. Because of our Austrian headquarters, we access funding from the Austrian export credit agency, the OeKB. It’s very important to have a multi-faceted funding platform to diversify your sources of finance and not rely on any single market.

GlobalCapital: Thomas mentioned ratings. One of the things we have noticed is that the normal hierarchy of spreads, which is fairly well aligned with ratings, has gone completely out of the window. It’s all about sector now. A triple-B company in a favoured sector can trade far tighter than a high single-A one in a more troubled sector. This has come completely out of nowhere, because we didn’t know this crisis was coming. How has the market suddenly sorted companies by sector, and how have the rating agencies reacted?

Altmann, BMW: If you look at the iBoxx bond index, the automotive sector was an outperformer until maybe 18 months ago. Since then it has been underperforming. I believe it’s about the ongoing transformation of the entire industry. Uncertainty is increased by regulatory challenges, global trade discussions, and so on. 

Consequently, the market over-reacted against the automotive sector when the crisis kicked in. Nevertheless, I believe the automotive industry will continue to underperform until we have sorted the transformation and repositioning of the industry. 

At BMW we are in intense and ongoing discussions with the rating agencies. We are still the best rated European car maker. And this is the position we want to defend and keep, even though we got a downgrade a couple of weeks ago.

GlobalCapital: Do you mean the car industry will continue to underperform until it sorts out the low carbon issue?

Altmann, BMW: It’s much more than low carbon. It’s about the transformation of an industry, including sustainability along the entire value chain. I believe we need another five or six years until we see who has mastered this transformation well.

Verlé, Carmignac: We’ve been hit by an extremely sudden crisis that I don’t think anybody was expecting. So we couldn’t have asked the rating agencies to foresee it. 

Normally they lag behind much more than they anticipate the reactions of the markets. Having said that, they adapt, and they have started probably the biggest processes of downgrades they have ever done. We’re in the middle of this process. 

In every credit cycle, the rating agencies make some mistakes or are too generous. In the previous cycle, it was clearly with residential mortgage-backed securities, particularly subprime RMBS. In this cycle, they’ve been particularly complacent with some investment grade companies, giving them the benefit of the doubt on synergies and cost-cutting when there was M&A.

And none of the agencies wants to be the last one to downgrade. They know they have probably been too generous for a portion of the market. And they are seizing the opportunity to downgrade very quickly.

So the spreads in the market don’t necessarily reflect past ratings. The market, as always, overshoots. It doesn’t mean that everything will be downgraded to what the spreads imply in terms of rating. But in a few months, we should see some sort of convergence between spreads and ratings.

Boche, Volkswagen: I think the rating agencies are taking pains to understand what is happening and how companies will cope with the crisis. This is good: they are trying not to jump to conclusions, but to really understand how the second half of this year is going to evolve and how next year will evolve. The way I have experienced them, they are doing everything to not overreact — to not be too slow, but not be too fast either. They have engaged with us in a very constructive and open-minded way. And I hope in the end, the response from the rating agencies will be adequate.

On the hierarchy of spreads in the market, there is an analogy with what is going on in the stockmarket, where you have this big debate between quality and value. 

The markets in general are making a big distinction between what they perceive to be quality, which is basically tech industries that are fast in their technological conversion. They place a premium on that in pricing. Other industries, even if they should be attractive from a value point of view, are being neglected, because they’re perceived to be laggards in the technology race. 

And that seems also to play out in the way the credit markets are pricing.

GlobalCapital: That’s an interesting idea. I hadn’t seen it like that. To me, it just looked more like: what do people keep paying for? They keep paying for electricity and telecoms and pharmaceuticals, but not discretionary purchases. Pierre, how do you think the market has reacted to different sectors?

Verlé, Carmignac: It has really been segmented, between the sectors the markets saw as on the front line of the Covid-19 crisis and the rest.

The markets see some sectors as particularly affected, like travel or vacations, but they are really focused on what is absolutely on the front line. Sometimes they ignore what is on the second line. 

The image I have is: if you were in Thailand during the tsunami and you were 20 metres away from the beach and you looked at people on the beach with a big wave coming and thought “those poor people are in a bad position”, you misled yourself as well. Because if you really have a tsunami, it’s not only the front line that is going to be hurt.

I don’t think the world is going to be materially different in six months from how it was six months ago. But if it is, it’s not only airlines and cruise operators that are going to be affected. Real estate, for example, would be extremely heavily affected — and not only retail, but almost everything. 

So there have been fantastic opportunities from this market panic. We will live in a fundamentally different world for years to come. The best opportunities have been in what was considered extremely risky.

Jörg made an analogy between the equity and the credit market. What is really impressive is the difference between the two markets in pessimism or optimism on the sectors which are particularly affected. You still see some very large stockmarket capitalisations — for example, on airlines — even when some bonds are trading at huge discounts.

Now, I’m in charge of credit at Carmignac, but before that my background was distressed debt. A few days ago, I was buying bonds below 50 of an issuer that still had $12bn of market cap. This is something that has never happened in my life.

There is a clear difference between the optimism shown by the equity market and credit markets. In the US, the stockmarket is close to all-time highs, largely driven by the tech sector, which is perceived as a massive winner from this crisis.

But even in Europe, which is much lighter on tech, the equity markets are back to where they were at the end of 2018, while you need to go back more than four years to find credit spreads as wide as they are today, even after the rally.

GlobalCapital: Is there a key takeaway from the current experience that you think needs to be understood?

Boche, Volkswagen: I just hope we will be able to continue to rely on the markets as well as we have been able to this time. That sets this crisis apart from the last one. It has benefited us all and I hope that will continue.

Nystedt, Vasakronan: I think we’ll be even more dependent on central banks, with all the extra bonds coming out and all the stimulus. I think it will be hard for them to withdraw all the crazy stuff they’re doing in the market.

GlobalCapital: It’s interesting how they leaped in with unprecedented support right at the beginning. This is obviously an unprecedented crisis. But do you think they will have to do that for every crisis?

Nystedt, Vasakronan: Yes, I think the markets will depend on them and rely on them to do this next time there is a crisis.

Altmann, BMW: I would still re-emphasise the corporate itself. I believe if you have a liquidity management strategy in place, clearly embedded in your overall corporate finance strategy, you diminish your reliance on third parties as much as possible. And you need to make sure that the financial department is a success factor for the entire company getting out of this crisis and back into profit.

Pässler, Sappi: From a corporate perspective, to be more financially conservative is going to be a key takeaway in the future. When times are good, it’s easy to gear up, it’s easy to let your leverage go. It’s easy to take decisions when everything is available to you. This crisis teaches you that being conservative in financial matters will stand you in very good stead during such a crisis.

Niethammer, UniCredit: What really strikes me is that, given the severity of this crisis, which as you said is completely unprecedented, the system has been able to respond accordingly and keep the ball rolling. 

I really like what Pierre said, that the world in six months’ time will not be much different from six months ago. When the time comes, there will be delicate questions about monetary policy and how that is communicated. But let’s cross that bridge when we come to it and for the time being, feel good that we are living in a functioning system.   

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