US Companies Secure Cash Even by Borrowing Debt

PepsiCo and Other S&P 500 Companies' 1Q Cash Assets Up 13.9%
New Investments and Capital Expenditures Also Reduced

[Image source=Reuters Yonhap News]

[Asia Economy New York=Correspondent Baek Jong-min] The cash assets of PepsiCo, the American food company that owns Pepsi-Cola, doubled in the first quarter of this year compared to the previous quarter, reaching $7.6 billion. Hotel chain Hilton Worldwide Holdings raised $1 billion by selling customer points liabilities.

As signs of a resurgence of the novel coronavirus infection (COVID-19) appear, American companies are securing cash assets, according to an analysis of S&P Market Intelligence data by The Wall Street Journal (WSJ) reported on the 21st (local time). This indicates that uncertainty about the future economic outlook has increased accordingly.

According to WSJ, companies included in the S&P 500 index increased their cash and short-term financial assets by 13.9% in the first quarter of this year. In the previous quarter, the fourth quarter of last year, the increase was only 4.07%, meaning the growth rate more than tripled in three months.

The movement by companies to secure cash resembles the situation in March when economic damage from COVID-19 began to intensify. At that time, concerns about a potential shortage of dollars triggered an emergency to secure cash, but now, companies have increased their cash holdings following the Federal Reserve’s (Fed) sudden introduction of zero interest rates and its commitment to unlimited bond purchases to stabilize financial markets. During the same period, the debt growth rate of S&P 500 companies was 3.38%, significantly higher than the previous quarter’s 0.21%. Considering that the average debt growth rate for the previous three quarters was only 0.2%, this can be interpreted as companies increasing debt to secure cash.

Recently, rental car company Hertz, which filed for bankruptcy protection, made headlines by announcing plans to raise funds by issuing $1 billion worth of new shares. Clothing retailer Gap secured $2.25 billion despite store closures and limited sales, and also arranged a $500 million credit line. Companies have also drastically reduced capital expenditures such as new facility investments to raise cash.

However, WSJ evaluated that companies had better financing conditions than ever due to the Fed’s measures. It also expected this trend to continue into the second quarter.

This content was produced with the assistance of AI translation services.