Big U.S. companies squirreled cash in face of storm

Corporate treasurers laid in extra cash reserves as the devastating storm Sandy approached the U.S. East Coast, to ensure they could meet payrolls, buy inventory and contend with other short-term needs after the storm hit.

Acting on lessons learned in previous disasters, big companies that regularly issue commercial paper to fund themselves replenished their coffers last Friday and early Monday after learning that bank dealers might have problems buying and selling the debt.

"We took precautionary steps and brought cash in from our regional treasury centers to make us liquid in the U.S. in the event CP markets were down," said Dennis Hewitt, treasurer of Omnicom Group , an advertising and marketing communications company based in New York that had annual 2011 revenue of about $14 billion.

"We were told by some of our dealers on Friday and Monday morning that both buyers and sellers would be staying home," Hewitt said.

Investors such as money-market funds fled from the commercial paper market after the September 2001 attacks and again in 2008 during the financial crisis, creating funding issues for global companies.

This week's planning helped reduce Sandy's impact on corporations that feared losing bank services and access to investors as the storm reaped havoc on the Eastern Seaboard.

"We've all learned lessons that have got us to the point in 2012 where things are working pretty well," said Thomas Deas, chairman of the National Association of Corporate Treasurers.

Robert Little, global head of fixed-income origination at Bank of America Corp , said he has heard of only one or two companies that drew down bank lines to meet cash needs this week. "I have not heard of any real painful stories about not getting funded," he said. "A lot of issuers very smartly were overfunded going into the weekend."

Bank of America was "very upfront" in warning corporate customers late last week that funding might be difficult during the storm because of staffing problems among traders and investors, Little said. Bank of America put up five commercial paper traders at a hotel near its trading desk to ensure they would be available to service clients, he added.

Deas, who is treasurer of FMC Corp , a chemical manufacturer with about $3.4 billion of 2011 sales, recalled that after the 1993 World Trade Center bombing, some bankers had trouble reaching clients from their backup facilities because their rolodexes were left in the New York City building.

FMC, which is based in Philadelphia, does not issue commercial paper but as a precaution put extra money into its disbursement accounts Monday morning at Citigroup and also succeeded in hedging its foreign exchange positions that day. Bank employees in some cases directed FMC to deal with their London, Singapore and Hong Kong offices, and kept some operations open late to accommodate FMC.

"In general, we were very pleased at how things worked," Deas said.

In another lesson from 9/11, companies have been geographically diversifying the commercial paper dealers that buy and sell their short-term debt.

Omnicom, which needs cash this week to meet its biweekly payroll, imported money from its treasury units in London and Hong Kong. It also has three large bank dealers in New York and two outside the New York metropolitan area.

"I think this speaks to the globalization of treasury over the past few years, the globalization of the banks and the improved technology supporting both," said Anthony Carfang, a partner at consulting firm Treasury Strategies in Chicago. "Geography is slowly dropping out of the equation."

The corporate cash accumulations proved to be timely. Commercial paper markets traded thinly Monday and Tuesday, with volume about a quarter of daily average trades.

U.S. money market funds - drained by their heaviest redemptions this year - proved reluctant to invest. Some funds, which were rudimentarily staffed, also demanded higher rates this week, according to traders.

To be sure, some investors continued to access the markets even as the storm barreled over the East Coast.

"We are a CP investor, not an issuer, and we had no difficulties in getting rollovers," said Kevin Wilson, treasurer of Mead Johnson Nutrition Co in Glenview, Illinois.

By Wednesday, volume in the CP was improving, though not at a normal pace. "Many participants are being cautious until things are fully functional," said Bank of America's Little.

(Reporting by Jed Horowitz and Richard Leong; Editing by Paritosh Bansal)