So Let’s Get Specific: Impacts for Borrowers of the Ongoing Eurozone Crisis
Beginning in late 2011 and continuing into 2012, we are observing more and more difficulty for our US-based multinational clients rounding up funding flexibility. This stems from two main issues:
- Eurozone financial institutions have significant difficulty committing to dollar-based funding
- One effect of the foregoing: US-based financial institutions rationing currency funding capability in order to maintain capacity
While it is one matter to read headlines trumpeting sovereign downgrades, French banks selling assets and globe-trotting to raise capital, and other big-picture issues, it is quite another for a long-time Eurozone relationship bank to pass on a routine renewal or extension of a credit facility in which it has participated for over a decade. And that last is precisely what more than a few US-based multinationals have experienced lately.
It is more than ever the time to quiz Eurozone providers about capital levels, commitment to “core” markets versus growth markets, and their willingness to continue to support US-based clients. Our experience shows that in fact some financial institutions are moving backwards a decade or so and requesting to undertake Euro-denominated bilateral agreements rather than participate in comprehensive revolving credits. While that may be a short term fix, it brings documentary confusion, proliferation, potential conflicts, and administrative burdens back to US borrower Treasury departments, at just the time most of them are leanest and do not have either the internal knowledge base or infrastructure (or both) to support these workarounds.