Historically, bank relationships have been driven by credit. However, in the COVID-19 environment, much about those relationships has changed. The latest Executive Guide, underwritten by CIT, explores the ways in which corporate treasury departments are relying more on banking partners.

“Our corporate clients stepped back and started looking at safety and soundness again. They started looking at liquidity and a bank's ability to help them through,” said Bob McElyea, managing director of sales for CIT’s Treasury and Payment Services business. “We saw and continue to see a rush to liquidity and moving dollars around, placing with the banks that a corporate client feels are the most sound and able to help them.”

McElyea believes corporate mindsets around bank relationship management are changing. “I think once that evolves, that's going to stick,” he said. “At this point — and granted we're just a few months into this — the conversations that we've had with clients are shifting more towards being more strategic and consultative.”

Susie Kim, treasurer and vice president of investor relations for ABM Industries, admitted that there hasn't been "true consistency" among her banking partners as the crisis has unfolded; some have been more attentive than others. "But generally speaking, what I will say is that banks are willing to help and that hasn't changed," she said. "Something that has remained very strong is that if I had a question about anything, I do feel like our banks are true partners where they access all of their resources to educate us, provide us with whatever we need, which is a really great quality.”

CREDIT DRAWDOWNS

Since the effects of the COVID-19 crisis became clearer, many companies started drawing down on credit to ensure that they have capital for critical functions like payroll, rent and commercial paper programs. According to CFO.com, General Motors, Ford, Boeing and Shell each drew down more than $12 billion from their revolvers. Furthermore, JP Morgan Chase revealed that its corporate clients drew down more than $50 billion in the first quarter.

ABM is one of many large corporations that has fully drawn down its $800 million line of credit, adding $300 million of capacity onto its balance sheet. This was largely a preemptive measure; ABM is a provider of janitorial and cleaning services with a highly diversified portfolio of clients. As such, its business has continued to perform fairly well throughout the crisis, even as some of its client segments (aviation, technical solutions and education) have been heavily impacted.

“We weren't in a distressed situation by any means,” noted Kim. “We’re a facility services provider. We're not overly penetrated in hospitality or retail. So, for us, it was strategic and preemptive versus distress, so to speak. There's so much we still don't know about it, so it's been about preparing ourselves and being both reactive and proactive during an unprecedented time.”

She added that in the current environment, it has become a lot more rigorous to execute these transactions. “What I've noticed has been that it took more time than originally anticipated,” she said. “There were certainly more questions, and more analysis was necessary to obtain more layers of approvals that were necessary from a bank perspective, given the environment.”

Kim noted that the banks are seeing drawdowns from all ends of the spectrum—there certainly are companies that are looking for emergency funding. And then there are ones like ABM that are projecting their positions anywhere from six months to two years out. “That's something that we've been trying to navigate,” she said. “And we're bank funded, so our access to capital is reliant on banks holistically.”

She sees banks working to partner closely with their clients, but they also aren’t shying away from conversations about diversifying funding. “I think any company should do a hindsight certainly on what their access to capital is. Just given the world as we know it, operationally this is just very different. What may have worked over the last 50 years may not anymore,” she said.

Looking ahead, Kim is hopeful that ABM will eventually be able to manage its cash “more like historical times” versus taking the defensive position that it has over the last few months.

Hilton also drew down on its credit revolver. It had already partially drawn down on the facility before the crisis hit, and ultimately drew down the remainder of the balance. Unlike ABM, Hilton is part of an industry that has been severely impacted by the crisis, and as of June announced a 22% reduction of global corporate staff.

Hilton has relationships with a number of different banks, most of whom are lenders in its facility. As such, those relationships are prioritized, “and it's also overlaid by considerations of capability, which is quantitatively what they can do, and how supportive they are on those things,” said Fred Schacknies, CTP, former senior vice president and treasurer for Hilton and a member of AFP’s Board of Directors.

Throughout the process, Hilton’s relationship banks have been very responsive. “They've all been very supportive,” Schacknies said. “I would say, by and large, our key banking relationships have all stood by and stepped up what they’ve done.”

For more insights, download Rethinking Bank Relationships in a Dynamic Environment.