The Federal Reserve’s unprecedented move Tuesday to buy up commercial paper could help Colorado companies on both sides of the market. Large corporations such as General Electric, Procter & Gamble and American Express issue short-term debt on the commercial-paper markets to fund their day-to-day operations.
Buyers, however, have avoided the $1.6 trillion market after Lehman Brothers went into default Sept. 15.
Money-market mutual funds, the biggest holders of commercial paper, are favoring government Treasurys instead.
Most Colorado companies rely on bank credit lines for funding, but Western Union is an exception, with $368.9 million outstanding in commercial paper as of June 30.
The money- transfer provider, however, said it has other sources of financing.
“We have $1.9 billion cash on hand (as of June 30). We feel like we are in a pretty strong financial position,” said spokeswoman Kristin Kelly.
If the Fed’s move creates a more liquid market, that should help companies like Dish Network Corp., which reported having some of its $2.2 billion in cash invested in commercial paper.
The satellite-television provider got saddled with $16 million in unrealized losses when the market for a supposedly safe cash alternative known as auction-rate securities froze up earlier this year.
Molson Coors Brewing Co. hasn’t had to access commercial-paper markets in the past two years, spokeswoman Kabira Hatland said.
Likewise, Janus Capital, Newmont Mining and Qwest are not issuers in the market either.
The Fed is buying only higher-end commercial paper, meaning that lower-rated companies may still find themselves short of funds.
“The downside is the Fed uses up their balance sheet buying these ‘high-quality’ assets at risk to taxpayer money if there are defaults or losses,” said Ken Harris, a partner with money manager Denver Investment Advisors.
On the upside, companies will get the funding they need to continue operating, and they won’t have to draw down credit lines, which could damage their banks.
“Short-term liquidity is essential to many, many businesses and therefore many, many jobs,” Harris said.
Aldo Svaldi: 303-954-1410 or asvaldi@denverpost.com
