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Commercial Paper Market Still Creaking Despite Fed Measures

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A crucial $1.1tn financing source for blue-chip US companies remains strained despite efforts by the Federal Reserve to stabilize the market, prompting groups like cigarette maker Altria and hotel operator Marriott to search for other sources of funding.

Financing costs in the commercial paper market — typically seen as one of the safest lending markets, where companies borrow cash for periods up to one year — have soared since the coronavirus pandemic reached US shores.

For some companies, the rate now sits at the highest level since the global financial crisis. Costs rose in part because money market funds that are typically big buyers of the debt have had to sell to meet a wave of redemptions.

Some multinationals have since sought alternative financing through bank credit lines and the bond market to see them through the deepening economic downturn.

Altria last week disclosed it had drawn down a $3bn revolving credit facility to fund payments that it would normally finance in the commercial paper market, citing the coronavirus-induced turmoil. Marriott has already drawn $2.5bn of its $4.5bn four-year credit line with a group of banks, “primarily to support commercial paper maturities,” it said.


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