Managing the Liquidity Crisis

Companies are scrambling for cash in the face of the pandemic.

by

Mike Harmon

and

Victoria Ivashina

by

Mike Harmon

and

Victoria Ivashina

April 09, 2020

John Scott/Getty Images

Summary.

Companies are scrambling for cash in the wake of the pandemic. Unfortunately, for structural reasons they are unlikely to get the cash they need from their traditional lenders, even though the financial system is in relatively good shape and there are reserves of cash that could potentially be tapped. Government intervention will be required to help release the private capital available, but what is on the table with the CARES Act needs some amendments if the government is to get the cash where it’s needed.

The coronavirus pandemic has left the corporate sector scrambling for cash. So far, a relatively robust financial system has been able to provide short-term funding, primarily through the revolving lines of bank credit available to most firms. According to JPMorgan, as of the end of March, nearly $208 billion (77% of the funds available in the facilities) had been borrowed by large companies through revolver drawdowns, of which borrowings by below investment grade firms accounted for about half.

MH

Mike Harmon is the Managing Partner at Gaviota Advisors, LLC; his previous experience includes over twenty years as a special-situations investor with Oaktree Capital Management.
VI

Victoria Ivashina is the Lovett-Learned Professor at Harvard Business School in Boston and a research associate at the National Bureau of Economic Research.

Managing the Liquidity Crisis

Partner Center

Explore HBR

HBR Store

About HBR

Manage My Account

Follow HBR