Over the past several weeks the U.S. economy has faced the fallout from the coronavirus pandemic. Companies across most economic sectors have seen a decline in economic activity as Americans are staying home to save lives in the midst of the pandemic. As a result, a wide array of companies need an infusion of financial resources to continue operating. The ongoing operation of many of these companies is critical to supporting households and the economy during this period. In particular, we need pharmaceutical companies to continue working on therapeutic treatments, we need manufacturers to produce personal and protective equipment (PPE), and we need large retailers to remain open and stocked so people can access basic needs like food and medicine. In this post, we provide a brief update on how Forum members have recently worked with large companies to make sure these essential activities can continue.
Large companies finance much of their activities by raising funds from the capital markets by offering debt and equity securities to investors. In this way, individual investors, pension funds and other institutional investors provide money that companies need to operate. In a previous post, we detailed the significant role that Forum members play in ensuring that these companies have access to market-based finance. Specifically, Forum members provide underwriting services that essentially connect investors with funds (e.g. pension funds) to companies that need financing. The resulting intermediation between investors and companies supports a healthy and dynamic financial system that benefits the whole economy.
The pandemic and resulting decline in economic activity has put pressure on a wide array of large companies to quickly raise funds to finance ongoing operations. Forum members have recently been active in raising funding for a number of large companies that are important to the U.S. economy. As shown in Table 1, since March 27, 16 large companies have raised roughly $40 billion in equity and debt from the public. These data reflect information contained in recent SEC filings, and while representative, do not constitute an exhaustive accounting of all funds raised over this period. As Table 1 further shows, for the companies identified in this analysis, Forum members accounted for roughly 70 percent of the underwriting while large foreign banks accounted for roughly 20 percent, and other financial institutions, such as smaller U.S. and foreign banks, accounted for the remainder of the underwriting.
Underwriting of 16 Large Companies’ Equity and Debt: 3/27/2020 – 4/6/2020
|Large Foreign Banks||8||20|
Source: SEC Form 8-K
In Figure 1 we present a further breakdown of the financing provided to each of the companies included in this analysis. Specifically, we show the fraction of total financing underwritten by: 1) Forum members, 2) large foreign banks, 3) other financial institutions. The range of companies that have raised funding in a short period of time during this period of heightened volatility is noteworthy. Pharmaceutical companies that may be working on important vaccines or other therapeutics (Pfizer), manufacturing companies integral to the production of PPE (3M), companies dealing with significant demand shortfalls such as those in the food services and travel industries (Sysco, Carnival), and companies that provide consumers with basic needs in their everyday lives (General Mills, Target, Home Depot, Lowes) have all been able to access the capital markets to keep their doors open as we manage through this turbulent period.
Of course, market finance is not the only source of funding in the economy. In particular, smaller businesses and households generally rely on direct bank lending and Forum members are also fully engaged in direct lending. At this point in time, we need all parts of the financial system to be meeting the needs of businesses and households. Through underwriting, Forum members are doing their part to keep credit flowing through the capital markets and to the economy at a time when it is needed most.