Business torrents

Rivulets of the $1.6 trillion commercial paper market run through some of the St. Louis area’s biggest employers and best-known companies, including Anheuser-Busch, Ameren and AT&T.

With credit markets suffering through major disruptions stemming from a lack of confidence, the local implications are not yet clear.

Companies use commercial paper as a form of short-term debt to fund their operations — buying raw materials, managing inventory and paying unexpected bills. Maturities range from a few days to nine months, averaging about 30 days. Many companies have found the paper — scarfed up by money market funds looking for a place to park their cash — to be a cheap alternative to bank loans.

The "CP" market is traditionally sleepy. Most trades are done electronically, and the market is usually sown up by 11:30 a.m. But in recent days, the market for commercial paper, built to supply cheap credit for companies, has tightened dramatically. Analysts fear financial gridlock and cash shortages in corporate America if the commercial paper market is not kick-started.

The amount of outstanding commercial paper peaked at about $2.2 trillion in August 2007, but it declined to $1.54 trillion on Oct. 1 as investors fled risk.

It adds up to a "tremendous picture of the dramatic decline of the commercial paper funding market," said Fred Dickson, chief market strategist at D.A. Davidson & Co. "Where the borrowing costs used to be virtually nil, now (companies are) paying huge premiums. The commercial paper market is essentially frozen or dried up."

Most local companies did not comment extensively on their use of commercial paper, but some have discussed it in filings with the Securities and Exchange Commission.

Anheuser-Busch Cos. had $597 million in commercial paper obligations on June 30. The country’s biggest brewer classified the financing as long-term because it has ongoing support from a $2 billion revolving credit agreement. Anheuser-Busch’s interest rate for commercial paper on June 30 was 2.37 percent.

St. Louis-based Sigma-Aldrich Corp. relies on commercial paper to supplement its cash from operations. The maker of fine chemicals and tools for scientific research had $362.9 million of commercial paper outstanding on June 30, more than double its balance six months earlier. Its weighted average interest rate at the end of June was 2.27 percent.

"We haven’t had a problem" placing commercial paper, treasurer Kirk Richter wrote in an e-mail last week. Rates rose briefly, but less than one percentage point higher than usual, he said.

Commercial paper helps utility Ameren Corp. meet its liquidity needs. Ameren had a $33 million commercial paper program at the end of June but has limited access to commercial paper because of downgrades in its short-term credit ratings, Ameren said in August.

Laclede Group Inc., the St. Louis-based natural gas utility, typically meets its spiking short-term borrowing requirements in the colder months by selling commercial paper (pay day loan). Laclede had $58.6 million in outstanding commercial paper three months ago. In August, Laclede cited its investment-grade rating and said in will have "adequate access" to the financial markets to meet its capital requirements.

Contrary to glum assessments, most strong companies are not having trouble with commercial paper, according to J.P. Morgan analyst Alex Roever. "Misinformation and rumor" has overtaken reality in the commercial paper industry because the market was suddenly thrust into the spotlight, Roever wrote last week. "It is almost universally false that high-grade (nonfinancial companies) are unable to roll commercial paper."

In a sign of a skittish market’s flight to quality, the market would take as much paper as strong companies like Anheuser-Busch and Laclede could deliver, said Scott Colbert, head of fixed-income investments at Commerce Trust Co. in Clayton.

Creve Coeur-based Arch Coal Inc., the nation’s No. 2 coal producer, raised its reliance on commercial paper this year to get better deals on interest rates. In April, Arch Coal raised its limit on outstanding commercial paper to $100 million from $75 million; its outstanding commercial paper quickly jumped to $99 million in June from $75 million at the end of 2007. The company "has seen the interest rates on short-term borrowings increase, but we have not had any major difficulty obtaining funds," said spokeswoman Kim Link.

Increases in interest rates for short-term commercial paper might not be too troublesome, said Colbert. A one-day increase of 10 percent is "no money," he said. "But 10 percent for a year starts to add up. The question is, how long will these rates stay up?"

A week ago, Randall Stephenson, chairman and chief executive of Dallas-based AT&T Inc., said the company was unable to sell commercial paper for a week for terms longer than overnight. The problem for AT&T — one of the St. Louis area’s biggest employers, with about 10,000 people — was not that short-term borrowing was unreasonably expensive. Rather, a shortage of debt buyers meant borrowing was not as readily available, Stephenson told The Associated Press. On Tuesday, the company said it has "full and ready access" to the commercial paper market at reasonable rates, with "no issues" accessing paper with terms of one, two, three or four weeks.

"There were a couple days a couple of weeks ago where access was limited" for everything but overnight loans, AT&T spokeswoman McCall Butler wrote in an e-mail. "But that was brief and was at the time when the market was at its tightest."

jmcwilliams@post-dispatch.com | 314-340-8372

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