NEW YORK, March 24 (Reuters) - Top US companies are raising 364-day syndicated loans to keep financial flexibility while they wait for details of a proposed tax windfall as the Trump administration gets ready to approve the first corporate tax holiday in more than a decade, senior bankers said.
Investment-grade companies with huge cash stockpiles overseas - mainly healthcare and technology firms - are asking relationship banks to provide short-term loans as they await details of a proposed overhaul of the tax system.
Companies with maturing bonds are opting not to reissue and are seeking the flexibility of short-term deals to provide liquidity by raising straightforward plain vanilla loans for general corporate purposes to tide them over until the tax changes are announced.
Healthcare company Eli Lilly and drugmaker Bristol-Myers Squibb have already raised these short-term facilities since the US election, two bankers said. Eli Lilly took up to US$4bn and Bristol-Myers up to US$2bn, a senior banker said.
Technology network equipment maker Cisco Systems is now seeking to raise a similar loan, the senior banker said, and more cash-rich companies are expected to follow.
“We’ll definitely see more of these bridge financings until there is clarity on tax reform,” a second banker said.
President Trump’s plan would allow companies to bring cash built up overseas back to the US at a 10% tax rate, below the typical 35% rate, in a one-off event designed to boost domestic business and infrastructure spending.
US non-financial companies held US$1.3trn, or 74% of their total cash, offshore last year, according to Moody’s.
If repatriation becomes cost-effective companies will be able to bring the offshore cash back and use the funds for share repurchases, dividends, acquisitions and backstopping commercial paper programs.
The ability to repatriate cash, however, could depress capital markets activity by reducing investment-grade loan and bond issuance.
“They will have a war chest of capital if they can repatriate,” said the second banker. “At that point, they could have so much cash, depending on what form repatriation takes and how much is going to be allowed, it could definitely deter from bond issuance for future capex or corporate needs.” HOMEWARD BOUND
The last tax reprieve for US companies was the Homeland Investment Act, which was part of the American Jobs Creation Act of 2004 and gave tax relief for a year.
At that time, US companies raised loans via their European subsidiaries and returned the proceeds to the US, leaving the cashflows of the European businesses to repay the loans.
Around 45% of the eligible US$800bn of US corporate cash held abroad was repatriated during the last tax holiday, according to a report by AXA Investment Managers.
Some strategists believe that the window for returning cash could be open for longer this time and more money could flow back to the US as a result.
“We assume that 60% of the cash held overseas is repatriated, half of which is allocated to share repurchases, and the rest is divided equally for debt buybacks and capital expenditure,” AXA wrote in the report. (Reporting By Lynn Adler; Additional reporting by Tessa Walsh; Editing by Chris Mangham and Matthew Davies)