Chief financial officers are preparing for the possibility of the United States defaulting on its debts, The Wall Street Journal reported.
If the United States misses interest payments on Treasury bills, which could happen as of June 1, it could affect the multitrillion-dollar worldwide flows of short-term dollar borrowing, which companies around the world rely upon to fund their operations.
“I want to make sure that we have the financial strength to get through pretty much anything that might come our way,” Sonalee Parekh, the CFO of business phone service RingCentral, told the Journal. “And that’s exactly what we’re doing.” She said that her company plans to maintain a strong liquidity position if the United States were to default.
“My hope is that rationality will prevail,” she said, referring to the ongoing debt-ceiling talks. “But it is hard to predict these things.”
CFO Scott Cooke of Toyota Motor Credit, a subsidiary of Japanese automaker Toyota Motor, said that his company is preparing risk-management scenarios, with a view to how it can continue to support its customers and dealer partners through any related hardships. A default could affect both current and potential customers of its consumer-lending business, , he said.
“We are closely monitoring the situation and communicating with our counterparties to understand the potential timing and the full range of implications if the situation doesn’t get resolved,” he told the Journal.
Privately held companies are also closely tracking the debt ceiling negotiations. Law firm Baker McKenzie is considering undergoing stress testing and scenario planning in the next month to analyze the impact on the legal industry of a potential U.S. default, CFO William Washington III said.
Gina Mastantuono, the CFO of Software company ServiceNow, said that the company is engaged in ongoing scenario planning for myriad situations, including the potential for a default. The company is looking at the long term and making sure it is making the needed investments in the business.
“I don’t change my strategy based on what the government is doing or not doing,” she told the Journal. But, she noted, “I keep a very close eye on it, for sure.”
Nancy Buese, the CFO of Houston-based energy-services company Baker Hughes, said that she does not expect a financial impact from a potential default, citing her company’s strong balance sheet. But a bipartisan solution to raise the ceiling limit is “really the best thing for the capital markets overall and certainly for corporate America,” she told the Journal.