Although the conventional wisdom is that the bigger beasts of the corporate jungle are better placed to survive a credit squeeze than small businesses, The Economist points out that the larger firms are finding life increasingly uncomfortable in the current climate.
While it might be assumed that bigger organisations would have more room for manoeuvre, with access to more types of funding, more fat to cut and greater bargaining power with lenders, the Federal Reserve's latest lending survey suggests American banks are tightening terms more aggressively for larger firms than smaller ones.
What's more, lenders in emerging markets can be more suspicious of multinationals than they are of locals.
The Economist says an uneasy truce exists between many large companies and their lenders at present but hard choices are looming: "As the economic news worsens and profits dive, more firms will be at risk of breaching covenants on standard measures such as the ratio of debt to earnings before interest, tax, depreciation and amortisation."
Banks will react selectively when faced with more requests for waivers and refinancings. The lucky companies will have to pay a heavy price for access to credit. But The Economist warns: "For those firms that find doors starting to shut on them, the prospects are grim."
Waiving or drowning?
The Economist, 04/12/08
