U.S. corporate cash holdings hit an all-time high in the first half of 2020 as businesses took action to shore up liquidity reserves to weather the economic fallout from the coronavirus crisis, S&P Global Ratings said in a report published Dec. 8.
Cash and investments held by corporate issuers outside the financial and utility sectors rated by S&P Global Ratings climbed to a record $2.506 trillion in the first half from $1.936 trillion in the previous six-month period, while debt rose to $7.806 trillion from $7.196 trillion over the same period.
"The pandemic has led many corporate borrowers to reverse the shedding of cash from their balance sheets that began in early 2018 in the wake of passage of the Trump administration's corporate tax cut," S&P Global Ratings analyst Geoffrey Wilson wrote in the report.
In the first half, the total cash positions of the top 1% of companies increased by more than $80 billion, to $1.06 trillion, while their debt rose by more than $200 billion, to nearly $1.2 trillion. S&P Global Ratings expects the cash positions of these companies to weaken comparatively over the longer term.
"We believe some of the largest cash-rich companies are on a gradual journey to slowly unwind their balance sheets and take on leverage profiles more in line with our ratings," Wilson said.
The cash balances of BBB-rated issuers rose to $542 billion in the first half of 2020 from $356 billion in the second half of 2019, while debt increased to $2.529 trillion from $2.326 trillion.
Looking ahead, S&P Global Ratings expects the balance sheets of corporate issuers to remain relatively conservative due to the uncertainty surrounding the near-term economic outlook. But companies may also adopt more aggressive financial policies or raise new debt if growth prospects in 2021 improve, the rating agency said.
Capital expenditure would remain depressed in 2021 as management teams re-examine office footprint amid the pandemic and hesitate on committing to large projects, the rating agency noted. More companies, particularly those with stronger positions, may also return excess liquidity to shareholders by reinstating dividends or resuming share buybacks.
"With certain companies disrupted less than expected during the pandemic, depressed stock prices in some sectors could allow management teams to become opportunistic," S&P Global Ratings said.