Starting one month ago, hit by a dramatic flashback to events from the global financial crisis, US corporations panicked and rushed to obtain as much funding as they possibly could - especially since such key short-term funding markets such as Commercial Paper were effectively frozen - ahead of what would soon become an unprecedented shutdown of the US economy, or as Bank of America puts it, there were fears that the US economy would be hit by a liquidity crisis on top of a deep recession.
Companies responded by drawing over $300 billion in revolvers...
... and from February until about two weeks ago C&I loans on bank balance sheets - which include revolvers and most other secured loans - grew more than $500bn.
Then, in late March, the Fed came to the rescue and announced primary and secondary market corporate credit facilities about a month ago, which was followed by a period where companies both drew credit lines and were able to issue record volumes of IG rated corporate bonds.
Indeed, as BofA shows, more than 170 US companies have announced over $120bn credit line drawdowns over the past few weeks. That includes 77 IG-rated names, of which 22 issued corporate bonds shortly thereafter.
With the primary market wide open - and backstopped by the Fed no less - more will follow. In addition, companies have also increased the sizes of their revolver/credit facilities without actually drawing. Revolver utilization ratio for US IG companies was around 12% as of 4Q19 and 30% during the financial crisis.
But now, as BofA's Hans Mikkelsen writes, in a stark reversal of the liquidity drawdown dynamics of the past month, we are seeing the clearest signs that some companies have confidence they can get to the other side because they are now issuing corporate bonds to pay down credit lines, with roughly $7 billion in IG bonds issued to repay revolvers.
Of course, as even Bank of America admits, the main if not only reason behind this striking reversal in liquidity dynamics, is the Fed and the record policy response, now that the US central banks is explicitly backstopping an even bigger corporate bond bubble.