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The Covid-19 shock is placing enormous strains on corporates cash buffers. Corporate financial statements from 2019 suggest that 50% of firms do not have sufficient cash to cover total debt servicing costs over the coming year. Credit lines could provide firms with additional liquidity. On average undrawn credit stood around 120% of debt servicing costs at end 2019. However, access is uneven and banks may be reluctant to renew or extend them in the current environment. Sticky operating expenses result in many firms running operating losses, placing an additional burden on cash buffers. Estimates indicate that following a 10% drop in revenues, operating expenses only fall by 6% on average. Simulations suggest that if revenues fall by 25% in 2020, then closing the entire funding gap with debt would raise firm leverage by around 10 percentage points.

BIS research papers

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