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Finding ways out of the mire

For years companies leveraged up to boost shareholder returns. When the boom burst the disappointment of stockholders was as nothing to the wrath of creditors who have pushed companies to the brink. Some have pulled back, others are still teetering, only a few have steered well clear of trouble.

Balance sheet management has become a preoccupation of nearly every corporate issuer of debt. If the plight of credits such as WorldCom wasn't enough to scare finance teams into decreasing leverage and enhancing liquidity, the ratings agencies did the job. Keen to look as if they were responding to events and to protect their own reputations, the credit raters have made sure that any mavericks fell into line.

That has applied across the board from triple-A rated frequent issuers to fallen angels. GE Capital, for example, has been forced to reduce its reliance on short-term debt and justify its leverage levels. It is now faced with the task of bolstering its balance sheet sufficiently to convince rating agencies that it deserves to remain triple-A if it becomes a financially independent finance company.

ABB has seen its credit rating at Moody's fall from double-A to single-B within the space of 12 months. In the section on ABB below, CFO Peter Voser talks to Euromoney about the emergency action his company has had to take to shore up liquidity and honour debt repayments. ABB has had to do this while facing the worst conditions in its operating business for 20 years and dealing with the threat of impending asbestos litigation.


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