Repatriation: A Coming Ratings Downer?

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Repatriation: A Coming Ratings Downer?

This month’s issue of iTreasurer has a tax and regulatory theme, starting out with some of the downsides of one possible outcome of tax reform and ending with a story on new aspects to hedge accounting rules. In between we discuss coming money market reform in Europe, the benefits of FX algos and much more.
 
With the failure to repeal Obamacare a fractious Republican party is looking to come up with a viable tax reform package. One feature of reform long sought after—and sometimes considered a kind of tax reform appetizer—is a repatriation holiday, and on page 1 in “Cash Repatriation Has Downside Potential” we discuss some issues if it comes to pass. Currently US corporations hold approximately $2.6 trillion in cash overseas, but as that cash has accumulated, so has its importance in ratings for MNCs. One aspect of this is “net debt,” which agencies have factored into their ratings; the assumption being that cash held overseas can be used if necessary to service debt.
 
However, looming tax reform has prompted concerns about the validity of that theory and could result in ratings downgrades. That’s because MNCs have borrowed aplenty in the current low-interest rate environment. S&P surmises that repatriated cash would be distributed to shareholders through dividends or share repurchases and not to pay down debt.
 
On pages 4 and 5, iTreasurer takes a quick look at managing counterparty risk and how it’s easier articulated than executed. Also finding the right treasury structure and exploring different methods for cash forecasting.
 
In “MMF Regulation 2.0 About to Hit” on page 6, contributor Barb Shegog explains how money market fund regulation, similar to that imposed in the US, is about to descend on European MMFs. “Although both the US and European markets will experience similar regulation changes, the Euro market dislocation should have less of a market impact than the SEC regulation changes to the US market,” writes Ms. Shegog. That’s because the European regulation changes are not as extreme and European investors are more familiar with the regs.
 
This month’s peer group meeting summary is from the NeuGroup’s Assistant Treasurers’ Group of Thirty. Members of the group in that meeting discussed a wide range of topics, including planning for tax reform, a shift in risk attitudes (toward derisking) as well as predictions for slower growth globally.
 
On page 11, contributor Anne Friberg discusses how FX algorithms can save transaction costs and improve efficiency. “FX managers are discovering the benefits of algo trading, particularly the ones that improve execution performance and save on trading costs,” writes Ms. Friberg.
 
In “Is Your Treasury Team Prepared for the Digital Future?” contributor Julie Zawacki-Lucci suggests that “bolder transformational thinking about treasury organization and talent management [will be] needed to ride the digitalization wave and prevent what one NeuGroup peer group member labeled the ‘tsunami effect’.”
 
Finally on page 14 contributor John Hintze, with help from Chatham Financial, fleshes out FASB’s amended hedge accounting standards and what it means for companies that adopt the standards early.
 
Enjoy the issue.
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