Tech20 treasurers discussed how best to fund on-going shareholder distributions and keep their investors happy.
With the prospects of a US tax reform to fix the offshore cash conundrum remote, Tech 20 members marked their 13th Annual Meeting (sponsored by BNP Paribas) last week by instead focusing on various ways to maintain their current path of issuing debt to fund dividends and share repurchases. Fortunately, debt capital markets look to be receptive to tech issuers and this is likely to be the case for some time. With US interest rates expected to continue to stay low—thanks to tempered expectations about overall post-crisis GDP growth and employment rates, plus forward guidance—borrowing is likely to beat the cost of repatriation for some time, too. Investor sentiment, and even rating agency sentiment, meanwhile, appears to be on Tech20 treasurers’ side. And, finally, member firms who have a growth story that needs to be revamped, may find receptive private equity investors like Silver Lake, if they have the right rewrite plan. In addition to these main themes, here are some further highlights:
- So long as tech issuers avoid taper panic periods, the market reception will be very good. Members shared insights on issues pre-taper panic and another noted how his turn to the euro market in July, to move away from it, met with strong demand. BNP Paribas’ Tim McCann, head of US syndicate, and Mark Howard, head of US credit strategy, suggested further that tech has maintained its distinctiveness from telecom issuers that have saturated the bond markets (see Verizon, most recently), and therefore tech issuers are likely to continue to enjoy better relative spreads and demand. Other members indicated there is good opportunity in the convert space, too.
- Ratings seem to be accommodating the new normal of tech bond issuance and dividends. Moody’s Rick Lane participated in a session that suggested there is acknowledgement on the part of rating agencies of what the off-shore cash situation means in the current state of the sector. Moody’s still seems comfortable with tech’s relative cash levels, even given the growing off-shore portions along with increasing use of dividends to return cash.
- Investors looking at the long view. A panel of investors including representatives from BlackRock and Western Asset, on the fixed income side, and Dodge & Cox on the equity side, encouraged members to do what is right with their cash over a longer-term horizon. Members were encouraged not to give in too much to activists in the near term, but also not to hoard cash for the sake of it.
We thank the Tech20 members and our guests for their active participation and BNP Paribas for their support of the Tech20 and its Annual Meeting for the sixth year running.
The Tech20 Treasurers’ Peer Group was formed in 2001 and remains the premier forum for treasurers in the tech sector. It was the first of its kind in the treasury space and helped launch a network of now 16 practitioner-focused membership peer groups for senior treasury and finance professionals facilitated by The NeuGroup.