A clock is ticking on Wall Street, and it will sound the alarm Tuesday when corporate titans like GE and Caterpillar must start rolling over their debts in stressed credit markets where financing has become difficult or impossible to find.
Major companies finance their day-to-day business, including salaries and rent, by borrowing for two or three months in the $1.7 trillion commercial paper market. Many of those debts come due Sept. 30.
But since the credit crisis intensified with the Lehman Brothers' bankruptcy last week, buyers have been shying away from the market and it has been rapidly shrinking - falling by $61 billion in the week ending Wednesday, the Federal Reserve reported Thursday.
"The purge is broad and is impacting issuers with far more predictable cash flows - regular run-of-the-mill companies in need of working capital," said Tony Crescenzi, bond strategist with Miller Tabak & Co.
"The increasing stress in money markets shows that credit is significantly declining in availability and rising in cost. This will quickly start to hit borrowers who are refinancing and cause rising defaults if left unchecked," said Paul Niven, investment manager at F&C Investments.
"The market is beginning to crush the lifeblood of the economy," he said. "Good news from Washington is desperately needed to prevent further turbulence."
While Treasury and the Federal Reserve have taken steps to try to coax buyers back into the commercial market - even guaranteeing deposits in money market funds that are the biggest buyers there - many companies remain worried about being able to meet financing needs. Nearly $300 billion was pulled from money funds that invest in corporate debt in the week ended Tuesday.
Even General Electric Co., one of only five corporations in the world with a AAA credit rating, was forced by deteriorating market conditions to announce Thursday that it will drastically scale back short-term borrowing.
GE's vulnerability to the spreading credit crisis was highlighted earlier this week when the Securities and Exchange Commission designated it one of more than 800 U.S. companies whose stock is temporarily protected from short-sellers who profit when shares fall.
"We've never seen really a time of volatility like we've seen in the last month or so," GE's chief executive, Jeffrey Immelt, said Thursday in announcing reduced profits, a halving of its short-term borrowing, a raft of cost-cutting measures and a suspension of its stock buyback program as it scrambles to preserve GE Capital's gold-plated ratings.
With interest rates on short-term debt soaring, many companies are being forced to refinance with long-term bonds at higher interest rates.
Caterpillar Inc. and Deere & Co. are also being forced to rely less on commercial paper and seek other means of funding.
Among other potential corporate casualties of the credit crisis, Detroit automakers including GM Corp. already were suffering from a deep slump in auto sales even before the credit crisis intensified last week.
Now, they're fast running low on what once were ample cash cushions. GM announced last week that it is drawing down the last $3.5 billion on its credit line with Citibank.
The fate of GM's once-lucrative finance unit, GMAC, which provides mortgages as well as auto loans, may hinge entirely on Congress approving the broad authority Treasury has requested to purchase illiquid auto loans as well as mortgages under the bailout program, analysts say.
Chrysler President Jim Press said this week that automakers have talked with U.S. officials about whether the rescue would include auto loans. The American Financial Services Association said it is lobbying Congress on behalf of automakers.