- Aug 24, 2012
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With interest rates where they are at the moment it’s also an arbitrage opportunity as the average debt interest on the stadium is c.2.8%, but current short term deposit rates would be closer to the 4% mark. Why repay debt when you can earn more than 1% net through investments.I think we had to keep a a chunk of cash as a condition of one of the bank loans, but even still that seems a lot of cash to hold.
you're right though, it’s a sign of strength for a company to have a decent cash buffer and with the economic uncertainty it’s also a smart strategy. A lot of companies were caught out during the pandemic as they funded themselves through short term debt issuances, but short term liquidity dried up and many were forced to draw upon loan facilities to survive. Many now hold a cash buffer in case of emergencies and are currently earning decent levels of interest while doing so.
On the flip side those companies with debt to re-finance this year will see a huge uptick in interest costs to service the debt. Fortunately we locked in very favourable rates versus current levels.