Staples just made a deal with Barclays to assume more than $1 billion in credit agreements the office-supply firm made with a division of Lehman Bros.
At Clusterstock, John Carney peers into an SEC filing and says this is good news for both creditor banks and retailers who rely on revolving credit.
An important question in the meltdown of so many financial firms has been what will happen to the credit agreements. Panic over whether corporate revolving credit lines will stay open if a firm is acquired in a government orchestrated rescue has been driving companies to draw down on their revolvers, a move that greatly annoys the banks.What does this mean? Neither a pistol nor a Beatles album, a "revolver" works just like a credit card, on a much, much bigger scale -- the borrower may borrow up to a set credit limit but typically uses it seasonally for short-term working capital. Rather than taking out a short-term loan, a retail chain taps its revolver to stock holiday inventory in the fall, then writes a big check in January. But the possibility that credit may be impossible to get, or that more banks could fail, had led some companies to borrow up to their credit limit, just in case.
In the case of Staples, Lehman Commercial Paper Inc. had agreed to fund a $750 million revolving credit line and $400 million in short-term loans, as part of Staples' acquisition finances for Corporate Express. Barclays' stepping up to the plate " should help soothe the nerves of corporate financial officers," Carney said.