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Rate Slide To Help Some Companies

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By MADLEN READ

The Associated Press

Published: October 21, 2008

NEW YORK - As bank-to-bank lending rates gradually slide lower, the credit climate is looking a bit brighter - at least for stronger companies.

The fear of a shutdown in lending is fading, but there remains a sense that when it comes to getting loans, U.S. businesses are going to be divided into haves and have-nots. As a result, the corporate landscape could look different in a year.

The auto industry remains in a state of disarray. General Motors Corp., which has been burning through more than $1 billion per month, wants to buy Chrysler to access its currency stockpile, but GM appears to be having trouble lining up financing for the deal.

Companies that appear more creditworthy to banks, however, should find loans easier and cheaper to get if the trend of the past week continues.

The London Interbank Offered Rate, or Libor, for three-month dollar loans dropped for the sixth straight day. It fell by 0.36 percentage points to 4.06 percent.

The decline in this rate - which establishes lending costs for businesses and individuals - reflects greater trust in the financial sector after governments around the world guaranteed billions of dollars in bank debt. Promises to rescue ailing banks, along with short-term loans from central banks, have helped.

With funds slowing getting out of safe assets and returning to markets with a bit more risk, the commercial paper markets continued to improve. Commercial paper is the unsecured debt that companies sell for short-term financing.

The unfreezing comes ahead of the Federal Reserve's Oct. 27 launch of its facility to buy commercial paper from issuers that can't find buyers in the market.

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