second-largest vehicle manufacturer, could have been the target of a wider

attack.

But the evacuation didn't mean financial operations were suspended. Acton and

her core treasury team simply drove 20 miles to a disaster recovery site Ford

maintains for just this kind of crisis. There, the treasury department found

office equipment, computers and telecom facilities linked to Ford's far-flung

international operations. We were fully able to continue dispensing and

collecting money, issuing debt and so on from that location, says Acton. Not

that there weren't problems beyond Ford's control. For the first few days, we

experienced quite a few settlement problems as a result of buildings that had

been damaged or closed in New York's financial district or because of banks not

getting their own disaster plans up and running quickly. We didn't get all our

cash investments back on time as planned either. And of course, there were

delays in money getting mailed to our lock boxes,

she says. Ford's credit unit also had to pull a euro transaction launched the

day before the disaster, despite a nice book of orders built up by Sept. 11. We

pulled the transaction because of disruptions in the capital market, Acton

explains. By Week Two, however, most of these kinds of difficulties had been

ironed out.

The astounding and incredibly effective assault by terrorists on the heart of

the world's financial system tested Corporate America's preparedness. When the

two World Trade Center towers collapsed, they took out most of the telecom

network in Lower Manhattan, forced the shutdown of the power grid in the

financial district and closed virtually all the district's financial

institutions. The ripples of that disaster spread out to most of the nation's

corporate treasuries, which had become accustomed to working with limited

cash-on-hand and at lower liquidity levels. It could have been a disastrous

period for American capitalism, but incredibly the system held together. Under

extremely adverse conditions which nobody could have anticipated, the system

worked pretty well, says Glen Grabelsky, a senior director for credit policy at

Fitch IBCA, Duff & Phelps, the No. 3 credit rating agency. You actually saw

major debt financings occurring right through the crisis.

No Collapse

The key, he says, is that the commercial paper market, where most companies turn

to meet their liquidity needs, didn't collapse. Historically, the commercial

paper market is very sensitive to outside events, says Grabelsky, but the Fed

knew this, and it pumped in liquidity to keep the market functioning. I think if

the commercial paper market had not kept running, a lot of companies would have

had serious problems.

No doubt, there were glitches. The Bank of New York, a major clearing house for

debt issues and for ADRs, lost both its main data system and its back-up because

the emergency system was housed close to BONY's primary facility, across the

street from the World Trade Center. Both sites were taken out by the collapse.

So what are some of the early lessons for Corporate America from the tragedy? If

there is one overall lesson, it would be the importance of liquidity both in the

overall banking system and at the level of the corporation. The perils of too

much debt were already being learned, observes Linda Harty, treasurer at

BellSouth, an A1-rated firm that was able to roll over $450 million in

commercial paper a day after the attack. But this crisis just underscores it.

(see sidebar.)

Tapping Other Funds

Al Wargo's company wasn't as lucky. Eastman Chemical, where Wargo is treasurer,

was one of many companies nudged out of the commercial paper market in the days

following the attack. It just meant we had to tap other sources of funds, Wargo

explains. We went to a revolving credit line for a small amount of money to meet

our needs. That's the way it's supposed to work. We made one phone call to our

agent bank, and they said no problem. It was all very smooth. But you understand

why ratings agencies stress liquidity.

Many other treasurers also reported that banks were unusually cooperative and

generous even downright unbankerly in their dealings during the first days of

the crisis. We had bridge loans set to mature on Monday, Sept. 17, reports Sun

Oil Treasurer Paul Mulholland. That would have been a challenge, but the folks

at Mellon Financial gave us a postponement. They said, OEN problem, there will

be no incremental charges.' It was a five-minute phone call. We asked for

two weeks, and they just gave us a month. I really felt that the banking system

was making an effort to make the system work well and stay calm. In hindsight, I

think they did the right thing. If the banks and the Federal Reserve hadn't

stepped in to provide the extra liquidity, an ugly snowball could have gotten

rolling.

OEA Balancing Act'

But how long could that flexibility be extended in a crisis that caused longer

term disruption? Was this scare enough to make treasurers change cash management

practices? The jury is still out on whether the concern over liquidity will

result in a new priority to maintain the highest credit ratings, but treasurers

say they will be reviewing cash, bank lines and commercial paper and readjusting

the mix to ensure better coverage. It's a balancing act, says Sun Oil's

Mulholland. You don't want to stunt your growth, but you need to look at your

liquidity issues.

Other lessons were learned, too, and going forward, as the nation appears headed

toward an open-ended military confrontation with terrorists and their

rogue-nation supporters, many expect companies to upgrade emergency back-up

plans and systems. First on most companies' checklists is the need for emergency

office space. While most companies, particularly in these days of profit

pressures, are unlikely to fund a free-standing, turn-key emergency recovery

center like Ford's facility, companies are expected to investigate options with

outsourcers, such as SunGard Recovery Services. SunGard is currently providing

space for at least 20 New York companies, including IGA and Moody's Investors

Service. Such outsourcing firms reserve emergency office space, complete

with pre-arranged equipment such as telephones, LAN lines and computers, for a

monthly premium. For example, New York Shipping, a not-for-profit association

formed by shipping companies and terminal operators in New York harbor to handle

work assignments and benefits payments for unionized longshoremen, reserved

space and equipment immediately after the attacks for the 120 employees it once

housed on two floors in 2 World Trade Center. The cost: $6,000 per month.

That said, IDC group vice president John McArthur predicts that few companies in

the end will add significant funding for emergency preparedness not with the

economy in the shape it's in. You may see a higher budget allocated to

preparedness, but it won't likely be a sustained increase, McArthur says. People

will go out and investigate having alternate sites on standby and the answer

will come back that most people don't have the money to do that. One place

everyone is predicting changes: travel policies. At Ford, Acton reports that new

guidelines will significantly reduce the number of executives treasury and

otherwise on the road. Only critical travel will be permitted now, says Acton,

and people won't be required to fly anywhere they don't want to. I think we'll

also discover that we don't have to travel as much as we have been. We may

actually save some money.

At Pepsico, Matt McKenna, senior vice president for finance, says the company is

limiting travel to essential trips at least over the short term. He says that on

the Friday after the attacks, the company held its regular board meeting by

telephone instead of in person.

Besides saving money, less travel assures that key personnel will more likely be

available in an emergency. In Ford's case, several treasury employees were in

New York on Sept. 11. They made their way to New Jersey, but had trouble

finding a rental car to get them back to Michigan. They finally had to call the

treasurer of Hertz [a Ford subsidiary] and got him to line up a car for them,

Acton says.

Who Gets Credit?

While most companies claim that they got through the crisis without problem,

that may be something of an overstatement. Experts at the ratings agencies and

elsewhere say that it was primarily the fast action of the Federal Reserve,

pumping liquidity into the system, that saved companies from having to resort to

more dramatic efforts to come up with the operating capital they needed. You don't

get a lot of people raising their hands saying they screwed up, says IDC's

McArthur, but this disaster tested the limits of everybody's disaster

preparedness plans. And it's not clear that everyone passed.

ROLLING WITH THE PUNCHES

It was Tuesday, Sept. 11. The world watched with horror as the seemingly

invincible towers of the World Trade Center crumbled, and companies outside New

York faced minute-to-minute decisions about which parts of business had to be

addressed, in spite of the unfolding tragedy.

For Bell South's treasury department, there was the question of $450 million in

commercial paper scheduled to be rolled over the next day. Should the rollover

proceed? Bell South's Treasurer Linda Harty who was stuck in Washington with the

grounding of the nation's civilian air fleet and James Young, managing director

for corporate finance, decided that the telecommunications company would try.

But there were obstacles, even beyond the near-shutdown of the nation's bond

market largely housed in buildings near the site of the tragedy. First, Morgan

Stanley, one of the banks handling the rollover (Bank One was the other), had

been dealt a major blow: 3,700 of its 13,000 New York area employees had been

working in the now devastated World Trade Center. Even though the bank's bond

operations were run out of the firm's midtown offices, that building had also

been evacuated and Morgan's cellular phones were all down. The Morgan Stanley

guys and our guys had these Blackberry pagers, says Young. On Tuesday, we used

those to communicate. We did a lot of front-end work with issuing agents and

paying agents to make sure that everyone would get their money, says Steve

Fitzpatrick, the Morgan Stanley managing director who handled the deal in New

York. We had to make a lot of the arrangements that would have normally been

handled by the clearing banks.

In the end, the rollover was successful. And the prices weren't astronomical

Bell South rolled over its paper at 3.7%. Bell South was among the few

corporates which avoided using expensive bank lines to stay liquid. Harty

attributes the success to an A1 credit rating for CP. The market was gone that

week even for A2 companies, she says. But a certain amount of luck helped.