"I would not want to be negotiating bank credit right now," observes Greg Weigard, assistant treasurer at $10 billion Air Products & Chemicals Inc. Like other farsighted treasury managers, he made sure he wouldn't have to. Weigard's treasury team reevaluated the Allentown, Pa.-based company's multi-year credit facilities while they still had a couple of years to go and entered renegotiations when the market was favorable. Air Products currently has a five-year syndicated revolver for $1.2 billion with 15 banks that it renegotiated in 2006, so the company is protected until 2011 and none of the credit is drawn. Weigard is fortunate, but hardly alone. The treasury department at Honeywell International Inc. locked in a fairly robust $2.8 billion of bank credit last spring–when credit conditions were favorable–expanding the commitment by $500 million and locking in the deal until 2012. The current credit crunch is "the deepest one I've experienced," says Jim Colby, assistant treasurer at $34 billion Honeywell. "This one has a run-on-the-bank mentality. If your credit quality becomes tainted and you haven't tied down your financing with long-term committed facilities, you'll have a tough time raising money today." At year end, Honeywell carried $7.7 billion of debt on its books, none of it bank debt. The bank facilities just back up its commercial paper programs, he explains.

Managing bank credit relationships during a credit crunch is, of course, a lot more complex than locking in long-term commitments and then relaxing. For every Air Products and Honeywell out there, there are many others whose funding needs are or will be impacted by the ongoing turmoil in the credit markets. But there are ways to mitigate the damage. Treasury managers everywhere who rely on bank funding are finding that anticipation is the key to getting through a monster credit crunch and a worsening economic downturn, whether it means locking in credit commitments for the long haul, dealing proactively with loan covenants or helping bankers through their capital squeeze.

Managing covenants is now becoming a hot-button issue for many companies starting to feel the pinch of a recession. The right time to deal with a covenant violation is well before it occurs. Yet "most companies do a terrible job of anticipating covenant violations," says James R. Simpson, a corporate debt management consultant and managing partner of Corporate Finance Solutions LLC, Stamford, Conn. He cites a recent survey of 400 treasuries that found that 25% admit to having no formal process for managing financial covenants proactively. Even worse, 44% concede that they have no financial model to forecast covenant violations. "As a practical matter, that means that 44% don't really have a credible process for anticipating covenant problems," he insists.