Five Questions With: Gary Pirri

Gary Pirri is senior vice president and market executive for Wells Fargo & Co.’s New England Commercial Banking division. A 39-year banking veteran, Pirri oversees middle-market commercial banking teams in Rhode Island, Massachusetts, New Hampshire and Maine.

PBN: There are dark economic clouds on the horizon. But the second half of 2023 may also present unexpected silver linings and growth opportunities for businesses. What are some financial management “must haves” that will help Rhode Island companies prepare for, and thrive in, a turbulent economy?

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PIRRI: Despite the somber forecasts, we’re really not seeing any across-the-board deterioration in companies’ financial performance. They continue to be well and healthy. There’s been little downgrading of risk ratings. When a company is struggling, that can result in a downgrade of their credit rating. But we’ve seen very little of that. Companies continue to perform well.

In anticipation of turbulence, some businesses are instituting hiring freezes that are not necessarily layoffs or downsizing. They’re managing people-expense by avoiding new hires. We’re also seeing companies explore alternative supply chain sources, both international and domestic, because many have learned the lesson about the downside of relying on one particular vendor.

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Additionally, we’re seeing folks lock in fixed-rate financing because of anticipated interest rate increases. The whole work-from-home trend has had some companies reduce their office footprint and reduce occupancy expense. That’s what I’m seeing from a macro perspective. 

PBN: How should middle-market companies react to the rising cost of capital?

PIRRI: Most companies feel it’s prudent to manage interest rate risk by fixing at least a percentage of their debt. When we’re asked for advice, we say it depends on circumstances. For instance, how much debt do they have? A common solution is that if you have $100 million in debt, you’ll leave $50 million floating. It’s an imperfect science but it does help manage the downside by using derivatives, interest rates swaps and interest rate collars. The collars fix the upside and the downside so that the rate can only float in a specified range. We’re advising companies to think about that.

A company can also put off capital expenditures and acquisitions as it waits for a more favorable rate environment.

PBN: Are supply chain issues still a concern among businesses in Rhode Island and the region?

PIRRI: No, not really. The bigger issue is the reverse. As you probably know, there was a bottleneck in goods and supplies for a while. Ports were backed up, containers were left sitting on the water. When that began to free up, companies began to over order. They were concerned the supply chain holdups would repeat. As a result, some companies find themselves over-inventoried right now. That’s more of a timing issue. There seems to be little evidence that supply chain issues are continuing or will reemerge in the future.

PBN: How can companies maintain adequate cash flow and strong liquidity positions?

PIRRI: Right now, we’re not seeing a lot of liquidity issues. Business remains strong. However, there are tools if a company is concerned. They could enter into [an] accounts receivable purchase program in which they would sell the receivables to a third party. That could create some immediate liquidity. They could enter into a supply chain finance agreement in which a third party pays their vendors, effectively financing the trade over an extended period of time. They could securitize their receivables by carving out a big chunk and securitizing them to the investment community. There are a lot of tools. The old-fashioned way is to pay vendors at the last possible minute and collect the receivables as quickly as possible.

PBN: What other trends are you seeing among your commercial clients across the Ocean State and southern New England?

PIRRI: There’s a continued focus on sustainability and ESG – environmental, social and governance issues. We have resources at Wells Fargo to advise clients how to develop strategies and policies around ESG. ESG historically had been an issue primarily for public companies, but it’s now having an impact on private business as well. Private business is increasingly called on by vendors and customers to meet certain ESG standards. It’s not going away.

Another trend: If a company is real estate heavy and has industrial properties or warehouses, they’re looking at sale-leasebacks to de-lever their balance sheet and increase liquidity. Industrial buildings are still in favor. Warehouses are still in favor. Office… not so much.

What continues to be an issue for everybody is talent. Whether it be hourly factory employees or senior management, there’s a serious scarcity of talent in the marketplace and companies recognize that. We’re seeing companies doing everything they can do to hold on to their employees by increasing wages, benefits and enhancing the workplace with four-day weeks, enhanced benefits such as paternity leave, etc. Those are the things that can matter to employees. Hopefully, they’ll think less of going elsewhere!

Contact PBN staff writer Sam Wood at Wood@PBN.com.