As the threat of an unprecedented default in U.S. government debt plays out over the coming months, the United States is in uncharted territory. 

And so are directors and management teams at corporates, whether public or private.  While there have been a number of actual and threatened “government shutdowns” in recent years, and government agencies and executives have experience navigating them, a market perception of a credible default risk on U.S. debt (even short of an actual default) would be a new scenario for which no one has a playbook.  But parts of the financial markets are beginning to notice in small ways the lack of legislative progress and the broader financial markets may react in the coming months with implications for corporate capital raising, liquidity and risk management.

For companies that depend on functioning capital and loan markets for liquidity, it’s time for planning—both for potential dislocations that may come if investors and lenders begin to perceive a credible risk of a default, and for the shocks that will come if a default, previously unthinkable, actually happens.

While this memo offers directors and management teams some thoughts on actions they may wish to take, to be clear, it’s our strong view that politicians on both sides of the aisle have a responsibility to the country to resolve the debt ceiling impasse promptly and before the country and the economy are harmed.  We hope they will do so and make this alert memo irrelevant.

Please click here to read the full alert memorandum.