Credit Musings: June 2020

Monday 15 June 2020

More deals breaking down - This time Cineworld/Cineplex

More deals breaking down, over weekend we had Cineworld basically ending Cineplex takeover - resulting in legal action.

Other M&A deals that have recently fell through include the Taubman / Simon Property deal.

Then there are deals that have been amended like the BP/Premier Oil deal. (Disclosure: I own securities in both these names).

Thanks

Wednesday 10 June 2020

Mastercard SpendingPulse: Estimated $53 Billion in Additional U.S. E-Commerce Sales as Pandemic Drives Consumers Online in April and May

http://mastercardcontentexchange.com/newsroom/press-releases/2020/june/mastercard-spendingpulse-estimated-53-billion-in-additional-us-e-commerce-sales-as-pandemic-drives-consumers-online-in-april-and-may/

10 June 2020 - NEW LENDERS ACCREDITED TO BRITISH BUSINESS BANK CORONAVIRUS BUSINESS LOAN SCHEMES

https://www.british-business-bank.co.uk/new-lenders-accredited-to-british-business-bank-coronavirus-business-loan-schemes-3/

Disclosure purposes, I own some of the names in this release.

Are AT1s becoming more like US Prefs - h/t Creditsights

I can't remember exactly, but I think Creditsights made the comment recently somewhere that the AT1 market in Europe is becoming like the US Bank preference share market. I.e there is some uncertainty around calls on some bond issues, but in a way, market participants dont seem fussed since most are traded to maturity now. Of course there will be exceptions.

Also I see that Nationwide is issuing a new AT1 that is callable at anytime 6 months prior to first call date (2027). This helps the issuer refinance at a period that is most attractive, but creates a bit of uncertainty around when the precise call will be for investors, but still it focuses the issuers' mind on calling.

10 June 2020 - Early thoughts

Some of my early morning thoughts:->

EUR HY issuance lagging US HY issuance - WSJ comments
Bit of softening in US IG Corp, Citi Credit Trading reporting that spreads went out right about where it opened +5-15bp in banks, 5-10bp wider in industrials, +5bp in Reits.
VW to refinance low reset Corporate Hybrid - VW 3.75% perp in EUR by issuing new set of Hybrids
US Elections – As we approach November, more and more press noise around impact of possible Biden presidency…
Morgan Stanley – CEO says he may reinstate divis and buybacks if situation improves over next few months…!
Nationwide to issue a new AT1 (IPT of 6.25% area) and tap its CCDS issue at 161 area – I think if NWIDE comes with coupon of 6%+ it will fly. IG rated, solid capital ratios, Sterling guys will eat it up.
Unicredit redeeming high coupon perp (9.375%)
Gundlach webcast yesterday – link in morning wrap document
Attached – impact of COVID19 on African American job market (WSJ article)

Tuesday 9 June 2020

Hong Kong government to bail out Cathay Pacific, first ever time the HK Govt has directly injected money into a private Company

From the WSJ-

Hong Kong government to bail out Cathay Pacific with HK$30 billion in loan and direct stake

June 9 (South China Morning Post) -- Restructuring package worth HK$40 billion to city's flagship carrier, with Hong Kong government contributing lion's share of bailout Government's financial backing shows full support for city's status as a regional aviation hub

Cathay Pacific will undergo a HK$40 billion (US$5.2 billion) capital restructuring exercise as the Hong Kong government takes the lead in a bailout package worth nearly HK$30 billion in loans and an undisclosed stake, lending its full backing for the city to remain the region's aviation hub.

It is the first time the government has directly injected money into a private company.

Hong Kong's flag carrier will issue new shares as part of the plan which will see the authorities taking up two "observer" boardroom seats in an unprecedented shake-up that will empower it to have a direct say in how the airline is run, sources have told the Post.

Emerging as a "white knight", the government will offer a loan to be paid back in the future and, more controversially, it will take a stake in the airline without seeking full boardroom status. Instead, it will have the "two observers" on the board, industry sources revealed.

Trading was suspended on Tuesday morning while the city's leader, Carrie Lam Cheng Yuet-ngor, met with the Executive Council, her de facto cabinet, to get final approval of a package that is expected to be announced later on Tuesday.

Could we see a similar situation in other countries? What is the implication for creditors to Cathay, e.g Aircraft lessors, bond investors in Airline paper. I presume its a positive. Not clear if Govt becomes a super senior creditor of sorts.

New Albania in Euro looks cheap

I know nothing about this issuer. But just going by the performance of other similar CEE nations like Serbia.

SERBIA 3 ⅛ 05/15/27 which was was issued in may 2020 is already upto 105.0

Pricing talk on new Albania :->

€ Rep. of Albania EUR 7-year 144a/REGS IPTs 4.125% area
Source: The Leads @ 9:24am today.

Issuer Ratings: B1/B+
Exp. Ratings: B1/B+

Monday 8 June 2020

'Never say never' on ECB buying shares, Holzmann tells newspaper

https://uk.reuters.com/article/us-ecb-policy-holzmann/never-say-never-on-ecb-buying-shares-holzmann-tells-newspaper-idUKKBN23E0AH

Sunday 7 June 2020

Wuhan Declared Free of Virus After Blanket Testing of 10 Million - Caixin Global

https://www.caixinglobal.com/2020-06-03/wuhan-declared-free-of-virus-after-blanket-testing-of-10-million-101562317.html?utm_source=Main+List+-+Everyone&utm_campaign=067910adf8-CNM+1st+May+2020_COPY_01&utm_medium=email&utm_term=0_62d15a97ed-067910adf8-362122961

U.S. Shale Companies Are Turning the Oil Taps Back On - WSJ

As oil approaches $40 a barrel, companies are bringing wells back online, even as the market continues to recover from the demand drop caused by the coronavirus.

https://www.wsj.com/articles/u-s-shale-companies-are-turning-the-oil-taps-back-on-11591542000

The Sun: "RISHURGENCE" Chancellor could relax trading laws & introduce car scrappage scheme to launch post-coronavirus economic recovery

https://www.thesun.co.uk/news/11801954/rishi-sunak-plan-boost-economy/

Should be positive for UK Autos/Car dealers.

Evidence of modest sized UK commercial real estate transactions taking place

Segro - SEGRO ACQUIRES URBAN WAREHOUSE PARK IN PRIME WEST LONDON LOCATION. SEGRO plc ("SEGRO") has acquired Perivale Park, a 34 acre urban warehouse estate in Perivale, West London, from Federated Hermes for £202.5 million.
https://www.londonstockexchange.com/news-article/SGRO/acquisition-of-prime-london-urban-warehouse-park/14568281

Regional REIT - Attractive £6.3m disposal 8.6% above valuation
https://www.londonstockexchange.com/news-article/RGL/attractive-ps6-3m-disposal-8-6-above-valuation/14568280

Friday 5 June 2020

AT1 observations on price strength

The sector is apparently +22 points from its March lows and has rallied +4 points on average since the middle of April. Thanks to a US Bank that had done this analysis.

WSJ Markets Email - Interesting snippets on Boeing, S&P and John Maynard Keynes!

Winner: Boeing and the Risk Trade

It has been a long time since anyone has called Boeing a winner, but the company’s stock staged a big rebound this week. Shares were up about 26% through Thursday, far and away the biggest move among the 30 Dow components.

Boeing managed to get two customers to defer, rather than cancel, orders for 737 MAX planes, and a prominent hedge fund, Dan Loeb’s Third Point, took a position in the company’s debt.

Boeing sits in the middle of many of the swirling issues in the markets. Its primary customers are airlines, which are under duress. They need business people and tourists to resume traveling. And for that to happen, the economy needs to recover, and progress needs to be made toward a coronavirus vaccine.

If those things don’t happen, it is hard to see how Boeing grows. Wall Street estimates, according to FactSet, call for the company to lose $4.17 a share this year.

Moreover, Boeing shares are still down nearly 60% from their 2019 record of $441. What this week’s rally in the stock really illustrates is the degree to which the risk trade has retaken the market.

Despite all the lingering issues, the S&P 500 is up nearly 40% in just the past 50 trading days, according to LPL Financial strategist Ryan Detrick. That is the largest such rally since 1957. Similar rallies have led to more gains over the ensuing 12 months, he said.

n this day in 1883, John Maynard Keynes was born in Cambridge, England. Between World War I and World War II, Keynes devised the theories that led to massive government intervention in economies around the world. His criticisms of free markets, however, did not prevent him from making a small fortune on the stock market.

Credit Musings