|Bid||189.64 x 50000|
|Ask||190.42 x 50000|
|Day's range||186.70 - 190.48|
|52-week range||155.00 - 265.90|
|Beta (5Y monthly)||1.21|
|PE ratio (TTM)||25.67|
|Forward dividend & yield||2.03 (1.12%)|
|Ex-dividend date||24 Feb 2020|
|1y target est||N/A|
Moody’s Analytics has enhanced its credit decisioning solutions to help streamline borrowing by small businesses under the CARES Act PPP.
(Bloomberg Opinion) -- A headline from three days ago read “Banks Stuck With $23 Billion of Loans for T-Mobile’s Sprint Deal.” A group of 16 banks would have to provide money to T-Mobile US Inc. to close its planned acquisition of Sprint Corp. because they couldn’t sell debt to third-party investors. T-Mobile would refinance the bridge loan in the bond market as soon as financing conditions improved.Well, that was quick.The mobile carrier plans to tap the corporate-bond market Thursday with a deal of about $10 billion, with proceeds helping repay that $19 billion bridge credit agreement (it signed a new $4 billion term loan on Wednesday as well). Even though it’s one of the biggest debt sales of the year, financial markets still remain highly volatile and T-Mobile’s credit rating was cut this week deeper into speculative grade, the company received more than $30 billion of orders from investors, Bloomberg News’s Molly Smith reported.That’s impressive, considering that the initial pricing levels for this investment-grade offering were already favorable for the company. T-Mobile’s 10-year bonds are expected to yield around 375 basis points more than benchmark Treasuries, Bloomberg News reported, citing a person familiar with the matter. By comparison, a Bloomberg Barclays index of triple-B corporate bonds with an average maturity of 11.75 years has a spread of 359 basis points, near the lowest since March 18. That’s close enough — and it’s likely that T-Mobile’s gap will narrow with such a large order book.It’s even more interesting to compare this new deal, with the lowest investment grades of Baa3 by Moody’s Investors Service and BBB- by S&P Global Ratings, and T-Mobile’s last offering in January 2018, which is speculative grade. The company priced 10-year bonds at the time at a spread of 209 basis points more than Treasuries, to yield 4.75%. T-Mobile’s spreads are now much wider, even though this new debt is “senior-secured,” but 10-year U.S. yields are more than 200 basis points lower than they were 26 months ago. That means the all-in 10-year yield for T-Mobile will probably be about 4.35% — a good deal lower than the previous rate.This is important context to remember for both companies and bond buyers. The rapid price swings across markets in the past month and the focus on yield spreads have somewhat masked the fact that whenever the outlook starts to stabilize, borrowing costs will once again be as low as ever for creditworthy corporations. The benchmark 10-year yield is a mere 0.6%, near the all-time low closing level of 0.54% set on March 9. Bank of America Corp. technical strategists said in a report Thursday that the benchmark could reach 0% this quarter and potentially even turn negative if governments struggle to contain the coronavirus outbreak.With so much uncertainty, it’s understandable that T-Mobile seized on this window to get on with its plans. It formally completed its merger with Sprint on Wednesday morning. Mike Sievert, who was named chief executive officer, told Bloomberg TV on Wednesday that the timing of the bond sale relative to the bridge loan was “coincidental.” The fact that the group of banks was ready to help get the acquisition over the finish line was the most prudent first step, he said. Then the company deemed the market had thawed enough to borrow.“We’ve been watching the markets over the past few days and seeing an improving condition for us to go to the market with this investment-grade offer. Today looked like the right day,” Sievert said. “The last couple of days, obviously we were in the process of taking down the bridge and we had the merger news that made the last couple of days the wrong time to be in the market.”Obviously, T-Mobile would have had a better borrowing backdrop a few months ago. But large companies are rarely in position to perfectly time the market. In most cases, good reception is enough. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- SoftBank Group Corp. needs to cut and run on its entire WeWork investment, not just the shares. Covid-19 and the economics of a prolonged crisis necessitate strict pragmatism.As recently as two weeks ago, it seemed that a move to renegotiate the Japanese conglomerate’s $3 billion purchase of equity in The We Co. from existing shareholders, including founder Adam Neumann, was savvy and cunning. Today, that looks ill-advised, which is why it decided not to consummate the tender offer, Bloomberg News reported, citing a statement from a committee advising WeWork's board.After a $1.5 billion lifeline late last year, the next step in SoftBank’s bailout of the office rental company — predicated on completing the share purchase — was to be a further $5 billion in debt financing. Masayoshi Son, opportunistic venture capitalist that he is, should walk away from that deal, too.With WeWork bonds trading at around 36 cents on the dollar and the global economy in upheaval over the coronavirus pandemic, there’s no price in the world that could have made SoftBank’s double-down on the shares look smart. Pouring $5 billion into WeWork debt would be a poor use of its funds.SoftBank has bigger problems at the moment.Last week, Moody’s Corp. cut its debt by two notches, citing SoftBank’s planned offload of assets that amounts to little more than a fire sale. Son wants to monetize them through sales or loans to repurchase the company’s own shares and pay down debt. SoftBank fired back at Moody’s. It claimed that the downgrade would “cause substantial misunderstanding,” and then asked Moody’s to remove its rating altogether. That temper tantrum merely proved the ratings provider correct.Despite a broad portfolio that includes its stake in the Vision Fund, its domestic telecommunications operator, a U.S. telco, and a semiconductor company, the only asset that SoftBank has of significant value is its 25% stake in Alibaba Group Holding Ltd. Those shares aren’t very liquid and could take months to sell. Son doesn’t have time. Many Alibaba investors believe that the e-commerce company has gotten through the worst of the Covid-19 crisis and will benefit from a return to normalcy in China.What they aren’t reckoning on is an unavoidable global slowdown that could have a profound impact on the spending power of Chinese consumers, who drive revenue. We’re in the eye of the storm now, where things seem calm but soon won’t be. Selling a massive chunk of Alibaba shares at any price is going to become more difficult.Bad as things might get for an internet giant, they’re going to be a whole lot worse for a shared office company. Co-working spaces are anathema to the wave of social distancing that’s sweeping the world. Many of WeWork’s clients are freelancers or startups and likely to be hardest hit in any downturn. The company is trying to soften the blow by seeking rent reductions from its own landlords, who are showing reluctance. Walking away from its pending $5 billion investment in WeWork debt is not only an honest verdict on that outlook, it also means $5 billion of shares in Alibaba that SoftBank doesn’t have to sell to cover its funding needs. Ask any investor in the world where they’d prefer to put a chunk of money right now, and I am sure WeWork bonds won’t be their choice.Masayoshi Son isn’t the type to follow what others might do, but perhaps this time he should.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Amid all the economic despair in the age of coronavirus, there is still something about the promise of sky-high returns that the American investor finds irresistible.Cruise line operator Carnival Corp. proved that Wednesday when investors clamored to buy a new $4 billion bond sale that pays interest of 11.5%, one of the highest coupons ever offered, particularly by an investment-grade rated company. Demand was so frenzied -- as high as around $17 billion -- that Carnival was able to cut the coupon and increase the original size of the offering by an extra $1 billion, according to people familiar with the situation.Even with the economy spinning down, corporations around the globe have been able to tap the bond market to raise record amounts from investors in recent weeks. While executives are looking to stay liquid, investors’ confidence was buoyed by the trillions of dollars the Federal Reserve and other central banks are spending to buttress their economies.The demand for Carnival’s bonds was especially notable because investors have largely shunned riskier firms. Its business has been ravaged by the virus and investors still can’t be sure when the company will sail again. Appropriately enough, the majority of orders for Carnival’s offering are from junk-bond accounts.Yields that approach Carnival’s heights are usually seen only on the riskiest types of junk bonds, such as those issued from holding companies that are further removed from real assets or those that give borrowers the option to delay cash interest payments.A flurry of other bond deals Wednesday continued a strong performance for much of March, with 11 new investment-grade dollar deals, and T-Mobile US Inc. is marketing a potential $10 billion offering for its acquisition of Sprint Corp. Europe had 17 new deals, its busiest day since January, including Tiffany buyer LVMH and Absolut Vodka maker Pernod Ricard SA.Overall in March, U.S. investment-grade issuance topped $259 billion for a new monthly record, while European supply passed 135 billion euros ($148 billion), the most since 2016. Asia’s dollar market was quiet for most of the month, though Chinese internet search giant Baidu Inc. announced a deal to start April.Still, returns were dismal. Even with the Fed’s help fueling a late stage rally, March was still the worst month for returns since the end of 2008, with U.S. high-yield down 11.5% and investment grade dropping 7.1%. The European index lost 6.9% in March, its biggest loss ever. Spreads on top-rated Asian dollar bonds ended the first quarter 146 basis points wider, the worst blowout since 2009.“We expect issuance to continue as corporates look to bolster liquidity,” said Henrik Johnsson, co-head of capital markets at Deutsche Bank AG. “The long term effect of all this debt is hard to quantify.”U.S.Credit markets weakened with stocks on Wednesday as President Donald Trump told the U.S. to brace for one of its toughest stretches as a nation, with the death toll from the virus projected to potentially top 200,000. The high-grade borrowing bonanza showed no signs of abating with 11 companies launching $28.5 billion in new debt, meaning 36 issuers have already priced $78.8 billion this weekT-Mobile has hired banks to market its secured bond offering to investors, which may come Thursday in dollars and/or euros with maturities ranging from five to 40 yearsCarnival wrapped up its $4 billion bond sale after boosting the dollar component, dropping the euro tranche and getting a two-notch downgrade from Moody’s Investors Service on TuesdayAB InBev is testing investor demand with a four-part offering of maturities due between 10 and 40 years, capitalizing on interest lately in the long end. It sold 4.5 billion euros of bonds Monday, and may need to cut its dividend to preserve ratingsFor deal updates, click here for the New Issue MonitorOil producer Whiting Petroleum filed for bankruptcy, the first big casualty of a global collapse in crude prices that’s leaving debt-laden shale explorers struggling to surviveEuropeSeventeen deals priced Wednesday in the primary market’s busiest day for more than two months, totaling 26.8 billion euros. It follows the best-ever quarter for debt sales, with more than 510 billion euros priced, mainly reflecting huge volumes at the start of the year, and lots of reverse Yankee issuance.Borrowers including LVMH Moet Hennessy Louis Vuitton SE and Absolut Vodka maker Pernod Ricard SA are leading a calendar set to price 26.57 billion eurosInvestors have thrown almost 100 billion euros worth of cash at today’s deals, according to data compiled by Bloomberg, led by demand for offerings from Portugal, Total Capital International SA, a euro green note offered by Spain’s Iberdrola Finanzas SA, LVMH and Pernod RicardSpreads on euro IG company bonds remain elevated but have fallen about 8 basis points from multi-year highs reached on March 24, according to a Bloomberg Barclays indexSpanish bankers and lawyers are bracing for a steep surge in insolvencies, amid the country’s rising death toll and strict lockdown measures. Prime Minister Pedro Sanchez has announced 117 billion euros of fiscal stimulus, but some business leaders say aspects of the government’s response risk making things worseEuropean banks may get more time to meet loss-absorbing debt targets, the euro-area’s Single Resolution Board said. It’s ready to adapt transition periods and interim targets to help them deal with the coronavirus falloutAsiaThe rebound in global bond sales in recent weeks has so far eluded Asia. After record issuance in January, sales of dollar securities by the region’s issuers, including financials and sovereigns, sputtered in the first quarter, totaling about $86 billion, up only about 3% on the year-earlier periodOne reason for that is that unprecedented stimulus from the Federal Reserve and European Central Bank has had more direct benefits in the U.S. and European marketsAnother factor is that Asian companies have been able to tap local-currency markets. Chinese companies sold a record amount of domestic bonds in March, for example, after Beijing flooded markets with cashBut there have been signs in recent days that more borrowers may offer dollar debt. Chinese tech giant Baidu Inc. was marketing an offering WednesdaySpreads on top-rated Asian dollar bonds were 10-20 basis points wider Wednesday, according to traders. They ended the first quarter 146 basis points wider, the worst blow-out in a Bloomberg Barclays index going back to 2009For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- The coronavirus crisis is still unfolding, but it’s not too soon to think about lasting financial impact and how to limit the fallout. One major financial crisis that may hit later this year or early in 2021 is the ever-looming collapse in state and local employee pension funds. Although the problem has been growing for decades, the virus may have been the event that pushed it over the edge.Declines in the financial markets may have cost the funds as much as $1 trillion in assets, or about 25% of their total, according to Moody’s Investors Service. That would bring the aggregate funding ratio—value of assets divided by actuarial value of liabilities—from 52% based on the last report by the Census Bureau down to perhaps 37%. Markets may recover, of course, but they may not. The latest aggregate numbers we have are from 2017, and for most individual funds data is available only as of mid-2018. Asset returns are usually smoothed so it could be four or five years until the full effect of the virus is reported officially.But it’s not aggregate numbers or official reports that will trigger a crisis. It’s the big funds in the worst shape. My back-of-the-envelope calculations suggest Connecticut could be looking at a 28% funded percentage if the numbers were available now, Kentucky 25%, New Jersey 24% and Illinois 20%.Those figures rely on optimistic assumptions about healthcare cost increases and discount rates; the true numbers are probably worse. The important statistic is more objective: how many years’ benefits do the pension assets represent? That could be no more than about four years in Illinois if true numbers were public today, five in New Jersey and Kentucky, six in Connecticut.All benefits for active employees, plus all benefits for everyone in the near future, will have to come from employee or state contributions. But states will be strapped for cash, and looking to cut contributions, not raise them. Employees will be unwilling to contribute more since there’s little likelihood they’ll ever see that money again, especially as post-2008 reforms have denied many of them the gold-plated benefits that employees with more seniority enjoy. Taxpayers? The least willing of the bunch. Creditors? The states need to keep borrowing money, so they have to appease creditors. Some of the money will come via defaults or restructuring of state and local debts, but this is its own crisis, and it won’t fill the gap. The federal government? Maybe, but not for full payments. A more likely scenario would be absorbing retirees into Social Security and Medicare at sharply reduced benefit levels—and those programs face similar problems as state and local plans.It’s true that 48 states have constitutional or other legal protections for pension benefits. These will improve union bargaining power, but it won’t squeeze anywhere near the full amounts promised. Courts will both unwilling and unable to force governments to hand over money the governments don’t have and can’t get.Will deaths tied to the Covid-19 pandemic save the day? After all, deaths will likely be concentrated among retired employees getting benefits rather than active employees paying contributions. Moreover, active employees who succumb to the virus will be replaced. If we exclude Hollywood disaster scenarios, the highest projections are U.S. death rates doubling in 2020 and remaining 2.5% higher thereafter. Using the age distribution of coronavirus deaths for which information is available, that could cause liabilities to fall by about half the amount that assets fell. But in that scenario assets would probably fall much farther. It’s hard to come up with a scenario in which additional coronavirus deaths improve pension funded ratios.Will these events trigger Illinois or some other state to default? It’s plausible. Will that cause other states and municipalities to follow? That’s likely, mainly because creditors will stop lending to states with big unfunded pension liabilities. Will that provide the cover for every state except maybe Utah and Wisconsin from seizing the opportunity to renege on promises? I’d bet on that as well.What we do today is start treating pensions as an issue that must be addressed rather than a can to be kicked down the road. Admit that promises to employees will not be kept, and start figuring out how to direct the cuts to where they will do the least harm: younger workers with more time to prepare and richer workers with more ability to pay. Collecting the maximum contributions possible, but in realistic forms employees can count on rather than unreliable promises about future. Releasing timely and complete data on assets and cash flows.The basic terms of the fix are obvious. Pension payments will be capped, probably at something like the Social Security maximum of $3,011 per month for someone who retires at age 65. Tax the benefits, again probably like the rules for Social Security (50% of benefits for single filers with total income between $25,000 and $34,000, 85% of benefits for higher income individuals). Make healthcare plans more Medicare-like, with lower provider payments. Employee contributions to be directed either to Social Security/Medicare or individual retirement accounts rather than underwriting payments to retired workers.This will provoke fierce fights. First to accept the inevitable and second to set the precise terms. How will police officers be treated versus teachers versus Division of Motor Vehicle clerks? Will all state and local plans be put in one bucket, or will employees from more prudent states do better than employees from profligate ones? How will scarce funds be directed to pensions versus health benefits? How much will taxpayers and creditors kick in? These fights will take place in legislatures, courtrooms and union elections. It won’t be pretty or fun. But the sooner we admit the problem and start to solve it, the sooner it’s behind us.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Aaron Brown is a former managing director and head of financial market research at AQR Capital Management. He is the author of "The Poker Face of Wall Street." He may have a stake in the areas he writes about.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- New York’s Metropolitan Transportation Authority needs more help from the federal and state governments to ensure it can keep paying bondholders as ridership plummets because of the coronavirus, agency head Pat Foye said Tuesday.“We expect to make every principal and interest payment -- we’re not asking for forgiveness from our creditors,” he said during an appearance on The Brian Lehrer Show on WNYC.“We’re obviously one of the largest borrowers in the muni market and the MTA making its principal and interest payments is incredibly helpful to the overall market,” said Foye, who is recovering from Covid-19. “To be able to do that, we’re going to need additional support from the federal government and we’re going to have to come up with a plan that we’re hard at work on, which will also include some non-financial legislative changes in Albany.”The MTA, which runs the nation’s largest public transportation system, has seen subway ridership fall nearly 90% and the number of passengers on its Metro-North Railroad has fallen 94%. The agency is losing an estimated $125 million each week in fare and toll revenue, leading it to boost its short-term loan capacity to $3 billion from $1 billion to help raise cash.Following Foye’s WNYC interview, the MTA issued a statement saying it has sufficient funds to cover debt-service payments.“MTA has sufficient liquidity and resources to fund its debt service accrual requirements even as the ongoing COVID-19 crisis has put significant strain on MTA’s financial condition, and we are committed to continuing disclosure of material events on a timely basis,” Bob Foran, MTA’s chief financial officer, said in a statement.Congress approved $25 billion for mass-transit systems throughout the U.S. in its $2 trillion economic stimulus package. The MTA, which has more than $45 billion of debt outstanding, will receive $4 billion of those funds to help cover lost revenue and growing expenses.The agency is working on a “survival financing plan” to help it going forward, Foye said. The MTA tapped $1 billion of bank loans this month. It has about $3.8 billion of liquidity resources, including the bank loans, a cash balance of $1.2 billion and internal flexible funds of $1.2 billion.S&P Global Ratings last week downgraded the MTA one step to A-, the fourth-lowest investment grade, due to the financial challenges the agency faces from the pandemic. Moody’s Investors Service is reviewing the agency for a potential downgrade.MTA debt that comes due in November traded for a little over 100 cents on the dollar Tuesday to yield about 3.9%, according to data compiled by Bloomberg, indicating little concern among investors that they won’t be repaid.The MTA has fewer workers to help run the system because 582 employees have tested positive for the coronavirus and eight workers have died, according to Foye. The agency started a 50/50 program where half of its employees are working and the other half are at home, he said.The MTA started a reduced service on Wednesday. While there are fewer healthy workers to keep running the system, Foye said he anticipates continuing running subways, buses and commuter trains.“The MTA workers are performing heroically given this challenge and are rising to the occasion of taking first responders and essential workers to and from their jobs,” Foye said during the radio program. “And we’re going to continue to do that throughout this entire pandemic.”(Updates with CFO’s statement in the seventh paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- North America’s most infamous oil pipeline project just got a surprise $5.3 billion financial aid package from Alberta as the Canadian province fights to rescue its battered oil-sands industry.Keystone XL, which for years has faced court challenges and environmental opposition in the U.S., will get a $1.1 billion investment and a $4.2 billion loan guarantee from Alberta to help TC Energy Corp. build the line to the U.S. Gulf of Mexico. The Calgary-based pipeline giant said it will invest the remaining $2.7 billion.Once touted by Canada as a key step to turn the country into an energy superpower, the project counted celebrities like Mark Ruffalo and Daryl Hannah among foes who pressured the Obama administration to block it.Approval from President Donald Trump years later came at a time when investing in the project was far from certain as the Canadian oil industry was cutting costs, competing output from U.S. shale fields abounded and hurdles at state levels emerged.The move to start construction now, when the crude market has crashed and the project still faces roadblocks in the U.S., shows how critical the fight for the oil industry’s survival has become in Alberta, home to the world’s third-largest crude reserves. The province’s benchmark crude is trading at a record low of $4.09 a barrel.A shortage of pipeline capacity in the landlocked Canadian province has weighed on local crude prices and restrained producers’ ability to increase output long before the recent oil market collapse. The Covid-19 pandemic and a battle for market share between Saudi Arabia and Russia have further darkened the outlook.“This investment in Keystone XL is a bold move to re-take control of our province’s economic destiny,” Alberta Premier Jason Kenney said in a statement. Kenney said Alberta would plan to sell its shares to TC at a profit after the project is completed and estimated that Keystone XL would help provide C$30 billion in tax and royalty revenues for the province over the next 20 years.TC Energy, previously known as TransCanada, rose 6.3% to C$61.94 at 12:22 p.m. in Toronto. The shares had dropped 16% this year through Monday amid a broader meltdown in global equity markets.Moody’s Investors Service changed the credit outlook for TC to negative from stable on Tuesday, citing the added risks of building Keystone XL. The credit rating firm said the project’s construction could be disrupted by “demonstrations and civil unrest” as well as ongoing legal and regulatory challenges. Political risks could lead the project’s outright cancellation, the firm said.“The negative outlook reflects the very high level of execution risk related to the environmental, social and governance factors associated with the Keystone XL pipeline project,” Gavin McFarlane, a Moody’s vice president and senior credit officer, said in a note.Moody’s rates TC’s debt Baa2, the second-lowest investment grade.When Keystone XL enters service in 2023, the 1,200-mile (1,900-kilometer) conduit will help carry 830,000 barrels of crude a day -- more than last month’s daily production from OPEC member Venezuela.Among obstacles still facing TC Energy before Keystone XL can be completed, environmental organizations and indigenous groups are challenging the project in U.S. District Court in Montana.The U.S. presidential election in November also could pose a threat to the project, with much of the Democratic party opposed to the pipeline. Former U.S. President Barack Obama rejected a key permit for Keystone XL in 2015, bringing the pipeline to a halt, but President Donald Trump revived the project by reversing that decision early in his term.The project has gathered momentum in recent months. The U.S. Interior Department in January authorized construction across a swath of federal land in Montana, and TC Energy had announced plans to move ahead with pre-construction work on the line this year.Keystone XL already has 20-year agreements to transport 575,000 barrels of crude per day, and contracts for 115,000 barrels of capacity on the existing Keystone line will shift to the new facilities under renewed 20-year contracts once Keystone XL enters service, TC Energy said Tuesday.“Strong commercial and financial support positions us to prudently build and fund the project,” TC Energy Chief Executive Officer Russ Girling said in a statement.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- If exchange-traded funds are the fast food of investing, then private equity is the private kitchen. As the world spirals into a recession and the coronavirus pandemic batters your retirement accounts, wealthy investors who bought into assets from unicorns to paintings can hide in an elite bubble that isn’t subject to brutal mark-to-market fair value writedowns.But once in a while, a high-profile unicorn hunter can blow the lid off that opaque world, giving us a glimpse of just how much pain private equity is in. Sometimes, private kitchens churn out terrible dishes, too.Investors are fleeing as SoftBank Group Corp., which runs the $100 billion Vision Fund, scrambles to shore up its balance sheet, as well as those of its portfolio companies. SoftBank gives a good feel for the landscape, because it behaves more like a private equity firm than an angel investor: Its capital is really debt, and it likes to invest in rivals and force them to merge. SoftBank is seeking to raise billions to support its unicorns battered by the coronavirus outbreak, saving those that still show potential and cutting loose the ones that bleed too much cash. On the one hand, it’s in talks to lead a fresh $100 million funding round for Plenty Inc., perhaps because the indoor farming startup can benefit from panic buying of fresh produce. On the other, OneWeb, a satellite operator, has filed for bankruptcy.SoftBank’s desperate scramble must resonate with many private equity firms out there, whose portfolio companies will inevitably need their patrons’ help. By early March, industry titans Blackstone Group Inc. and Carlyle Group Inc. already urged businesses they’ve invested in to do whatever it takes to stave off a credit crunch. But with blue chips drawing at least $124 billion from their credit lines in the first three weeks of March, and dollar funding this tight, will lenders have the bandwidth to aid smaller companies? Banks certainly have much bigger deals to digest: They’ll need to come up with $23 billion of loans soon for T-Mobile USA Inc. to close its merger with Sprint Corp.Granted, for private equity firms, cash levels are at a record high. Last year, capital committed to this sector grew 20% to $1.3 trillion, estimates Pitchbook, a Morningstar company. But instead of buying new assets, firms may have to earmark a good chunk of that money for existing investments, either recapitalizing — like what Softbank has done for basket case WeWork — or leading unplanned funding rounds.Meanwhile, making capital calls to investors can’t be much fun right now. Even the best of them — pension funds and sovereign wealth funds — are dealing with their own crises and may not want to pick up your calls right away, especially if it means selling other assets at deep discounts just to come up with your money. Plus, we now all have the convenient excuse of working from home: Some of us are hiding in the woods (or the Hamptons), away from the raging virus, and may not have good cellphone reception.Just look at SoftBank. As of December, only about 75% of the Vision Fund’s committed capital is with the fund, and the company still needs to call $17.5 billion from third-party investors, its latest filing shows. Since then, Saudi Arabia, a major investor, has started an oil price war, further diminishing its fiscal power. So forget about Vision Fund 2; founder Masayoshi Son needs to fill up 1.0 first. In the last decade, private equity firms piled vast amount of debt onto their portfolio companies to boost returns. More than 75% of deals in the sector included debt multiples greater than six times Ebitda in 2019, compared with 25% after the collapse of Lehman Brothers Holdings Inc., according to Pitchbook. When liquidity recedes, these investments are in trouble.To make matters worse, portfolio companies’ ability to service debt is even worse than it looks on paper, because Wall Street lawyers and bankers often juice earnings to make purchase prices look more reasonable, and so underwriters can originate more loans and earn more fees. In 2016, businesses involved in a merger or leveraged buyout missed their own earnings projections by an average of 35% in the first year after the deal, Bloomberg Businessweek reported in December.So imagine the coronavirus world, where any prior earnings projections feel as outdated as “Sex and the City” stars prancing around Central Park in Manolo Blahniks. Just as social distancing is becoming the norm, so too will corporate defaults. The global rate could climb to 16.1% if the pandemic brings economic conditions that mirror the Great Recession, Moody’s Investors Services warned last week.In private equity, fancy terms like total addressable market or adjusted Ebitda are often used to make a company look more profitable than it is. But the coronavirus is unraveling all that. Just like the rest of world, private markets are also suffering. Ray Dalio’s “cash is trash” motto is so yesterday. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Stop all the clocks. That’s what the Indian central bank is permitting lenders to do for three months after Prime Minister Narendra Modi announced one of the harshest lockdowns anywhere in the world to arrest the spread of the coronavirus. India isn’t the only country going down the route of payment moratoriums. Malaysia has announced an automatic freeze on ringgit advances for six months for individuals and small businesses, and “strongly encouraged” banks to consider similar requests from larger firms. Loans kept in abeyance won’t count as nonperforming. The Philippines, which has already granted relief to 5 million homeowners on mortgage payments, has authorized President Rodrigo Duterte to order a more sweeping grace period. Australian banks are deferring mortgage and small-business repayments for up to six months.Is putting finance on ice the right strategy, especially in emerging economies? Agustin Carstens, general manager for the Bank for International Settlements, is advising central banks to follow a different approach: Get the last mile right. Make funding available; ensure it reaches distressed businesses and individuals; use monetary authority balance sheets to do so, but with governments guaranteeing credit risks. The recommendation is worth heeding to prevent a big outbreak of another kind: moral hazard.But first, some practical issues. One difficulty is that if a payment holiday is left to banks’ discretion (as it has been in India), the lenders will do all they can to grant it to as few customers as possible without inviting a backlash. Another is that a timeout can’t be efficiently employed when the funds for lending come not just from banks but also from investors.Take India’s microlenders. The $28 billion industry would be unable to collect anything much from the self-employed whose cash flows have dried up. Telling financiers they don’t have to provide for delinquencies sounds like a big relief when workers are fleeing cities to return to villages in what may be the biggest dislocation of lives and livelihoods since the 1947 partition of the subcontinent.But many of the loans that stop earning cash have been packaged and sold. Mutual funds and others holding a piece of the bundle aren’t covered by the moratorium, which applies only to to lending transactions and not investing decisions. Investors would demand to be paid. Asset-backed securities, where the underlying loan is a fleet of commercial vehicles or credit to small enterprises, may be able to cover payouts from the cash collateral over the next two to three months, “but this could be insufficient in the event of prolonged loan collection disruptions,” Moody’s Investors Service said Monday. As the structured obligations default, nobody will give the originating lenders new money to rebuild their broken businesses. They’ll sink.Many bank borrowers will still struggle to repay after three months, or six — the stopped time will mean more or bigger installments later. The Reserve Bank of India isn’t asking lenders to forgo any of the net present value of what they’re owed. But as politicians get involved, the moratoriums may turn into waivers. Institutions like credit bureaus, meant to instill repayment discipline in normal times, will get overwhelmed. That’s the moral hazard problem.Citigroup Inc. analysts have asked the same question about Malaysian banks: What happens in October if individuals or businesses still can’t service their loans? “Will there be a massive spike in nonperforming loans by year end?”Let’s face it. No monetary authority is hoping to replenish lost demand. The goal of the Federal Reserve and every other central bank is to ameliorate pain for borrowers while keeping the financial system alive so that it can support a recovery. Homeowners in the U.S. have been given protection from late fees and foreclosures for 60 days, provided there’s a Fannie Mae, Freddie Mac, Department of Agriculture or Federal Housing Administration backing for the mortgage.There’s plenty that countries like India can do differently. The Reserve Bank of India cut its benchmark borrowing rate Friday by 75 basis points to 4.4%. It slashed the banks’ cash reserve requirements and also promised lenders three years of cheap funding if they buy investment-grade corporate bonds and commercial paper. These are helpful measures, though cheap interest costs and $50 billion in liquidity don’t cover the last mile: borrowers whose dwindling cash flows have become much more uncertain.The BIS is right to ask central banks to focus on supply chains. Hero MotoCorp Ltd., India’s largest two-wheeler maker, has invoked force majeure to delay payments to suppliers, the Economic Times has reported. Before parts makers magnify the crunch, the Modi government should consider guaranteeing vendor debt backed by receivables from highly rated companies. Taking a leaf from Carstens, let the sovereign stand behind all fresh borrowing of firms and financiers equal to the taxes paid by them last year. The central bank can scoop up bundles of these obligations, encouraging more issuance and investment.Eventually, the government may have to make good on some credit losses. To the extent the RBI aggressively buys the notes, it’s money going from one pocket to another. At a time when an increase in fiscal deficit or debt should be the last worry, pumping more funds to people may be the better way. Putting finance on ice will only store up trouble. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Andy Mukherjee is a Bloomberg Opinion columnist covering industrial companies and financial services. He previously was a columnist for Reuters Breakingviews. He has also worked for the Straits Times, ET NOW and Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- The rat-a-tat of banks in the U.S. and Europe pledging not to cut jobs in the midst of the coronavirus pandemic will be a relief to those inside and outside the industry as the world economy crumbles. For many bankers, though, the respite will be no more than temporary.As governments race to prop up companies and individuals with financial aid, lenders are critical to the transmission of these policies. It will be up to them to delay mortgage and loan payments and hand out state-backed loans to millions of customers. That will determine the extent to which economies can mitigate the slump as businesses battle to survive through the lockdowns. Bank of America Corp. — at one point the target of social media ire over its customer payment terms — has moved thousands of employees to its consumer and small business units to deal with the crisis, including bringing in temporary external hires.Unlike the crisis of 2008, the stresses on markets and the economy are not of banks’ making but they could be as severe. Policymakers have rushed through stimulus and eased lenders’ capital requirements to soften the blow. As they grapple with the operational challenge of fielding a volume of customer calls running as high as 10 times normal levels, now is not the time for layoffs. As regulators have said, buybacks and dividends must go first.Yet the pressure on bank jobs and other costs won’t go away in the medium term. Even the better-placed lenders, which have prospered from the recent spike in market trading activity, will be affected by the economic carnage of the next few months. Deutsche Bank AG, which has paused staff cuts in the middle of its biggest restructuring in decades, on March 18 said the positive business momentum in the fourth quarter of 2019 — in which trading was prominent — carried over into start of 2020. Two days later, it warned it “may be materially adversely affected by a protracted downturn.”From their markets businesses to lending and commissions from investment products, analysts expect all banks to suffer a drop in revenue and an inevitable build-up of bad loans that will erode profit. Record low interest rates will keep squeezing loan margins and appetite for new investments will almost certainly remain subdued for some time.Some analysts are starting to try to asses the financial hit. A Berenberg study of 38 European and U.S. banks estimates an overall revenue decline of 8.5% in 2020 and earnings 30% below what was expected for 2020. There’s only so much policymakers can do to shield financial firms.Europe’s banks, which were struggling to generate sustainable profit even before the latest crisis, will feel most acutely the pressure to shore up capital. This will create the conditions for more mergers.The cost-to-income ratio at the region’s top banks averaged 66.9% in 2019, the highest level since the financial crisis. Return on equity, a measure of profitability, dropped to 8.7%, the lowest in three years, Bloomberg Intelligence data show. Moody’s has downgraded the credit outlook for banks across France, Italy, Spain, Denmark, the Netherlands and Belgium to negative because the operating environment will “deteriorate significantly.” The ratings company already had negative outlooks for British and German banks.As well as the relentless squeeze on profit and costs, there’s another key factor that doesn’t bode well for bank jobs once the current environment ends: the sudden shift to digital banking during the pandemic. Banks are operating with only a fraction of their branches open, leading to a surge in online traffic that might well stick after the Covid-19 outbreak abates. One big U.K. bank saw demand for its online app more than triple to 5,000 daily downloads last week. In the U.S., Italy, France and Germany bank branches on average provide services to fewer than 3,500 inhabitants. In the Netherlands, where the banks are further along in introducing technological changes, the figure is closer to 11,000. This may well be a turning point in the desirability of local brick and mortar banks.The acceleration toward digital banking after the coronavirus “will probably be very fast,” UniCredit SpA Chief Executive Officer Jean Pierre Mustier told Bloomberg Television on Monday. Smaller banks in particular will have to adapt quickly. As economies implode under lockdowns affecting more than one-third of the world’s population, banks are in demand like never before. That won’t last.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- I’m just going to nip this line of thought in the bud right now: The Federal Reserve should not provide any sort of outright backstop to the U.S. high-yield bond market, no matter how bad things may get for lower-rated companies.I bring this up not because there’s any reason to believe the central bank is on the brink of enacting such a facility but rather because credit-rating companies are updating their projections of just how many speculative-grade companies might fold because of the economic standstill brought about by the coronavirus outbreak. Moody’s Investors Service released a report on Friday that said a sharp but short-lived downturn would increase the global default rate among junk-rated borrowers to 6.8%. A recession on par with the previous one would mean a 16.1% default rate in a year, and something even worse would bring about a whopping 20.8% rate of failure.Even the first scenario would be a shock to high-yield investors who for a decade have become accustomed to defaults in the low single digits and largely confined to an obviously distressed industry such as energy and retail. The wide range of outcomes is one of the reasons that I deemed junk bonds and leveraged loans “losers” among fixed-income assets in a column last week, in contrast to U.S. Treasuries, agency mortgage-backed securities and investment-grade corporate bonds.Of course, one trait shared by the winners is that the Fed has signaled outright support for them. In the case of Treasuries and mortgage securities, it’s typical quantitative easing. But high-grade corporate bonds represent an entirely unprecedented endeavor. It’s so novel, in fact, that Jim Bianco, president and founder of Bianco Research, wrote a Bloomberg Opinion column arguing that the federal government is effectively nationalizing large swaths of the financial markets.On the other hand, buying corporate bonds is old hat for the European Central Bank. While the Fed has set limits that allow its facilities only to add debt maturing in four or five years, the ECB can purchase securities that are due in up to 30 years. That’s an entirely different ballgame as far as projecting default risk. The ECB has no issue with adding negative-yielding debt, either. For those who might have missed it stateside, Siemens AG issued two-year euro bonds in August that priced to yield -0.3%, the most negative-yielding corporate debt sale of all time. It’s rated single-A.“Investors may try to push back on some of the initial deals, but within a few months they will be considered relatively normal structures,” JPMorgan Chase & Co. strategists wrote at the time.The backdrop of finding it normal to effectively pay companies to own their debt is important context for my Bloomberg Opinion colleague Marcus Ashworth’s column last week, titled “Junk Bond Investors Need a Little Love Too.” He rightly points out that the ECB’s measures to support bank lending don’t always reach where they’re needed — like speculative-grade companies that might fold without market access. That, in turn, could lead to widespread job losses and inhibit an economic recovery. The conclusion: “The central bank should think seriously about widening the remit of its corporate sector purchasing program to include junk bonds.” The ECB might very well consider it. Nothing would surprise me at this point. For the Fed, though, it should be an easy decision: hard pass.Credit ratings still need to mean something. I wrote last week about how the impending wave of fallen angels — those companies downgraded to double-B from triple-B — won’t be propped up by the Fed’s new credit-market facilities. Since that column, Ford Motor Co. became the largest such fallen angel of this cycle, with its $35.8 billion of debt headed into the high-yield index this week. I could almost hear the outcry: “Ford was investment grade before the coronavirus outbreak, which was totally out of its control. Why should the company be punished like this?”It likely won’t be the last household name to drop into speculative grade, given how many of them gradually descended into the triple-B tier during the economic expansion. If this shock forces some finance officers to reconsider whether triple-B ratings are optimal, that’s not such a bad outcome.Similarly, reaching for yield needs to have consequences. Investors at one point in December demanded just 38 basis points of extra yield to own double-B bonds instead of those rated triple-B. That spread reached 400 basis points last week. The difference between triple-C and single-B yields climbed to 819 basis points on March 24, from 426 basis points in early February.Those kinds of moves are painful for U.S. high-yield funds, no question. But I’d wager that money managers would rather deal with these repricing episodes than to be in the shoes of their European counterparts, some of whom bought euro junk bonds from French packaging company Crown European Holdings SA at a 0.75% yield in October. That was a record low, as Ashworth pointed out.Simply put, the Fed shouldn’t save every company, nor every investor’s position. In an ideal world, Chair Jerome Powell would most likely have preferred to go no further than the 2008 playbook of purchasing a vast amount of securities that have government guarantees. When that didn’t work, he dipped into short-term commercial paper, as was done before. And when that was insufficient, the central bank launched its new credit facilities. That unfroze the investment-grade market.Whether that thaw makes its way to junk bonds is up to private investors. In hindsight, some securities will seem like bargains. Bank of America Corp. strategists, for their part, see spreads of 1,000 basis points as generally good value, while “at 1,200 bps it would be great value, and at 1,500 bps it would be an extremely rare opportunity.”These types of evaluations are a crucial element of well-functioning capital markets. Unfortunately, when the going gets tough, some investors would rather have central banks provide a cheat sheet than do their own homework on which companies will survive and which will falter. The Fed should resist any temptation to lend a hand. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Emerging-market stocks had their best week since late 2018 and currencies rallied as stimulus measures from central banks and governments gave risk assets a reprieve following their battering from the coronavirus outbreak. India and Colombia were the latest nations to join a wave of global rate cuts, while South Africa and Indonesia announced measures to boost liquidity.The following is a roundup of emerging-markets news and highlights for the week ending March 29.Read here our emerging-market weekly preview, and listen here to our weekly podcast.Highlights:The U.S. Federal Reserve unveiled sweeping measures as it raced to contain the economic and market fallout from the coronavirus. The central bank said it would buy unlimited amounts of Treasuries and mortgage-backed securities to keep borrowing costs at rock-bottom levels and help ensure markets function properlyFed earlier last week offered to directly finance U.S. companies, jumping ahead of Congress, which is still arguing over similar assistanceChairman Jerome Powell said the central bank will maintain its muscular efforts to support the flow of credit in the economy as Americans hunker down from the coronavirusPresident Donald Trump signed the largest stimulus package in U.S. history on Friday, a $2 trillion bill intended to rescue the coronavirus-battered economySouth Korea doubled its emergency funds to around 100 trillion won ($83 billion) in an attempt to protect businesses and financial markets from the pandemic that’s wreaking havoc on the global economy. India announced a 1.7 trillion rupee ($23 billion) spending plan. Singapore unveiled a second stimulus package of S$48 billion ($34 billion)Reserve Bank of India cut rates and announced steps to boost liquidity in an unscheduled move, joining central banks around the world in scaling up stimulusThe International Monetary Fund said that it’s working to get aid to developing nations whose own resources will fall short of the $2.5 trillion that they need to address the coronavirus pandemicPresident Trump said the U.S. economy can’t remain stalled for too long to fight the coronavirus, declaring the country “was not built to be shut down”Trump said he’ll stop using the term “Chinese virus,” a sign U.S. and China want to deescalate their blame game over the pandemic, though his top diplomat kept up accusations that Beijing is waging a misinformation campaign about its originChina’s Hubei province will allow transportation to resume for the city of Wuhan on April 8, effectively lifting a quarantine over the city where the coronavirus first emerged last DecemberSouth Africa lost its last investment-grade rating on Friday when it was downgraded to junk by Moody’s Investors Service, meaning it will be excluded from the FTSE World Government Bond IndexesFinance Minister Tito Mboweni told local newspaper Sunday Times that he may approach the World Bank and IMF for funding to deal with the coronavirus falloutThe country’s local-currency bonds and the rand had rallied on Wednesday after the central bank said it will start buying debt in the secondary market in an unprecedented intervention to boost liquidityLebanon kicked off talks to restructure its $90 billion debt pile on Friday with a promise to present a comprehensive recovery plan for its “broken” economy before the end of this yearInvestors in credit insurance on Lebanon are set to receive a payout after a binding ruling from a CDS committeeRussian President Vladimir Putin laid out plans to boost taxes on dividends paid to offshore entities to 15% from 2%, and ordered a 13% levy on interest from bank deposits of more than 1 million rubles ($12,900) as well as local government-bond holdingsS&P Global Ratings cut Mexico’s sovereign credit score one notch to BBB, saying shocks from the coronavirus and an oil price rout will harm the country’s economic outlookThe ratings company also downgraded oil producers Kuwait, Oman, Nigeria and AngolaInvestors withdrew $2.94 billion from U.S.-listed emerging-market ETFs in the week ended March 20Russian oil giant Rosneft sold its assets in Venezuela to the Russian government, in what may be a maneuver to avoid any U.S. sanctions in an escalating fight between Caracas, Washington and MoscowNorth Korea fired what appeared to be two short-range ballistic missiles into its eastern sea, marking the fourth launch of projectiles this monthAsia:China’s government talked up the prospects for a rapid economic rebound from the coronavirus, even as the global economy sees further lockdowns to curb the pandemicAs traders around the world struggle to get their hands on the dollar, liquidity in China was so plentiful that borrowing in yuan costs the least in 14 yearsAn unusual public spat between two top Chinese diplomats pointed to an internal split in Beijing over how to handle rising tensions with a combative U.S. presidentRead: Second Virus Shockwave Is Hitting China’s Factories AlreadyIndustrial profits dropped by 38.3% in the first two months of this year compared to the same period in 2019. Profits at state-owned firms, private companies and foreign-invested business all dropped more than 30%.Bank of Korea pledged “unlimited” liquidity to financial institutions strained by the coronavirus in a move resembling quantitative easing; the authority said on Sunday it will provide $12 billion to banks in its first round of dollar injections using a currency swap line with the Federal ReserveSouth Korea will loosen its rule on FX liquidity coverage ratio for banks to 70% from 80% until end-May, Vice Finance Minister Kim Yongbeom saidSouth Korea had become the latest country where yields on short-term corporate debt have surged due to the coronavirusBank of Korea will provide liquidity to securities companies via repo agreements with five non-banking financial institutions, according to a BOK officialIndia suspended all domestic flights from midnight Tuesday, the final piece of a nationwide lockdown that threatens Prime Minister Modi’s attempts to revive the economyIndia’s foreign-exchange reserves posted its biggest weekly drop since 2008, falling by $12 billion as the central bank aggressively stepped in to defend the rupeeIndian banks will be allowed to trade in the offshore currency market in a step toward liberalizing foreign-exchange tradingIndian lenders bid for fewer dollars than the amount that the central bank offered via a swap line even as a global scramble for the greenback intensified. The central bank accepted bids worth $650 million for its second foreign-currency swap auctionIndonesia’s central bank began holding daily repurchase and foreign-exchange swap auctions to bolster liquidity as an investor exodus from bonds and stocks pushed the currency to near a record lowBank Indonesia was seeking a dollar liquidity swap line facility from the Federal Reserve, Governor Perry Warjiyo saidIndonesia should temporarily ease a legal cap on its budget deficit to allow the government to ramp up spending to counter the economic fallout of the coronavirus outbreak, according to an influential panel of lawmakersPresident Joko Widodo ordered spending cuts across the public service so that expenditure can be reallocated to fight the coronavirusIndonesia is considering issuing rupiah-denominated recovery bonds for the first time to finance incentives for private companies to counter the fallout of the coronavirusMalaysia announced billions of dollars in fresh support for an economy punished by the coronavirus pandemicMalaysia extended its lockdown period by two weeks as the number of infections keeps climbingBank Negara Malaysia is rolling out additional measures to help those facing financial constraints from the pandemic, according to a statement from the central bank to Malaysian lendersMalaysia has banned short-selling until April 30 to mitigate risks arising from heightened volatility and global uncertaintiesThailand became one the latest countries to go into a lockdown when a state of emergency was enforced from Thursday to fight the spread of the coronavirusThailand said it’s mulling an emergency decree to enable the government to borrow more to support the economy over the next two to three monthsBank of Thailand left its benchmark rate unchanged after an emergency cut the week before, while projecting the worst contraction in the economy since the Asian financial crisisThailand’s foreign tourism receipts plunged in February to the lowest since 2015Philippines is moving to tackle the widening fallout from the coronavirus, with the central bank approving the purchase of government securities to help boost state funding and legislators granting President Rodrigo Duterte extra powersPhilippine central bank is infusing more funds into the economy, slashing big lenders’ reserve requirement ratio by 2 percentage points and flagging more cuts to comeBangko Sentral ng Pilipinas will remit 20 billion pesos ($392 million) as advance dividend to the government to help support programs against the coronavirusPhilippines is prepared to tap all possible markets and widen its budget deficit to combat the coronavirus, Finance Secretary Carlos Dominguez saidEMEA:Egypt’s main stock index was among the world’s best performers on March 23 after news the central bank would support the bourse to the tune of 20 billion Egyptian pounds ($1.27 billion)United Arab Emirates rolled out a slew of measures to contain the coronavirus -- from suspending flights, shutting malls to adding more firepower to its stimulus packageDollar pegs in the Gulf have proven effective even as the region now faces the coronavirus outbreak and the crash in oil prices, the International Monetary Fund saidSaudi Arabia locked down its capital Riyadh and holy cities of Mecca and Medina to prevent the spread of the coronavirusThe devastation of the coronavirus outbreak in Iran is raising pressure on the U.S. to ease sanctions on the country. So far, the Trump administration isn’t budgingIranian President Hassan Rouhani wants to tap the country’s sovereign wealth fund for $1 billion to support a healthcare system overstretched by the coronavirus outbreak, state-run Islamic Republic News Agency reportedIMF’s Executive Board approved a four-year $1.3 billion program for Jordan, Minister of Finance Mohammad Al Ississ saidIsrael’s central bank is adding to its lead role in trying to keep the economy and markets from unraveling in the face of the coronavirusInvestors trapped in some of the world’s most illiquid bond markets are rushing to short local currencies, driving up the price of hedging their positionsHungary’s central bank offered domestic lenders a backstop of $29 billion to fight the economic fallout from the coronavirus, triggering a rally in government bonds while sending the forint to near a record lowThe Czech government sold the largest amount of domestic bonds ever, helped by preparations for potential quantitative easing by the central bank and a rebound in global risk appetiteTurkish President Recep Tayyip Erdogan announced new measures to fight the spread of the coronavirus, imposing further restrictions on people’s movement and banning large gatheringsTurkish manufacturers’ confidence in the economy has plunged the most since the 2008 global financial crisis, the first key piece of data reflecting the coronavirus’s toll on local businessesSouth African President Cyril Ramaphosa reappointed Kuben Naidoo as deputy governor of the central bank, ensuring continuity at the institution’s top level for least another four yearsSouth Africa’s banking regulator plans to give banks a break from accounting and capital rules that could release around 300 billion rand ($17 billion) for lending to help the economy cope with the fallout of the coronavirusSouth African authorities ordered a three-week lockdown to curb the spread of the coronavirus as infections continue to surgeNigeria’s central bank held its benchmark interest rate at 13.5%, going against the global trend of slashing borrowing costs as it tries to prop up the nairaKenya is in talks with the World Bank for budget support of $750 million and the IMF for $350 million in emergency assistanceAngola will wait for debt markets and oil prices to recover before attempting a Eurobond sale as large as $3 billion that’s been approved by the president; the central bank held its main interest rate at 15.5% on FridayAfrica’s currencies, among the worst hit this month, may be in for even more painLatin America:Ecuador said it would hold talks with creditors to re-profile its liabilities and announced it would exercise a 30-day grace period on bond interest paymentsBrazil’s President Jair Bolsonaro urged the population to resume normal life to protect the economy, even as cases of coronavirus rose, triggering a clash with state governments that imposed social distancing measures as Sao PauloBrazil posted the slowest mid-month inflation in more than a year in March and retail sales fell more in January than economists predictedCentral bank refrained from cutting rates more aggressively due to concerns about the interruption of a reform agenda, minutes of the latest meeting showed; officials expect the economy to stagnate this yearMexican President Andres Manuel Lopez Obrador’s relationship with the business elite is rapidly deteriorating over the response to the coronavirus and his decision to back a local referendum to shutter a partly built $1.5 billion beer plantInflation slowed in early March amid declining gasoline pricesArgentina’s economy shrank 2.2% last year, even before the coronavirus took its global tollNation closed its borders until March 31International Swaps & Derivatives Association received a request from an eligible market participant to consider whether a potential debt repudiation or moratorium occurred in ArgentinaColombia’s central bank cut borrowing costs for the first time in two years at a regularly scheduled meetingColombia’s central bank is buying debt issued by local lenders as it extends emergency measures to prevent liquidity from drying up following the crash in the bond marketPeru’s congress voted in favor of giving the government legislative powers for measures to mitigate the economic impact of the coronavirus pandemicPanama sold $2.5 billion in global bonds as it steps up spending to contain the worst outbreak of coronavirus in Central AmericaFor more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- SoftBank Group Corp. fell as much as 10% after a satellite operator it invested in filed for bankruptcy, ceding some gains from an unprecedented plan to sell assets and buy back shares.OneWeb made the filing late Friday U.S. time after raising about $3.3 billion in debt and equity financing from shareholders including SoftBank, Airbus SE and Qualcomm Inc. since its inception. At least $1 billion of that came from SoftBank, which said it first invested in December 2016 and declined to give a total amount.It is the latest blow to SoftBank founder Masayoshi Son, who last week unveiled a plan to raise $41 billion to buy back shares and slash debt. The announcement sent the shares soaring more than 50% in just a few days. The rally was interrupted when Moody’s Corp. cut its debt rating by two notches, saying the Japanese investment firm’s plan to sell off assets during a market downturn threatened its total value. SoftBank’s shares traded 6.7% lower on Monday morning in Tokyo.Son had often pointed to OneWeb as one of the cornerstones of an investment portfolio that ranges from ride sharing, co-working and robotics to agriculture, cancer detection and autonomous driving. The startup was working on providing affordable high-speed access anywhere in the world and targeting 1 billion subscribers by 2025. Son has painted a picture of a future where satellite networks cover every inch of the Earth and a trillion devices connected to the internet disgorge data into the cloud where it is analyzed by artificial intelligence.OneWeb listed liabilities and assets of more than $1 billion each in its Chapter 11 petition in U.S. Bankruptcy Court in White Plains, New York. The company had been in advanced discussions earlier in the year for a fresh investment, it said in a statement. But the discussions fell apart after the coronavirus pandemic sent markets into a tailspin, it said.The company had been mulling a Chapter 11 filing even as it continued to review possible out-of-court alternatives, people with knowledge of the matter told Bloomberg News on March 19.The satellite operator said it will pursue a sale process during the court reorganization and is in talks for so-called debtor-in-possession financing that would allow the company to fund its obligations during the proceedings.OneWeb makes low-orbit satellites that provide high-speed communications. It faces high-profile competition, including from Elon Musk’s SpaceX Starlink project and Jeff Bezos’s Amazon-linked Project Kuiper effort, while incumbents in the space include Inmarsat, Intelsat SA and Eutelsat Communications SA.At the time of its filing, OneWeb owed $238 million to Arianespace, its satellite launch operator, according to the court document. Arianespace, headquartered near Paris, describes itself on its website as the world’s first commercial space transportation company.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Masayoshi Son pledged an extra 10.1 million SoftBank Group Corp. shares to lenders in the past two weeks as he unveiled an ambitious plan to overhaul his Japanese conglomerate and silence critics.Son has now committed 227 million SoftBank shares as collateral, worth about $8 billion, according to regulatory filings. That’s about 40% of his 27% stake in the publicly traded conglomerate. The newly pledged shares were worth about $360 million at Friday’s close.The Japanese billionaire has more than tripled the level of pledging since 2013, turning to banks including UBS Group AG, Nomura Holdings Inc., Credit Suisse Group AG and Julius Baer Group Ltd. It’s not uncommon for the ultra-wealthy to borrow against their stock, but Son’s use of the tactic is among the most significant tracked by the Bloomberg Billionaires Index. The amount he’s pledged trails only Larry Ellison, Russia’s Suleiman Kerimov and China’s Qin Yinglin on the ranking of the world’s 500 richest people.Son’s net worth is $12 billion, which excludes the value of the pledged shares. It has fallen $3.6 billion so far this year and has been one of the more volatile fortunes tracked by Bloomberg.SoftBank spokesman Takeaki Nukii declined to comment on Son’s personal finances.SoftBank has been battling on several fronts this year, including facing pressure from Elliott Management Corp., which called for a special committee to review processes at the Vision Fund, the world’s largest single investment pool for tech startups. Son has responded with a plan to sell about $14 billion of shares in Chinese e-commerce leader Alibaba Group Holding Ltd. as part of an effort to raise $41 billion to shore up businesses battered by the coronavirus pandemic. Son moved ahead after he reportedly considered and then abandoned the idea of taking his conglomerate private.SoftBank also lashed out at Moody’s Corp. this week after its debt was downgraded by two notches, accusing the ratings company of “bias” and “creating substantial misunderstanding.”Some other billionaires are scrambling to meet margin calls on their pledged shares. India’s Gautam Adani and his family put up an additional $1.4 billion of shares as collateral on existing debt this month, and wealth managers like UBS and Credit Suisse have asked clients to post additional collateral.(Updates with Moody’s response in seventh paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- S&P Global Ratings cut its sovereign credit score for Mexico by one notch to BBB, saying shocks from the spread of coronavirus and an oil price rout will harm the country’s already grim economic outlook.In their statement, S&P also said that Mexico will remain on credit watch negative, reflecting the possibility that its rating could be cut a second time within a year or two.“Prolonged poor fiscal performance and a resulting rising debt burden, or the risk of potentially weak policy implementation, could lead us to lower the rating,” wrote S&P analysts Lisa Schineller and Joydeep Mukherji in the decision.For President Andres Manuel Lopez Obrador -- who is already contending with an economic slump, the virus, and a steep decline in business confidence -- the S&P decision is yet another in a long list of setbacks. While the downgrade was widely expected after Mexican assets plunged, it confirms just how dire the situation is for an economy that some experts see contracting near 6%, a similar scenario to the Tequila Crisis of the mid 1990s.“While we were surprised by the timing, we were not surprised by the downgrade itself and the negative credit watch,” said Jens Nystedt, a senior portfolio manager at Emso Asset Management in New York. “It shows the growth and fiscal challenges Mexico is facing and those have been made worse by the likely impact of the Covid-19 virus.”‘Amid the Risks’Nystedt added that while Mexico’s investment grade rating is not yet at risk, state oil company Petroleos Mexicanos’s might be over the next few months. It’s already been downgraded to junk by Fitch, and Moody’s Investor Service has Pemex on negative watch to lose investment grade.Despite the government’s strict adherence to fiscal discipline, it is the poor economic prospects that analysts worry could lead to further credit downgrades in the future.“The probability of another downgrade to materialize in the next 12 to 24 months is not low,” said Claudia Ceja, a BBVA strategist based in Mexico City. “Another downgrade would depend on the ability to implement public policies amid the risks that the economy will keep on facing.”Read More: Mexico, Not Just Pemex, Will Shoulder Burden of Lower Oil PricesMexico’s peso reversed gains and fell 1.4% to 23.2630 per dollar after the downgrade.The S&P analysts also mentioned potential increases in contingent liabilities from Pemex, which has been hammered by the oil price plunge this year. Investors have long feared that the Mexican sovereign would be required to do more to support the company as it struggles under a debt burden of more than $100 billion.In the decision, S&P highlighted the shift in energy policy under Lopez Obrador, which the analysts said has increased the country’s reliance on the oil company. Business confidence in the country “remains low” and hasn’t improved since an infrastructure plan announced in November, it said.Read More: Mexico President Pushes Business Tensions to Boiling Point“If the government’s fiscal profile remains weak for a prolonged period,” the analysts added, “Pemex’s poor operational and financial performance and technical capacity constraints could pose a more material contingent liability for sovereign creditworthiness.”(Updates with investor comments starting in fourth paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- Masayoshi Son has been among the most fervent believers in the sharing economy, investing billions in startups that help people split the use of cars, rooms and offices. But as the coronavirus curtails unnecessary human interaction, it’s hammering such businesses and rattling the foundations of Son’s SoftBank Group Corp.In New York City, the co-working space of SoftBank-backed WeWork stands practically empty as tenants stay home for fear of infection. In Shanghai, drivers for the ride-hailing service Didi Chuxing have seen their pay plummet as customers avoid shared automobiles. In San Francisco, Dara Khosrowshahi, chief executive officer of Uber Technologies Inc., another SoftBank investment, said “I wouldn’t put my kids in an Uber.”Investors are increasingly spooked about the stability of Son’s empire and its $100 billion Vision Fund amid the pandemic. Before this week, SoftBank shares had tumbled about 50% in a single month, including their worst one-day decline since the Japanese billionaire listed his company in 1994. In response, the SoftBank impresario launched one of the most audacious deals of his career: sell part of Alibaba Group Holding Ltd. and other assets to raise $41 billion to buy back shares and slash debt.While that envisioned deal put a floor under the share price, it hasn’t changed the fundamental vulnerability of an edifice built on sharing-economy standouts that’ve been walloped since sheltering in place became the norm. SoftBank gained about 40% since Son revealed that blueprint, which is said to include unloading $14 billion of Alibaba stock for starters. But it remains down about 30% from a February peak. In fact, Moody’s Corp. questioned the wisdom of selling prized assets into a market downturn and pushed SoftBank’s debt deeper into junk territory. SoftBank fired back by accusing Moody’s of bias, but its stock fell 9.4% on Thursday.“Right now, investments sensitive to sharing and the economy are not where you want to be, with the pandemic encouraging a stay-at-home mentality,” said Pelham Smithers, whose London-based firm offers research on Asian technology companies, in a note to clients. Companies such as WeWork, Uber and the hotel-booking Oyo “weren’t profitable when times were (relatively) good, begging the question, what will their economics look like in 2020?”Read more: Masa Son Unveils a $41 Billion Asset Sale to Silence His CriticsDespite the stock bounce, SoftBank’s credit default swaps -- the cost of insuring debt against default -- are still near their highest levels in a decade. The concern isn’t so much that the Japanese giant won’t be able to pay its own debts -- its cash will cover money due for at least the next two years. Rather, investors fret that Son’s 80-plus portfolio companies will struggle in the current environment, triggering negative headlines and massive writedowns.“With the prospect of more good money being sunk into firms like WeWork and Oyo, investors would not have reacted as positively as they did this week,” Amir Anvarzadeh, a market strategist at Asymmetric Advisors Pte. in Singapore, said in a note to clients.Most worrisome for investors, Son -- who saw $70 billion wiped from his net worth in the dot-com crash -- may feel compelled to step in to support some of his startups rather than see them fail. The litany of woes surrounding SoftBank’s highest-profile startups threatens to tarnish Son’s reputation as a tech investor -- one built largely on an early bet on Alibaba before it came to dominate Chinese e-commerce, which he’s struggled to replicate.Last year, after WeWork’s effort to go public fell apart, SoftBank stepped in to organize a $9.5 billion bailout. Son had to choose between financial aid or bankruptcy, at a time when risk aversion is straining global tech investment.“SoftBank frustrated investors already with its assistance to WeWork last year,” said Makoto Kikuchi, chief investment officer at Myojo Asset Management Co. in Tokyo. “SoftBank owns many investments such as tech companies that get hit particularly in this situation.”SoftBank and Vision Fund representatives declined to comment for the story.Read more: SoftBank Blasts Moody’s for ‘Biased’ Ratings DowngradeSon did vow he wouldn’t step in to rescue any more portfolio companies after WeWork and called for more financial discipline. Among SoftBank startups, Brandless Inc. said in February it would close down while satellite operator OneWeb is mulling a possible bankruptcy filing.“It’s unlikely that SoftBank portfolio companies will see any of that money, because the announcement was pretty clear on the purpose of the asset sale,” said Justin Tang at United First Partners. “In fact, it would be an opportune time for SoftBank to get rid of its weaker portfolio companies and stick with the leaders.”On Wednesday, Moody’s said it will watch SoftBank and the extent to which tumbling valuations will hurt its tech-heavy portfolio. Son’s biggest bet to date has been on ride-hailing, with stakes in Uber and the leading companies in China, India and Southeast Asia. The latest to exhibit signs of trouble was European player Getaround, which is now said to be dangerously short of cash and actively seeking a buyer.Beijing-based Didi Chuxing is another prime example of how the virus is walloping these operations. The startup, once tagged at $56 billion, had struggled to justify its valuation even before the latest crisis because of a government crackdown on its services. Ridership tumbled during the outbreak in China and Didi cut driver subsidies.Sheng Gang, a 34-year-old Shanghai resident, said he used to earn a 36 yuan ($5) bonus for every four rides during the morning rush hour; now that’s been lowered to just 6 yuan for every three. He expects his income to drop by about half this month to around 10,000 yuan.“I don’t have a Plan B since I just bought a new car,” Sheng said.Wen Peng, a 35-year-old Hebei native, earned around 6,000 yuan a month as a part-time driver. But when the coronavirus hit, most people chose to stay inside and he couldn’t sustain himself. He quit in February.“People didn’t leave their homes, almost no one wanted rides,” he said. “Many others quit for similar reasons.”A Didi spokeswoman said ridership has rebounded significantly in recent weeks as people went back to work.Read more: WeWork’s New Crisis: ‘Workplaces Will Never Be the Same’WeWork is another question mark: SoftBank has told WeWork shareholders that it could withdraw from the agreement to buy $3 billion of its stock that was part of a bailout deal. WeWork has kept its offices open despite the virus, even while other co-working operators have closed them. That may be because revenue would disappear otherwise, just as SoftBank is trying to engineer a turnaround. WeWork said Thursday it doesn’t expect to hit its 2020 financial targets as it grapples with the outbreak.One executive who usually uses a WeWork office on Park Avenue in New York said hardly anyone shows up anymore. His WeWork representative has stopped coming to the site and works remotely. He figures customers may be canceling their leases or simply not paying, which would leave WeWork on the hook for rent owed to the landlord, Tishman Speyer. “None of us are going to the office,” he said. “But we’ve decided for now to just kick any decisions down the road for six months.”Then there’s Oyo, which is in a particularly tricky spot. The Indian company has been expanding rapidly by guaranteeing a certain amount of revenue to hotels if they sign on as franchisees. But with few travelers anywhere, Oyo has to pay hotels even when their rooms are mostly empty.At the Kawasaki Hotel Park in Japan, more than 400 reservations were canceled for February to April. The result was a drop in revenue of about 25 million yen ($226,000), according to Sanho Miyamoto, the owner.“Overseas customers disappeared and Japanese businessmen halted business trips. I had to ask our employees to take a vacation for a while,“ Miyamoto said. “I am worried whether Oyo can manage because it guarantees the revenue fall for its members.”He wouldn’t comment on arrangements with Oyo. But if the startup paid the entire shortfall, it would lose about $240,000 on a single hotel.Read more: Masayoshi Son’s Other Big Real Estate Bet Has Some Real ProblemThere’s opportunity in the downturn too. SoftBank-backed Slack Technologies Inc., a popular work communications tool among home workers, has surged following lockdowns from New York to California. And after a difficult first year in Japan, Oyo has turned to promising cash for hotels that join its platform as bookings plunged. While the company didn’t say how much it was prepared to spend, that kind of opportunism can only shorten its runway of available cash.Investors fear that companies like Oyo have become too big to fail for SoftBank, Atul Goyal, senior analyst at Jefferies Group, wrote in a report. The WeWork rescue showed that “zero is not a floor” for any SoftBank investment and that Son is willing to throw more good money after bad, he wrote.SoftBank may soon prove Goyal right. The company is seeking to raise an additional $10 billion so its first Vision Fund can support portfolio companies, according to people with knowledge of the matter. And the list of SoftBank portfolio firms that may soon need help also includes gym company Gympass, Getaround and travel startups Klook and GetYourGuide.“These startups are geared for high growth and high cash burn,” Goyal said. “As revenues fall, they will need further infusions of capital to keep the lights on.”Read more: SoftBank Seeks $10 Billion to Support Vision Fund Companies(An earlier version of the story corrected the name of GetYourGuide.)(Updates with WeWork’s warning in the 21st paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- It’s not fun being graded at the best of times, and it’s never pleasant being “downgraded.”Just look at this week’s spat between SoftBank Group Corp. and credit-rating provider Moody’s Corp following a double snip to the technology investor’s credit score. The row lays bare the complicated subjective and quantitative dynamics of judging a company’s credit worthiness. With business facing a mass downward revision, it’s a taste of things to come.The primary justification for Moody’s cut was “the unexpected size and apparent urgency” of a 2 trillion yen ($18 billion) share buyback program announced by SoftBank earlier in the week. That’s a controversial view because the cost of the share purchases would be more than covered by 4.5 trillion yen of planned sales from SoftBank’s investment portfolio. The vast majority of these proceeds would actually be used to cut debt.Markets had thought this was all good. With SoftBank’s shares trading at a big discount to the value of its underlying holdings, the maths of buying its own stock looked attractive. And what’s not to like about debt reduction?But Moody’s was puzzled by the timing. “It is unclear why [SoftBank] is undertaking such a dramatic recapitalization during a time of severe stock and market volatility,” it said, somewhat ominously. It seems the ratings firm doubts the explanation that now is an opportune moment to buy back stock and cut debt as a precaution.Moody's reasoning here is less analytical, and more an instinctive sense of caution.SoftBank’s response was pretty instinctive too. It was absolutely furious, and has requested that Moody’s removes its ratings entirely. The credit assessor’s puzzlement is viewed as plain bias by the downgraded company. SoftBank has accused Moody’s of ignoring the fact that the asset disposals would happen over the course of a year, not in some dramatic firesale now, and the smaller portfolio would still mainly comprise easy-to-sell securities. (Moody’s hasn’t responded to the criticisms).The question remains: what happens if markets and volatility hold at recent levels for a long time? To SoftBank, Moody’s is spreading misunderstanding and deviating from its methodology. But, arguably, the back and forth — available to all to read — has been useful for investors. Yes, Moody’s analysis does appear partly based on a skeptical gut feel. Still, sometimes that’s helpful. Investors can weigh its credibility accordingly and do the same for SoftBank’s fightback.We will see more of this kind of tension. These are difficult times. There were feuds in the post-2000 bear market and the euro zone debt crisis. Even if a downgrade is a response to circumstance, it’s usually received as a humiliation. And it may affect not only the cost of debt, but potentially access to borrowing entirely.The ratings firms were on the back foot during the financial crisis after wrongly assessing subprime structured credit as safe. Tension flared again in 2011 when S&P Global Ratings removed the U.S.’s triple-AAA rating. A political backlash ensued. Weeks later, S&P’s chief executive officer stepped down.The good news is that disagreements provide some comfort that the potential conflicts within the ratings business are manageable. The entity being graded — SoftBank in this case — pays for the privilege, which creates the risk that it gets soft treatment. A better model hasn’t been found yet: If investors paid, ratings might cease to be public and the new paymasters might seek to influence ratings firms instead.As the downgrades start flowing, there will be more controversial justifications. Companies may have underappreciated the extent to which ratings are opinions. Their formulation is more like diagnosis than entering inputs into a formula to derive an output. As with many opinions, expect some visceral responses too.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Chris Hughes is a Bloomberg Opinion columnist covering deals. He previously worked for Reuters Breakingviews, as well as the Financial Times and the Independent newspaper.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- At the rate the coronavirus is spreading, car companies won’t be making vehicles or big profits for a while. Who’s going to foot their bills in the event of an economic downturn like 2008? A financial crisis-like bailout won’t be a good look.Heading into this slump, carmakers were hardly exercising restraint, splashing out on big, tech-savvy investments and electric vehicles. Many global brands like Ford Motor Co. botched their bets in China, the world’s largest market, and have struggled to keep up there as it weakened.Now, from the U.S. to India, Vietnam and Thailand and elsewhere, auto giants are shutting down production. It means more than turning the lights off. Sales are expected to fall almost 15% this year to fewer than 80 million vehicles, according S&P Global Ratings. In the U.S., the drop may be the biggest since 2009. Even as China tries to get back to work, auto and parts factories will likely run at low capacity.The pandemic is showing up vulnerabilities on balance sheets. Over the past two days, Moody’s Investors Services downgraded auto manufacturers including Toyota Motor Corp. and BMW AG, and put several others on review, including General Motors Co., citing “weaknesses in their credit profiles including their exposure to final consumer demand for light vehicles.” S&P downgraded Ford to junk status and put Toyota on review.The billions of dollars of cash that car companies are sitting on may give investors comfort that contingency plans are in place. But automakers run cash-intensive businesses, paying suppliers and funding operations. Having a cushion helps in tough times, but not for long.Unlike other cash-heavy enterprises, most also run so-called negative working capital, meaning their current liabilities are higher than current assets. A dollar upfront is better than a dollar in a few weeks. The reason they can do this is because they get paid by their dealers before delivery – especially in the U.S, which is a credit-driven market.That’s all good when the cars are selling. But when things turn down, these companies start burning through cash quickly, as my colleague Chris Bryant has written. Pre-virus sales outlooks were already poor. The trouble with Covid-19 is that no one knows how long it will last or when buyers will return. That makes it harder to say how much cash they’ll need, part of the reason some are proactively drawing down their credit lines.In the current gloom, it’s worth looking at how far every dollar of sales goes toward meeting operational expenses and paying down short-term debt, or the ratio of working capital to sales. Companies still have to meet their payables, but inventories aren’t being drained. During the financial crisis a decade ago, Bloomberg Intelligence’s Joel Levington notes the ratio started slightly negative and rose to 5%. If that occurred again, he estimates, an average automaker would need an additional $6.9 billion of capital. With cash needs cropping up across the economy, it’s unclear where that money would come from.The descent can be quick: At the height of the crisis, Japanese automakers in the U.S. ran negative free cash flows of 830 billion yen ($7.7 billion), according to Goldman Sachs Group Inc., dropping from close to positive 2 trillion yen. In China, cash flows are highly correlated to profitability. If you’re running losses, working capital will bite. The cascading effect of a cash crunch could run far and wide. Some large Chinese auto parts manufacturers rely on international automakers for 30% to 50% of their business to generate positive operating cash flow. “This could change quickly,” says Jefferies Financial Group Inc. analyst Alexious Lee.Then there’s the debt coming due. Automakers haven’t piled on large amounts except for their financing arms. But, per Levington, as of last week $179 billion of debt had a 30%-plus chance of default. The convulsions in markets will make it more expensive to pay. The likes of Tata Motors Ltd.-owned Jaguar Land Rover Automotive Plc have seen their bonds trade down to as low as 59 cents on the dollar. Across the sector, more than $100 billion matures this year with almost 40% rated below A, he notes.Financing arms, a big source of problems in 2008, have again become major drivers of operating profits. If China is any indication for how quickly things can sour, defaults on auto loan-backed securities rose sharply last month and prepayments fell to a record low.The position of car giants is now reminiscent of the pre-financial crisis years. When Detroit’s automakers were on the verge of collapse, the U.S. government braved public rebuke and stepped in with $82 billion in various forms to avoid the economic pain of collapse. The bailout remains debated, but one thing is clear: Carmakers will need help this time, too. While Washington’s new $2 trillion stimulus could indirectly benefit the sector, prolonged pain would need more support.Cars may have gotten better since the last crisis, but automakers haven’t readied their balance sheets or operations for one as severe as this is turning out to be.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- States and localities have been leading the nation’s response to the coronavirus — and unless Congress further intervenes, they’re going to pay for it.While the Senate’s $2 trillion stimulus bill includes relief for individuals, families and businesses limping through the current slowdown, it’s barely going to dent the impending budget increase for state and local governments. Medicaid and retiree pension costs — already the two most problematic spending areas for governments — will balloon as result of the Covid-19 crisis. Congress can help with both.Start with Medicaid spending, which has rapidly grown over the past decade thanks to expansion and the rising cost of health care. It now accounts for 17% of state spending, up from 14% in 2008. In New York State, the epicenter of the coronavirus outbreak, Medicaid costs are already a whopping 28% of the budget.Anticipating the skyrocketing costs to come, the nation’s governors have asked Congress to temporarily increase federal matching funds by a minimum of 12 percentage points. The previous relief bill, the Families First Coronavirus Response Act signed last week, does allow for a temporary 6.2 percentage point increase in the regular federal matching rate for the emergency period. But it does not apply to qualified adults under the Affordable Care Act, even though it requires that states provide free coronavirus-related testing and treatment to all enrollees.The current Senate bill includes $300 billion in combined aid for hospitals and state and local governments. But it’s likely this will go to supplies and personnel, not mounting Medicaid bills. If Congress were serious about helping states, it would give governors the larger federal match they asked for. At a minimum, it would extend the current 6.2-point increase to cover ACA expansion adults.Pensions are another matter. The stock market has lost about one-third of its value since mid-February and public pensions, which are heavily invested in stocks, are likely to have their worst year since the 2008 financial crisis. Pension assets still haven’t recovered from those losses, and making up for these new losses over the next few years will be all but impossible.Congress doesn’t — and shouldn’t — have control over state and local pensions. But it can offer a tool for public pensions to help with what Moody’s Investors Service estimates will be a $1 trillion loss in investments. Pension obligation bonds, when governments issue debt and put the proceeds into pension systems, are generally frowned upon as a gamble by public finance experts. Such bonds are taxable, so governments pay a higher interest rate for them, and correctly timing investments made with the bond proceeds requires some luck. But this is a moment when they may be worth it.Stocks are cheap now, and so are borrowing costs. The federal government can sweeten the deal even more by making these bonds tax-exempt for qualifying governments, which would lower borrowing costs even more. In fact, before the 1986 tax reform, these bonds were tax exempt.Such a move might not be advisable for every pension plan; after all, pension bonds turn "soft" pension debt into hard bond debt with penalties for nonpayment. But for many, a boost in assets now would likely produce a welcome return on investment over the next few years and ultimately help stabilize government pension bills.Unlike any economic crisis in the modern era, the driver of this slowdown isn’t a familiar industry like tech or finance. It’s a virus about which very little is known and which requires people staying away from one another. The usual government policy response — an economic stimulus to get people out and working again — isn't a viable option. It's a daunting prospect for local leaders.And yet those leaders have been on the front lines of the Covid-19 crisis anyway, making difficult but necessary policy decisions that are blowing holes in their budgets. It took nearly a decade for most state and local governments to recover financially from the last economic crisis. Congress can and should do a lot more for them this time around.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Liz Farmer, a research fellow for the Rockefeller Institute of Government and a former fiscal policy reporter for Governing magazine, is a freelance writer who lives in Maryland. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- SoftBank Group Corp. lashed out at Moody’s Corp. after its debt was downgraded by two notches, accusing the ratings company of “bias” and “creating substantial misunderstanding” days after the investment group announced a $41 billion asset sale program intended to shore up confidence.SoftBank’s shares slid as much as 8.4% early in Tokyo trade. The Moody’s downgrade -- lowering SoftBank’s corporate family rating and senior unsecured rating to Ba3 from Ba1 -- pushed the company deeper into junk territory. It comes at a critical time for founder Masayoshi Son, who this week set in motion his biggest play yet to silence critics and shore up his company’s crumbling shares and bonds.“Such a downgrade, which deviates substantially from Moody’s stated rating criteria, will cause substantial misunderstanding among investors who rely on ratings in making investment decisions,” SoftBank said in a statement, which also asked Moody’s to withdraw the rating.While SoftBank had 1.7 trillion yen ($15 billion) of cash and equivalents on hand at the end of December, it also has a huge debt load: The firm faces 1.68 trillion yen of bonds and loans coming due over the next two fiscal years and a total of about 3.6 trillion over the following four-year period.Read more: Masa Son Unveils a $41 Billion Asset Sale to Silence His CriticsThe company, which also operates the $100 billion Vision Fund, is vulnerable to economic shocks given that debt, and its ties to unprofitable startups from WeWork to Oyo Hotels. Many of the Vision Fund’s biggest bets lie in what’s known as the sharing economy, which has been particularly hard-hit by the pandemic that’s causing millions of people to stay indoors. Travel spending has slumped as a result.SoftBank is said to be targeting the sale of $14 billion of stock in the Chinese e-commerce leader Alibaba Group Holding Ltd., as well as slices of its domestic telecom arm and Sprint Corp., which is merging with T-Mobile US Inc. But SoftBank risked unloading some of its most prized assets at a discount given the downturn, Moody’s said in its statement.“Asset sales will be challenging in the current financial market downturn, with valuations falling and a flight to quality,” said Motoki Yanase, a Moody’s senior credit officer in Tokyo.Read more: SoftBank Is Said to Plan $14 Billion Sale of Alibaba Shares“SoftBank’s decision to withdraw its corporate and foreign currency bond ratings by Moody’s probably wouldn’t save the company from higher new borrowing and refinancing costs.”Anthea Lai, analyst, Bloomberg IntelligenceThe scale of the endeavor unveiled by SoftBank on Monday surprised investors. Despite several days of gains, however, the stock remains down about 30% from its 2020 peak, underscoring persistent concerns that tumbling technology valuations will damage Son’s company. S&P Global Ratings said this week the asset sales could ease downward pressure on SoftBank’s credit quality.The rout triggered by the coronavirus has spread to credit markets and sparked a surge in the cost of insuring debt against default -- including that of SoftBank, whose credit-default swaps are near their highest level in about a decade. Apollo Global Management, the alternative asset management house co-founded by Leon Black, has placed a short bet against bonds issued by SoftBank because of its tech exposure, according to the Financial Times.(Updates with share action from the second paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- SoftBank Group Corp.’s Masayoshi Son is continuing to bet on himself, even after he considered and then abandoned the idea of taking his conglomerate private.Son discussed the idea with investors including Elliott Management and the Abu Dhabi sovereign-wealth fund Mubadala in the past week, the Financial Times reported, before moving ahead with a plan to sell assets instead.The Japanese billionaire is backing himself in other ways. A regulatory filing Tuesday shows his stake has risen to 26.9% from 25.5% and, with SoftBank’s shares gyrating wildly, he also pledged more stock against his holdings.Son committed an extra 600,000 shares, or about 0.3% of his holdings, to lenders, the filing shows. It means 38.6% of his stake is now pledged to global banks including UBS Group AG and Nomura Holdings Inc., more than triple the level in 2013.He also loaned 30 million shares -- about 5% of his holding -- to Son Equities, according to the disclosure. The holding company is invested in GungHo Online Entertainment, a gaming firm founded by his youngest brother Taizo Son whose shares have dropped 33% this year, according to data compiled by Bloomberg.The size of Son’s pledges -- 216.9 million shares worth $7.4 billion -- are among the most significant tracked by the Bloomberg Billionaires Index. That amount trails only Larry Ellison, Russia’s Suleiman Kerimov and China’s Qin Yinglin on the ranking of the world’s 500 richest people.“It’s most common among controlling shareholders,” said Michael Puleo, assistant professor of finance at Fairfield University’s Dolan School of Business in Connecticut. The practice is rare right now because of the stock market rout and it is much more expensive to satisfy margin calls, he said. “Banks want nothing to do with high-risk loans.”Largest FortunesSoftBank spokeswoman Hiroe Kotera declined to comment on Son’s personal finances.SoftBank’s shares have tumbled since February with investors concerned about some of its investments.The past week Son began thinking of a leveraged buyout after Gordon Singer of Elliott’s London office expressed interest in buying more SoftBank shares last week, one person said, according to the FT. The plan was eventually abandoned for a number of reasons, including difficulty in getting an investor consortium together so quickly for a large deal, Tokyo listing rules and tax considerations.The regulatory filing doesn’t explain the rationale for Son’s 30-million-share transaction but the shifting of stakes is a reminder of the complex web of relationships that have long underpinned one of Japan’s largest fortunes.When GungHo was spun out of SoftBank in 2015 all the shares owned by Taizo Son’s holding company were pledged to his brother’s Son Holdings, according to a statement at the time. Son has also leveraged his stake in the Vision Fund, which invests in tech startups, including WeWork and DoorDash. That boosts his returns if things go well, with outsize losses if they don’t.Leveraged bets are common among the wealthy, but the marketwide plunge triggered by the spread of the coronavirus is pressuring rich families across the globe, who over the years used share-backed debt facilities. Some are now facing margin calls, adding to broader financial turmoil.India’s Gautam Adani and his family put up an additional $1.4 billion of stock as collateral on existing debt earlier this month. In China, shareholders of at least 14 firms were asked to supply additional shares. The Hinduja family, one of the world’s richest clans with interests in finance, energy and real estate, are repaying debt backed by equity they hold in lender IndusInd Bank Ltd. after a stock rout caused a breach in loan terms.Like Son, SoftBank isn’t averse to pledging its holdings. Its stakes in Alibaba Group Holding Ltd. and SoftBank Japan both include pledged shares.The company’s enormous debt load and ties to unprofitable startups from WeWork to Oyo Hotels through its $100 billion Vision Fund are worrying investors. Other assets like chipmaker Arm Holdings aren’t listed and may prove difficult to monetize quickly. Moody’s Japan downgraded SoftBank’s unsecured debt rating on Wednesday, saying the Japanese investment firm’s plan to sell off assets during a market downturn threatened the value of its entire portfolio. SoftBank responded to the downgrade by saying it was “biased and mistaken.”SoftBank shares have tumbled 27% since Feb. 12, even after soaring this week on Son’s plan Monday to unload 4.5 trillion yen ($41 billion) of assets.The disposal includes the sale of about $14 billion of its shares in prize asset Alibaba. That amount will probably increase, Bloomberg Intelligence analyst Anthea Lai said in a note this week.Even for a billionaire who embraces risk as much as Son, the past few weeks have been tumultuous.At the start of the month his fortune stood at $17 billion. In two weeks it was cut in half. So far this week it has climbed by about 50% as markets embraced his plan.Son may be comfortable with such swings. He saw $70 billion wiped from his net worth in the dot-com crash. But falling fortunes aren’t the only potential downside of pledging shares.“It can get painful for more than one reason,” said Fairfield University’s Puleo. “There’s the loss of wealth but it also creates very negative headlines.”(Updates with Moody’s downgrade in 16th paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg Opinion) -- Moody’s Investors Service wants to let corporate-bond investors know one thing in no uncertain terms: Ratings actions are coming. And soon.That is, if they haven’t already. The credit-rating company has already dropped dozens of companies in the past week, ever since it became clear that the double whammy of the coronavirus outbreak and the oil-price shock could decimate the outlook for certain industries. On March 17, it cut Lufthansa to Ba1, the highest speculative-grade rating, from Baa3, citing “a severe and extensive credit shock” from those two factors. One day later, Occidental Petroleum Corp. was similarly dropped to Ba1 from Baa3, making the crude oil and natural gas company the biggest “fallen angel” yet in this downgrade cycle. In a March 19 interview, Anne Van Praagh and Christina Padgett at Moody’s told me to expect to see more action in the next couple of weeks as analysts undertake a global review of ratings and go company by company through the sectors most at risk, like oil and gas, gambling, passenger airlines, restaurants and lodging.This, of course, is not what money managers or corporate leaders want to hear, particularly as it pertains to companies rated triple-B. A descent into junk can force at least some mutual funds to sell their holdings, potentially at steep losses, while making borrowing costs much more punitive for businesses at precisely the moment they need funds. It’s hard to believe, but just three months ago, the difference between double-B and triple-B corporate bond yields fell to 38 basis points, the smallest on record. It’s now almost 10 times that, at 345 basis points, the widest gap since 2011. JPMorgan Chase & Co. analysts wrote in note this week that fallen angels — companies that drop from investment grade to high yield — are likely to total $215 billion this year, topping 2005’s record of $100 billion. Barclays Plc sees fallen-angel volume of between $175 billion and $200 billion. As a percentage of the investment-grade market, JPMorgan’s estimate is for a 3.7% rate and Barclays’s is 3.5%. So far, $32 billion has dropped into speculative grade in 2020. One of the more interesting wrinkles in all of this is that the Federal Reserve on Monday announced measures designed to “support credit to large employers” — but only those with investment grades. Its Primary Market Corporate Credit Facility and Secondary Market Corporate Credit Facility can buy company bonds rated triple-B or higher with no more than four and five years until maturity, respectively. As my Bloomberg Opinion colleague Matt Levine noted, “the ratings agencies have a lot more power today than they had last week; now a downgrade can take a company out of eligibility for Fed support.”I have never worked at a credit-rating company, but I’m confident the analysts take no pleasure in this extreme negative shock to economic growth and the resulting deteriorating credit quality across industries. At the same time, their job is to objectively assess the outlook for companies. Whether it forces mutual-fund selling, more difficult borrowing conditions or even removes some debt from consideration by the Fed, none of that is in their immediate purview. “Our goal is really to inform market participants at this point where we see risks and where we see material changes to credit quality,” Van Praagh said. “This set of events and credit effects is unprecedented — we’ve never seen anything like this before.”That doesn’t mean people won’t try to plead for leniency. Levine suggested that perhaps the credit-rating firms should take a few months off. “I am not convinced that they can add a lot of value these days by telling investors that credit quality has declined — we know! — but they can certainly do some damage by causing forced sales.” Over in the municipal-bond market, Citigroup Inc. strategists suggested on March 17 that the companies should “cut municipal issuers some slack for now (think of it as patriotic duty)…. Let’s remember, we are all equally stunned, and equally blameless, where this crisis is concerned.”That’s just not how this works, though. The credit-rating companies will act as they see fit, even if it creates a wave of fallen angels. What could change, however, are mutual-fund requirements, which would allow funds that buy investment-grade securities to cling to fallen angels rather than offload them at fire-sale prices.To get a sense of how crucial the difference can be between double-B and triple-B, consider the following three exchange-traded funds: The VanEck Vectors Fallen Angel High Yield Bond ETF (ticker: ANGL); the iShares iBoxx Investment Grade Corporate Bond ETF (ticker: LQD); and the iShares iBoxx High Yield Corporate Bond ETF (ticker: HYG). From ANGL’s inception in April 2012 through the end of February, it gained 84.6% to LQD’s 50.2% and HYG’s 48.5%. Even after this month’s huge tumble, it’s still up 40% in the past eight years, compared with about 21% for both LQD and HYG.As Bloomberg Intelligence’s Eric Balchunas told me recently, this outperformance seems to prove that fallen angels drop in price more than their fundamentals would indicate. So even if all mutual-fund requirements aren’t as strict as we’re made to believe about selling downgraded bonds, there’s still enough rigidity out there for this strategy to profit. To be sure, ANGL has only existed up until now during boom times for credit markets, so it’s possible in a tougher environment it could face harsher losses, too.Still, this idea of arbitraging away potential mispricing between two credit ratings for easy profit makes sense intuitively. To me, at least, it would be better for a mutual-fund company to launch a dedicated strategy to picking winners among the incoming fallen angels rather than rewrite the rules at the last minute for its investment-grade funds. Or what about those unconstrained bond funds? A wave of downgrades and the messy trading that comes after are precisely the time that they’re supposed to back up the proverbial truck. Of course, it’s hard to do much of anything when confronted with an unprecedented stampede out of fixed-income funds.Dramatic Fed intervention may steady some markets, but unless something changes — and, judging by the last two weeks, it very well could — the central bank won’t be there to save fallen angels. Which brave investors will step up?This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brian Chappatta is a Bloomberg Opinion columnist covering debt markets. He previously covered bonds for Bloomberg News. He is also a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
(Bloomberg) -- The Federal Reserve said Friday it had expanded its emergency program to provide liquidity to money market mutual funds, allowing the purchase of assets from single-state and other tax-exempt municipal money market funds.Shares of BlackRock Inc.’s iShares National Muni Bond ETF, the biggest municipal-bond exchange-traded fund, traded higher after the announcement.“Thank you to @federalreserve,” U.S. Treasury Secretary Steven Mnuchin said in a tweet. “Today I approved the expansion of the Money Market Mutual Fund Liquidity Facility to include municipal securities. This will create additional liquidity to support the states and municipalities!”The move followed the Fed’s Wednesday night announcement that it had created a Money Market Mutual Fund Liquidity Facility aimed at relieving pressure from prime money market funds that were seeing large institutional-customer withdrawals. The Treasury Department will provide $10 billion of credit protection.Money market funds provide credit to everything from banks through repurchase agreements to corporations through purchases of commercial paper. They are a critical link the chain of short-term finance where companies borrow and lend outside the formal banking system.“Fed purchase of municipal bonds is unprecedented,” said Mark Zandi, chief economist for Moody’s Analytics. “They didn’t go that far in the financial crisis. It illustrates the severe stress on credit markets, and how aggressive and creative the Fed needs to be to keep credit flowing.”Risk Free LoansThe program, administered by the Boston Fed, will provide risk-free loans to banks that will purchase a range of assets from prime, and now municipal, money market funds, with the assets deposited with the Fed as collateral. By expanding the program to include short-term municipal bonds, it may ease the difficulty cities and states are having in raising funds.The program, however, has its limits. Fed officials see the universe of eligible municipal assets at around $40 billion. Money funds generally cannot purchase securities that are further than 13 months from maturity.The move by the Fed is a “welcomed starting point to offer the municipal market some relief from the liquidity logjam,” said Gabriel Diederich, a portfolio manager at Wells Fargo Asset Management.Yields on short-dated municipal bonds, which are among the easiest to sell, have ricocheted upwards, climbing to 2.84% from 0.47% on March 9, according to Bloomberg BVAL pricing scales as of 1:00 p.m. New York time.Others were even more upbeat.”It’s a major help to high-grade municipals, where liquidity pressures have concentrated on money market funds,” said Matt Fabian, a partner at Municipal Market Analytics, an independent research firm. “The program gives the funds an ability to afford investor redemptions without creating additional pressure on the underlying assets. Of course, liquidity is an issue all along the curve, but giving the front a boost is better than nothing.”May Be ExpandedOfficials at the central bank indicated eligible securities could eventually be expanded to include variable-rate municipal bonds.The global health crisis has hammered municipal bonds as states and localities strain resources to prepare a medical response, help local businesses and suffer tax revenue losses as they ask people to stay at home.Municipal bonds were headed for an 8% drop in March, their worst month of performance since 1981, according to Bloomberg Barclays indexes.Prime funds are those money funds eligible to invest in debt not backed by the U.S. government.(Updates with additional details from third paragraph.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.