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IG, but not for long

21 September 2020 by jbchevrel

Ovintiv, Inc. (OVV) is in IGs since s28 included. OVV produces and develops multi-basin portfolio of Oil, NGL and Natural Gas. Today OVV 5y CDS was wider by +32bp, making it the worst performers in the brand new CDX IG s35 vintage. Beyond the fact that front end contracts on crude and Nat Gas were down by -5% and -10% respectively, OVV under performed also because it was downgraded to 'BB+' from 'BBB-', by Fitch Ratings on Friday night. The rating agency has maintained the Negative Outlook. The main drivers for this downgrade included OVV’s above-average refinancing risk ($1.25B 22s, with another $1.25B drawn on the revolver), the risk that revolver borrowings could rise further if low oil prices limit the attractiveness of tapping the bond market in the near term, improving, but still below average netbacks, and lower expected production growth over the next few years given capex reductions. Liquidity remains ample and debt maturities are concentrated between Nov21 and Jan22, so OVV really looks fine for 2020. Also they have hedges against further weakness in underlying commodities, but in the medium term, as the hedges roll off, and if the energy outlook is still grim, OVV credit may become more vulnerable. Elsewhere, it was a decently risk-off session. Reasons probably include (1) delays to additional fiscal-stimulus packages (2) heated US election campaign season (3) continuing tensions with China (4) Last But Not Least: credible threat of renewed lockdowns in many places because of higher coronavirus infections. The US is closing in on 200k coronavirus deaths, and former FDA commissioner Scott Gottlieb has warned of at least one more cycle of the virus heading into the fall and winter.

IG, but not for long

21 September 2020 by jbchevrel

Ovintiv, Inc. (OVV) is in IGs since s28 included. OVV produces and develops multi-basin portfolio of Oil, NGL and Natural Gas. Today OVV 5y CDS was wider by +32bp, making it the worst performers in the brand new CDX IG s35 vintage. Beyond the fact that front end contracts on crude and Nat Gas were down by -5% and -10% respectively, OVV under performed also because it was downgraded to 'BB+' from 'BBB-', by Fitch Ratings on Friday night. The rating agency has maintained the Negative Outlook. The main drivers for this downgrade included OVV’s above-average refinancing risk ($1.25B 22s, with another $1.25B drawn on the revolver), the risk that revolver borrowings could rise further if low oil prices limit the attractiveness of tapping the bond market in the near term, improving, but still below average netbacks, and lower expected production growth over the next few years given capex reductions. Liquidity remains ample and debt maturities are concentrated between Nov21 and Jan22, so OVV really looks fine for 2020. Also they have hedges against further weakness in underlying commodities, but in the medium term, as the hedges roll off, and if the energy outlook is still grim, OVV credit may become more vulnerable. Elsewhere, it was a decently risk-off session. Reasons probably include (1) delays to additional fiscal-stimulus packages (2) heated US election campaign season (3) continuing tensions with China (4) Last But Not Least: credible threat of renewed lockdowns in many places because of higher coronavirus infections. The US is closing in on 200k coronavirus deaths, and former FDA commissioner Scott Gottlieb has warned of at least one more cycle of the virus heading into the fall and winter.

Positive Credit, Negative Equity

17 September 2020 by jbchevrel

Unibail-Rodamco-Westfield (ULFP) operates as a real estate investment trust. They lease and rent building space (shopping centers, office buildings, and convention-exhibition centers), so obviously much affected by the COVID crisis. In the group’s key markets (UK, US and Europe) many retailers were unable to or unwilling to pay rent after being forced to close by government-imposed lockdowns. According to the Bloomberg DRSK model, that company had gone from the quality of a AAA to a BB in just two years. Yesterday after the close, however, there was some good piece of news for credit. ULFP said it authorized a €3.5 billion capital raise to bolster balance sheet. The €3.5b is part of a €9b plan. ULFP CDS was by far the best performer within iTraxx Main today, on the back of that news. The 5y contract tightened by roughly -25bp this morning and is closed tighter by -15bp. The proceeds would be used to immediately reduce leverage. So, without surprise, this was (+) credit (-) equity. Hybrids flew higher +7pt at the open (+4pt as I write) and common stock dipped by roughly -10%. The subscription price will be determined and announced in Q4. and the transaction to close by year-end. Business-wise, ULFP has now reopened all of its shopping centers globally, though indoor operations in five centers in Los Angeles County continue to be suspended. Their collection rates came c70% in both July and August, vs 50% earlier this summer, driven especially by Continental Europe (c80%). Finance-wise, the company plans €4 billion asset disposal program by the end of 2021 and reduce capex by €800 million. Elsewhere, the main market development today was the Bank of England noting that it is examining how negative interest rates might be implemented. Meanwhile Brexit talks show no tangible sign of progress.

Accelerating Tighter

16 September 2020 by jbchevrel

TUI AG CDS was the best performer in XO space today. The CDS was tighter by about 4 points, closing in 2%/4.5% context on our end (ie 584bp mid). This notable move came after it was reported by the German newspaper HB that TUI plans to raise €1b in fresh equity in the coming weeks. The equity holders lost -5% today, TUI market cap being left a tad above €2B at the close today. The details are meant to be finalised by the end of September, according to the report. Alexey Mordashov (TUI’s largest shareholder / 1st-generation oligarch from early 90s) reportedly plans to invest €0.3B in the deal. Next milestone on the name, we will get the trading update on Tuesday next week. Elsewhere, the new version of XO (without Matalan Finance) was a bit less than a point richer as a result of the exit. Brexit-wise, the more compromising tone of PM Boris appeased UK-linked risky assets on the day. All eyes on the Fed at present. Not a big reaction to the communique, with nothing surprising, but the presser is starting at 1930 Ldn.