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Europcar update

26 February 2020 by jbchevrel

Europcar Mobility Group (EUROCA) is a French car rental company operating in 140 countries covering Europe, North America, Asia, and Africa. The CDS was a member of XOver series 29 and the current 32. Today the CDS closed -23bp tighter (at c450bp) while XOver s32 fair value closed +6 wider. The CDS is not very liquid (we receive 25bp-wide bid-offers) but looks tight vs cash, as, indicatively the z-spread on the 4.125% nov24s is in the area of 575bp. Q4 earnings yesterday were in line with the downgraded guidance at the October profit warning, with less of a debt increase than expected. EBITDA was down -26% to €34m, margin down -200bp to 4.1%. This fall was despite slightly higher utilization (at 72%), due to higher costs. FCF was up to €9m yoy vs a €33m outflow in 2018. Net debt was reported at €880m after the Fox acquisition and putting leverage at 3.2x. Moody’s expect metrics to remain weak through FY20 and views adjusted leverage of >5x. Liquidity has improved from Q3, cash closed Q4 at €625m vs €450m in Q3. The name is under negative outlook from both S&P’s and Moody’s.

New Wides

25 February 2020 by jbchevrel

Markets continued the sharp risk-off move which had started yesterday. In our European close time, Main and IG were +2.5 XOver and HY were about +10. CDX EM widened by +8. The focus is still on the global pandemic risk on coronavirus. Today global coronavirus cases reached 80,000 in Asia time, with 60 new cases reported in South Korea and 449 new cases reported in China. Italy number of cases official is 229. Tianjin university in China and US pharmaceutical/biotech company Moderna both claimed to have developed coronavirus vaccines. The Moderna’s vaccine will now proceed to phase one tests on humans, while the Tianjin university is currently looking for partners to run clinical trials on its vaccine... President Trump has requested $2.5b from the Congress to help fight the coronavirus outbreak, over $1 billion of which would be used to manufacture a vaccine. Interestingly, Chinese state media reported that 6% of Chinese firms face bankruptcy as a result of the coronavirus outbreak. In the UK, BoE Chief Economist Andy Haldane said that a “big chunk, if not all” of the Brexit related uncertainty facing the UK economy had been lifted. Haldane suggested that a fall in Brexit related uncertainty should help to boost investment spending, although he cautioned that it’s “too early to declare victory”. In the US, Cleveland Fed President Mester (voter) described the coronavirus outbreak as a “downside risk” but reiterated her view that the Fed’s current policy stance is appropriate pointing to “growth near its trend pace, solid labour market conditions” and inflation “not far” from 2%.

Eye Network

21 February 2020 by jbchevrel

ViacomCBS Inc. (noted ‘CBS’) is a leading mass media conglomerate with TV, radio, online content, and publishing operations. CBS reported their results yesterday, missing the consensus on revenue and OIBDA. This is particularly interesting as this was the first reported quarter of combined results since the reunion of Viacom and CBS. The ViacomCBS CDS widened from ~60 to ~70 yesterday, on the back of that miss. Today the 5y CDS closed at 69, now around flat to AT&T 5y swap. Q4 revenue was reported at $6.9b (vs a consensus of $7.3b and the range of analysts listed by BBG was [$7.0b , $7.5b]), adjusted OIBDA came at $1,164m. Operating income and net earnings came in the red, at -$13m and -$273m respectively. Their margin was reported at 16.9% i.e. it fell -700bp from a year before. CBS stock is down almost -40% since the merger was announced on Aug 14, 2019 (incl. 16% yesterday alone) as market participants are concerned about scale, reinvestment needs, contract renegotiation (NFL) and FCF. Leverage-wise, CBS reported Gross Debt at $18.7b and Net Debt at $18.1b, taking leverage at 3.4x. That is basically a + 0.4x increase in leverage since the ViacomCBS transaction was announced. CBS is currently Baa2= / BBB= / BBB=, so according to those outlooks, no real expectation of rating change is baked in. without surprise, CBS reiterated their commitment to IG credit rating and set a target leverage ratio of 2.75x, while agencies have set 3.0x as the guide line for CBS to preserve their BBB rating. Going forward, debt reduction will be targeted with non-core disposal proceeds. The sale of the ‘Black Rock’ headquarter building in Manhattan had been confirmed by the CEO at the UBS TMT conference in December -- and is ongoing. CBS stated that the proceeds of the disposal will be used both (1) to de-lever the balance sheet, and (2) for stock repurchases. The only CBS employees at ‘Black Rock’ work in its corporate and administrative divisions. Also, in the ‘potential good news’ section, the company increased its estimate of annual run-rate cost savings to $750m from $500m. But in the context of a miss, this sounded more like CEO Bakish tried to shift investors’ attention to the benefits of the merger rather than on the disappointing numbers.

On Hold

20 February 2020 by jbchevrel

We got the minutes from (A) the ECB today and (B) the Fed’s yesterday. (A) The ECB minutes acknowledged the “phase-one” deal. GC members welcomed a slight pick-up in PMIs, especially manufacturing, although coming from very low levels. As often, the GC agreed to wait and see more data. Although that is usually not followed by any action, the GC was reportedly concerned by financial stability risks due to the current monetary stance. They noted that “potential side effects might become more pronounced in an environment with low rates and a flat yield curve persisting for a long time” and also on the equity markets, where “the continued rise in valuations was difficult to square with a weaker earnings outlook”. A remark was also made that higher house prices could create financial risks and local macro prudential tools might be insufficient to tackle them. (B) The FOMC minutes did not show either any particular lean with respect to policy direction or timing for future changes. FOMC agree that maintaining the current stance allows "for a fuller assessment of the ongoing effects on economic activity of last year's shift to a more accommodative policy stance and would also allow policymakers to accumulate further information bearing on the economic outlook." Basically, ‘wait and see’, as well. The minutes noted the pickup in residential investment, a trend that started in summer 2019. The FOMC discussed how maintaining the current stance for a time could support the US economy "in the face of global developments that have been weighing on spending decisions." The ongoing review of tools and communication practices was discussed. The FOMC members hope to complete this around summer. In January, the discussion focused on interactions with financial stability and the potential use of inflation ranges around the 2% target. On the former, the minutes show that several policymakers do not wish to "rule out the possibility of adjusting the stance of monetary policy to mitigate financial stability risks." There is 1.5x cut priced in for the Fed this year, and close to nothing for the ECB. Kashkari, dove voter, recently said he would expect 3-6m on hold and then another -25bp cut. While he is on the dovish end of the spectrum, the OIS market’s view is close to his’.