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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.