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Do Trucks Pollute As Much As Cars?

16 October 2018 by lberuti

Until now, truck makers had largely escaped the scrutiny that put car manufacturers on the defensive since the Volkswagen diesel-emissions scandal erupted in 2015. In fact, studies showed that modern trucks are surprisingly clean… if all their components function properly. VLVY ( Volvo AB ), the Swedish truck maker, announced this morning it has detected problems with an emission control component, which is “degrading more quickly than expected”, resulting in engines exceeding limits for nitrogen oxides. The degradation which “is due to a materials issue that occurs over time (…) does not affect all vehicles and engines in the same way and to the same extent”. The cost to fix the problem with the part, which comes from an outside supplier, could be “material” but is therefore difficult to assess at this stage according to the company. Crucially for VLVY, its trucks’ emission problems are not due to deliberate manipulation, but the news certainly spooked investors. They sent VLVY’s 5-year risk premium 14bps wider at 83bps, the widest it has been since the very end of 2016.

The End Of The Original Everything Store

15 October 2018 by lberuti

More than a century ago, SRAC (Sears, Roebuck and Co.) pioneered the strategy of selling everything to everyone. It all came to an abrupt end today, as the company filed for bankruptcy ahead of a $134mln payment that was coming due. It is using a chapter 11 filing in Federal Bankruptcy Court in New York to cut its debt load and keep operating at least through the holidays. The company eventually succumbed to the competition of online retailers. It has roughly $5.6Bln in outstanding debt and has dwindled down to about 820 Sears and Kmart stores, from 2000 five years ago. The company was taken over by Eddie Lampert a few years ago, and he had often attempted to keep SRAC viable with loans and audacious financial engineering. He spun numerous assets off from the retailer into separate companies that his hedge fund - ESL Investments – invests in. But while many of these spin offs flourished, SRAC slid toward insolvency. It will be the first default among the constituents of the 3 most recent series of CDX HY.

Crash Test For US Autos

11 October 2018 by jbchevrel

Ford (F) and General Motors (GM) have seen their credit spreads under upward pressure this week, clearly underperforming the broader US IG sector (cf. chart above). Their respective stock prices are also near their lowest levels since the end of 2012... The main trigger for that move has probably been declining sales in September, especially in China due to trade issues. Ford posted an 11% decline in US sales in September versus consensus of down 9.1%. Last week, F said metal tariffs cost it ~$1bn in profit in 18 vs previous guidance of ~$600M. Other factors include higher rates impact consumers’ demand for new cars down, higher raw material prices (without counting the steel & aluminium tariffs). Adding to that trend, a few brokers are now UW on the sector. Ford’s downgrade by Moody’s from Baa2 to Baa3 (adding a relatively unexpected negative outlook on top of that) at the end of August was already setting the stage for a choppy end of the year. In this market, talks (if any) between the US and its main partners will be closely watched...

Still Only An Equity Story

10 October 2018 by lberuti

It was not a good day for stock investors, as all major indices lost in the region of 2%. The pain for equity holders of luxury good companies begun a few days ago, when rumours of tighter control by Chinese customs agency on its citizens at border points first surfaced. These were confirmed by Jean-Jacques Guiony, LVHM’s ( LVMH Moet Hennessy Louis Vuitton ) Chief Financial Officer, during a call with analysts this morning. He said China is effectively stepping up border checks on returning travellers in a crackdown on undeclared imports. His comments fuelled alarm among investors, even though the company reported a quarterly sales increase in line with forecasts. Louis Vuitton sales growth to Chinese shoppers has slowed slightly, but still stands in the mid-teens. But it looks as if people were just looking for excuses to take profit in one of the few sectors that has not had a correction yet. The stock lost 7% on the day and is 14% of its recent peak. While the rout extended to equities of the whole luxury sector, their credit risk premia were left almost unchanged. LVMH’s CDS closed at 37bps, only 5bps wider from its tightest level of the year.