|Bid||235.51 x 800|
|Ask||276.00 x 1100|
|Day's Range||254.38 - 258.89|
|52 Week Range||154.60 - 258.89|
|Beta (5Y Monthly)||1.23|
|PE Ratio (TTM)||37.46|
|Earnings Date||Feb 11, 2020|
|Forward Dividend & Yield||2.00 (0.78%)|
|Ex-Dividend Date||Nov 19, 2019|
|1y Target Est||243.91|
(Bloomberg Opinion) -- Tianqi Lithium Corp. had everything going for it: generous subsidies, Beijing’s blessing on the electric-vehicle industry it supplies, and the hype of Tesla Inc. getting its sedans off the production line in China. The only thing interrupting this nice fairy tale is the reality of demand and making money.Over the past few years, China has supported its electric-car industry by doling out large subsidies; giving preferential treatment to domestic companies; and providing large outlays for charging infrastructure. The sector has surged as a result. The kickoff of Tesla’s Model 3 in Shanghai last month sparked a fresh rally among producers of lithium – a key ingredient in batteries – and other suppliers.All this is excitement is bubbling away despite the cratering of the lithium market. After peaking more than a year and a half ago, prices have slumped over 50% and inventories have piled up. The glut, a problem China knows all too well, has weighed on producers.This reality is starting to settle in for Tianqi Lithum. Earlier this week, the company canceled its bondholder meeting as worries about repaying investors 318 million yuan ($46 million) in principal and interest loomed. Its bonds fell to just over 64 cents on the dollar from around 75 cents days earlier.While China reported its first monthly slump in electric-vehicle purchases in July, Tianqi Lithium was struggling before then. The world’s second-largest producer reported its first quarterly loss in almost six years years in September, following two quarters of declining net income.Like many fad-commodity producers before it, Tianqi Lithium is seeing the painful consequences of China’s supply and demand mismatch. The adoption of electric cars and progress on battery technology have both been slower than anticipated. Expectations were so far off the mark that despite lithium prices falling, analysts adjusted higher their estimates for the average selling price of batteries last year.Tianqi Lithium booked a 63% increase in government subsidies in the nine months to September as non-operating income from a year earlier. The government's supportive rhetoric also led the company to pile on debt as it sought stakes in Chile’s Sociedad Quimica y Minera de Chile SA and an Australian lithium mine. The company eventually financed its way to commanding a 16% share of global lithium production; but now its balance sheet looks bloated and questions about the company’s ability to refinance its debt – and at what cost – are becoming more pressing.For all the hopes pegged to its expansion and profitability, Tianqi Lithium didn’t have enough cash to cover the 3.1 billion yuan of short-term debt it owes as of September. The company has already tapped various channels of funding, from medium-term notes to an equity raising. When Moody’s Investors Service downgraded the company last month, it cited Tianqi Lithium’s inability to raise enough capital through its rights offering, saying it would have trouble deleveraging.Expectations for the electric-car industry are starting to recalibrate. With targeted subsidies shifting from cars to batteries and infrastructure, the bargaining power has moved from manufacturers of one to the other. The likes of Geely Automobile Holdings Ltd., BMW AG and Volkswagen AG are locking in long-term contracts and partnerships with battery makers, but these car giants are no longer calling the shots.Battery makers nevertheless face their share of challenges: They haven’t quite figured out how to advance technology safely, while bringing down prices and preserving margins. Any reduction in subsidies will pass through to suppliers as well. It may be time for a more realistic reassessment.Tianqi Lithium may be able to keep rolling over its debt, but that doesn’t change the fact that we’re still years away from widespread adoption of electric cars. A few thousand Teslas on the streets of China isn’t going to change that. EV suppliers may be better served keeping an eye on their balance sheets than Elon Musk’s production line.To contact the author of this story: Anjani Trivedi at email@example.comTo contact the editor responsible for this story: Rachel Rosenthal at firstname.lastname@example.orgThis 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) -- Have we finally reached the point where we automatically assume that every new retail disaster has been caused by a private equity firm? Yes, I believe we have. When the New York Post published a report on Tuesday contending that New York’s Fairway Market grocery chain was going to liquidate — a claim denied by the company, which subsequently filed for Chapter 11 bankruptcy protection on Thursday — I began exploring whether private equity was indeed responsible for its problems.It was.The year was 2007. Fairway, a treasured New York institution that was founded in 1933, had grown from one store on Manhattan’s Upper West Side to four stores, three in New York City and one on Long Island. The stores were supermarket size, but they didn’t much resemble a Safeway or a Kroger. They were eclectic, with 50 brands of olive oil, dozens of varieties of olives, cheese, smoked salmon, imported beer and who knows what else. It was quintessential New York. On a per-square-foot basis, the four Fairways were among the highest grossing grocery stores in the country.Howie Glickberg, the grandson of the founder, was one of three partners who owned Fairway Market. The other two were ready to cash out, and others in management who held small equity stakes were looking for a payday. Glickberg needed to find a source of liquidity. Unfortunately for him, he found Sterling Investment Partners, a private equity firm based in Westport, Connecticut, that focuses on mid-market companies.“I was looking to expand the business,” Glickberg told me when I caught up with him on Wednesday afternoon. In the ensuing buyout, Sterling put $150 million into the company in return for an 80% ownership stake. The majority of that was debt. Needless to say, the debt landed on Fairway’s books, not Sterling’s. Three Sterling partners, including co-founder Charles Santoro, joined the board. None of them had any grocery experience.Sterling had enormous ambitions for the company. Glickberg had envisioned expanding slowly, a store at a time. Santoro talked about turning Fairway into a national chain with hundreds of stores that would compete with Whole Foods and Trader Joe’s. Santoro did not respond to an email request for an interview.By 2012, Fairway was up to 12 stores, including some in suburban New Jersey, where the company’s urban cachet didn’t necessarily translate. Most of this expansion was fueled by yet more debt. Not surprisingly, the expansion eviscerated the company’s profits while adding millions more in debt to its balance sheet. By 2012, its debt burden had grown to more than $200 million, and it was losing more than $10 million a year.Badly in need of cash, Sterling turned to the public markets. In April 2013, Fairway Group Holdings Corp., as the company was now called, went public at $13 a share, raising $177 million. Its prospectus said that the money would go toward “new store growth and other general corporate purposes.” But that wasn’t quite accurate; the prospectus showed that more than $80 million went to pay “dividends” to preferred shareholders — i.e. Sterling Investment Partners. An additional $7.3 million went to management.Around the same time as the IPO, Glickberg was pushed aside and a new chief executive officer was brought in, an accountant who had been an executive at Grand Union, a grocery chain that failed in 2013. Glickberg did stay on the board, however, where he was the only person with either grocery or retail experience.By 2014, Fairway was up to 15 stores. Its directors — a number of them Sterling executives — were paying themselves absurd amounts of money: $12.1 million in 2013, according to the company’s 2014 proxy. Santoro alone took down $5.4 million that year — at a company with a market cap below $170 million.And that wasn’t the only problem with how Fairway was being run. Hannah Howard, Fairway’s former director of communications, would later describe what it looked like from the inside:[T]he place was kind of a mess: It took months to get paid, with leadership claiming paychecks had been lost on the truck to Red Hook. As expansion scaled, finding talented, knowledgeable staff became more difficult, so quality at new locations began to suffer. It became increasingly apparent that Fairway’s corporate leaders were good at running two or three stores, but they didn’t make the right preparations to run a dozen. “There were not processes or systems in place that were scalable,” says one erstwhile executive. “The leadership was completely incompetent.”Meanwhile, Whole Foods and Trader Joe’s were expanding methodically. When Amazon Inc. bought Whole Foods, it meant that Fairway had a competitor with limitless cash. Fairway’s vaunted revenue-per-square-foot numbers dropped by a third. Cash flow was consistently negative. The stores looking increasingly shabby because the company couldn’t afford to keep them up. By 2016, saddled with $267 million in debt, Fairway filed for Chapter 11 bankruptcy protection. It hadn’t turned a quarterly profit the entire time it was a public company.Here perhaps is the strangest part of the story: Although Fairway managed to reduce its debt by $140 million through the bankruptcy process, it didn’t use bankruptcy to close stores or break any of its expensive leases ($6 million alone for the flagship store on the Upper West Side). It didn’t try to go back to what it was, a small chain of groceries that were part of New York’s central nervous system. Meanwhile, Sterling Investment Partners, having milked Fairway for nine years, walked away. Another private equity firm, the Blackstone Group Inc., took over. Glickberg retired.By August 2018, Blackstone had exited and the company had been bought by two other private equity firms: Brigade Capital Management LP and Goldman Sachs Group Inc. In November, they hired a new CEO, a turnaround specialist named Abel Porter, who actually did have grocery experience. He was the company’s fourth CEO in six years.“We’re not burning cash, we’re accumulating cash,” Porter told Bloomberg News at the time. He added that there was “no risk of running out of capital” despite a debt level that exceeded $300 million. In that same article, however, a credit analyst for Moody’s Investment Service, Mickey Chadha, predicted that Fairway would need to be restructured again within 18 months. More money was going out the door than was coming in.Chadha’s prediction was off, but not by much. It’s been 14 months since that article ran, and Fairway is once again in deep trouble. When I asked him how he saw it coming, he laughed. “That’s my job,” he said. “You could see it when you looked at their liquidity. They just weren’t generating enough cash. No free cash flow, and lots of debt. It was highly predictable.”A few months ago, Chadha updated his analysis of Fairway’s bonds. He said that, as of June, the company’s remaining cash was down to $10 million and he predicted that it would continue to dwindle through 2020. “The company,” he concluded, “has limited alternative sources of liquidity as virtually all tangible and intangible assets are pledged to the credit facilities.”As part of its bankruptcy plan, Fairway agreed to sell five stores and a distribution facility to Village Supermarket Inc. for $70 million. Village Supermarket is another grocery chain owned by a family, the Sumas family of New Jersey. It seems to have done what Sterling Investment Partners could not: expand sensibly. The company now has 30 stores. If a handful of Fairway stores end up being run by the Sumas family, it will have saved an institution that private equity nearly destroyed.“I’m upset about what happened,” Glickberg told me. “They made a lot of bad decisions. They brought in people who knew nothing about the business and nothing about New York. My grandfather started the company, so it was more than a business to me.”I guess one moral of this story is that if you run a family company, don’t sell it to a private equity firm unless you don’t care what happens afterward. But mainly, it reaffirms what we are all coming to realize: private equity firms like Sterling Investment Partners aren’t on the side of the companies they buy. Not really. They’re out for themselves.To contact the author of this story: Joe Nocera at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Joe Nocera is a Bloomberg Opinion columnist covering business. He has written business columns for Esquire, GQ and the New York Times, and is the former editorial director of Fortune. His latest project is the Bloomberg-Wondery podcast "The Shrink Next Door."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.
RDC, the global leader in risk intelligence compliance screening, announced today it has entered into a definitive agreement to be acquired by Moody’s Corporation (NYSE:MCO).
(Bloomberg Opinion) -- The worst-case scenarios for Boeing Co.’s 737 Max crisis no longer look far-fetched.The airplane maker said Tuesday that its “best estimate” for when regulators will lift a flying ban on its Max jet is now mid-2020. The once top-selling plane has been grounded since March following two fatal crashes. The updated timeline reportedly reflects a new, recently discovered software flaw connected to how the Max’s flight computers power up and verify they’re receiving valid data, as well as the need to correct vulnerabilities in certain wiring bundles. Boeing said it’s also accounting for “further developments that may arise in connection with the certification process.”Perhaps the company is finally taking a more conservative attitude toward the Max crisis after a series of overly optimistic promises left its reputation in tatters and CEO Dennis Muilenburg without a job. The Federal Aviation Administration, for its part, reiterated that there’s no time frame for the Max’s return and that safety is its first priority. Airlines and suppliers now have to recalibrate accordingly, and this latest delay will be by far the most painful for them.With its stockpile of undeliverable jets growing and its cash burn deepening, Boeing had already made the call to halt production of the Max once it became clear it wouldn’t meet its previous deadline for a return to service by the end of 2019. The shutdown, which began in January, has already forced suppliers to idle their factories as well and, in some cases, to lay off employees. In one of the more extreme examples, Spirit AeroSystems Holdings Inc., which gets more than half its revenue from the Max, saw the rating on its debt cut to junk by Moody’s Investors Service earlier this month and is cutting about 2,800 workers. In total, economists from Barclays and JPMorgan Chase & Co. estimated the Max production shutdown could subtract half a percentage point from U.S. gross domestic product in the first quarter. Investors were expecting total compensation to affected airlines to amount to about $10 billion, according to a survey conducted by Bernstein analyst Douglas Harned. If that sounds bad, consider that the baseline case among investors and analysts before Tuesday’s update was that Max deliveries would resume by March or April.The major U.S. airlines have all pulled the Max from their schedules through June in what they thought would be a conservative call. The logistical challenges of bringing jets out of storage and putting pilots through the simulator training that Boeing has now decided to recommend means that the airlines will likely have to go without their Max fleets for yet another peak travel season. That is likely to drive even more market share toward Delta Air Lines Inc., which doesn’t fly the Max and has been benefiting from that fact. The longer the grounding lasts, the more permanent those share gains may be. Either way, expect airlines to significantly increase their demands for compensation.The biggest pain will be felt by Boeing’s suppliers. A three-month production shutdown is one thing; a six-month halt is something else, entirely. Getting supplier factories humming to the point where they could meet Boeing’s Max production pace required a logistical miracle and some parts-makers actually used the first few months of the grounding to play catch-up. At a minimum, suppliers run the risk of workers leaving for more secure jobs amid a buoyant labor market. Taco Bell is offering a $100,000 salary for a restaurant manager position, for heaven’s sake. For others, the damage may be more lasting. Boeing enjoys an effective duopoly with Airbus SE that has helped buoy profits over the years and arguably protected it from greater financial pain in the form of canceled Max orders. The flip side of that is that some suppliers depend heavily on Boeing for their business. The biggest producers such as General Electric Co., Honeywell International Inc. and United Technologies Corp. will be able to weather the hit from a prolonged production halt; smaller suppliers risk going bankrupt.This will all come back to haunt Boeing once it’s finally ready to restart production. With a legitimate debate about the sustainability of air traffic growth at the levels needed to maintain demand, it’s not out of the question that the company might not ever reach its target of producing 57 Max jets per month. Air Lease Corp. Chairman Steven Udvar-Hazy said Monday that his company had urged Boeing to drop the Max name to make the plane more palatable for fliers. But the longer the grounding drags on, the likelihood increases that Boeing will need to make more than just a name change for the latest iteration of its 737 model and instead plow billions into a true successor. To contact the author of this story: Brooke Sutherland at email@example.comTo contact the editor responsible for this story: Beth Williams at firstname.lastname@example.orgThis column does not necessarily reflect the opinion of Bloomberg LP and its owners.Brooke Sutherland is a Bloomberg Opinion columnist covering deals and industrial companies. She previously wrote an M&A column 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.
Moody’s Corporation (NYSE:MCO) today announced that it has again received a score of 100 percent on the Human Rights Campaign Foundation’s 2020 Corporate Equality Index (CEI), marking the ninth consecutive year the company has earned a top ranking. The CEI, a national benchmarking survey and report on corporate policies and practices related to LGBTQ workplace equality, has also designated Moody’s as a Best Place to Work for LGBTQ Equality.
(Bloomberg Opinion) -- In finance, and in the world in general, few things move in a perfectly linear line. Markets and economies rise and recede. Demographic trends shift over time. Life itself is full of twists and turns.The growth in U.S. student-loan debt, on the other hand, has been entirely predictable for the past 17 years, rising to $1.5 trillion:Charts simply don’t get much more linear than that. This trend, of course, has fueled a national debate about student loans and is why Democratic candidates for president such as Massachusetts Senator Elizabeth Warren and Vermont Senator Bernie Sanders have made college-debt forgiveness a pillar of their economic platforms. The costs of young Americans saddled with onerous debt burdens are well-chronicled: declining homeownership rates, dwindling small businesses, delaying marriage and putting off having children.This is not the whole picture, however. Even though the growth looks perfectly linear, the reason for it began to change almost a decade ago.The amount of new student-loan borrowing has declined 8% since peaking at $115 billion in 2012, including a sharp 24% reduction among undergraduate students, Moody’s Investors Service said in a report released late last week. From 2010 to 2018, the undergraduate population fell by more than 1 million, according to the credit rater, for mostly good reasons. Community college enrollment is down because the U.S. economy is strong, while for-profit institutions have come under closer scrutiny. Those who do still borrow, Moody’s says, have “greater potential for increased earnings.”What, then, explains the ever-higher debt load? Simple: Borrowers aren’t repaying what they owe. Or, at least, not nearly with the expected urgency.Any way you slice the data, this trend is staggering. Consider borrowers who were in school during the financial crisis (repayment obligations that started in 2010-12). About half of them made no progress in reducing their balance after five years, according to Moody’s. That aligns with a Federal Reserve Bank of New York report in October, which found a mere 36% of borrowers who were current in their loans in the second quarter made a dent in their balance over the previous year. Overall, during the past decade, the existing balance eliminated each year has averaged just 3%.That’s obviously a tiny percentage, lower than the current fixed interest rates on federal loans of 4.53% for undergraduates and 6.08% for those attending graduate school. So borrowers as a whole aren’t even treading water.That’s not the end of the story, though. Because part of the reason the repayment rate is so low is intentional.Many college graduates are using income-driven repayment options, which grew in popularity after the financial crisis as a way to help people manage their student-loan debt. In general, they cap required monthly payments based on a percentage of discretionary income, a boon for those who don’t have high-paying jobs. Four of the five programs cited by Moody’s include outright debt forgiveness after 20 to 25 years of qualified payments.The trend “is materially suppressing repayment rates, in part because many borrowers’ IDR payments fall below monthly interest accruals, resulting in growing loan balances even as borrowers make required payments.” More than half of the balances of borrowers who owe more than $200,000 are in IDR programs, while only 5% of those who owe less than $5,000 are covered by IDR, Moody’s said.The fact that borrowers — and especially those who owe six figures — can pay less than the interest rate on their loans, in turn, directly impacts holders of student-loan asset backed securities, a constituency of Moody’s. The Wall Street Journal published an article earlier this month about this very issue, with the headline “A Borrower Will Be 114 When Bonds Backed by Her Student Loans Mature.”The whole thing is a bit of a mess. To summarize, it starts with Julie Chinnock, a 50-year-old who owed about $250,000 in student loans. She entered into an IDR program, like her peers, and bonds backed in part by her payments were on the verge of a downgrade by Moody’s, which in 2015 altered its methodology to factor in slower repayments. The issuer of the asset-backed securities and the investors who owned them agreed to extend the maturity dates by decades to keep their top ratings. The Consumer Financial Protection Bureau has become involved in recent years, concerned that issuers of “SLABS” might mislead student-loan borrowers because of their incentive to prop up credit ratings.All of this is to say, the student-loan crisis is far more intricate than an upward sloping, seemingly unstoppable linear line. The aggregate figure is staggering, to be sure, especially considering what it was just a decade ago. And it’s troubling that a wide swath of the U.S. population can’t dig out from under its debt load. But consider the following:The inflation-adjusted cost of obtaining an undergraduate degree is now mostly holding steady relative to household income. So while it’s true that higher education costs skyrocketed over the past few decades, the same doesn’t quite hold up when focusing on recent years. As previously mentioned, fewer young Americans are heading to for-profit and two-year institutions, where it might be tougher to land a job that pays enough to wipe out student loans. To top it off, many borrowers are intentionally slowing down their repayment speed, often to the point that their outstanding balance grows even after making qualifying payments.Taken together, it’s hard to make the case that the proliferation of student loans is getting appreciably worse. Rather, the debt appears to be predominantly a burden of those who went to school during the period in which college prices were rising sharply relative to inflation and when the lingering economic consequences of student loans were less well-known. With those borrowers now nearing their prime earning years, it’s little wonder why debt-forgiveness plans are alluring public-policy proposals.To contact the author of this story: Brian Chappatta at email@example.comTo contact the editor responsible for this story: Daniel Niemi at firstname.lastname@example.orgThis 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.
Moody’s Corporation (NYSE: MCO) today announced that it has been named to the 2020 Bloomberg Gender-Equality Index (GEI) for the first time. The GEI tracks the financial performance of public companies committed to supporting gender equality. Firms included in the 2020 GEI have provided a comprehensive look at their investment in workplace gender equality and the communities in which they operate.
(Bloomberg) -- U.S. stock index futures indicated a negative start after the long weekend, mirroring a sell-off in global equity markets as concerns over the spread of a SARS-like virus from central China prompted investors to book recent gains.S&P 500 Index futures contracts expiring in March fell as much as 0.5% after multiple medical workers were reported to have been infected. Dow Jones Industrial Average contracts were down 0.3% while those on the Nasdaq 100 retreated 0.6%. U.S. markets were closed Monday for Martin Luther King Jr. Day.Asian Tourism, Consumer Stocks Slip Amid Concern of Virus ImpactAsian stocks sank as risk-off sentiment roiled markets and spurred a flight to quality across assets. Gold and the yen climbed and China’s yuan weakened by the most in three months. In Europe, the Stoxx 600 fell 1%, with miners, banks and consumer-related stocks leading losses.Worries over the virus come ahead of the Lunar New Year holiday, a busy Chinese traveling period, said Laura Fitzsimmons, executive director at JPMorgan Chase & Co.“When we compare this situation with previous virus outbreaks, the level of Chinese travel now is way, way bigger than what we had before,” she told Bloomberg TV in Sydney. “How much that industry has grown, how many more are traveling now -- it really does make things on a much larger scale.”READ: Here’s What Market Watchers Are Saying About the Virus SpreadHong Kong’s equity index market fell the most in Asia as concerns linked to the virus in China added to a downgrade by Moody’s Investors Service and violent clashes over the weekend.“Asian equities sold off heavily in the overnight trading session. With no bad news on the economic wire, the sudden reversal in Asian risk appetite may have been triggered by a fourth death in China,” said Ipek Ozkardeskaya, a senior market analyst at Swissquote Bank.To contact the reporters on this story: Jackie Edwards in Sydney at email@example.com;Filipe Pacheco in Dubai at firstname.lastname@example.orgTo contact the editors responsible for this story: Lianting Tu at email@example.com, Naoto HosodaFor 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.
Moody's Analytics has won the Best Financial Services AI Solution category at the 2019 Artificial Intelligence Awards for the QUIQspread™ solution.
(Bloomberg) -- Sign up here to receive the Davos Diary, a special daily newsletter that will run from Jan. 20-24.Several economic reports Thursday showed Americans are increasingly upbeat, more are catching the home-buying bug and perhaps most importantly, they’re still spending.Retail sales excluding autos climbed in December by the most in five months, Bloomberg’s weekly index of consumer comfort advanced to the highest in 19 years and a gauge of homebuilder sentiment posted its best back-to-back reading since 1999. Other reports showed applications for unemployment benefits dropped to a six-week low, while a regional manufacturing index was the strongest since May.Treasury yields rose and the dollar pared losses after the solid retail sales report.“The consumer’s got everything going for them -- the job market’s tight, they’re getting modest wage gains, interest rates are low, household balance sheets are in good shape,” Ryan Sweet, head of monetary policy research at Moody’s Analytics, said by phone. “The consumer has plenty of firepower to keep spending. That’s good for the economy.”Closely watched retail “control group” sales increased 0.5%, just above the median forecast in a Bloomberg survey of economists. The core measure excludes food services, car dealers, building-materials stores and gasoline stations, giving a better sense of underlying consumer demand.For all of 2019, the value of retail sales increased 3.6%, a step down from an almost 5% gain in 2018 that was the largest annual advance in six years and reflected a boost from tax cuts. At the same time, consumers will probably remain the economy’s chief source of fuel as companies continue to hire and household sentiment stays elevated.In a sign that Americans are warming to the purchase of a home, a report on builder sentiment from the National Association of Home Builders showed December and January were the best months since 1999. The NAHB’s measure of potential buyer foot traffic advanced this month to 58, matching the strongest reading since the end of 1998.Jobs and StocksA resilient job market, depicted by the latest jobless claims figures which showed a fifth week of declines in applications for unemployment benefits, and higher stock prices are buoying consumers’ spirits. The Bloomberg index of comfort also showed a measure of views about the economy were the brightest since early 2001. There was also increased confidence in household finances and more viewed the buying climate as better.What’s more, manufacturing may be showing signs of stabilizing. The Philadelphia Federal Reserve index of manufacturing activity climbed to the highest since May, while a gauge of new orders was the best in three months.The retail sales figures came a day after Target Corp. joined other retailers in reporting weaker holiday sales. The retailer said comparable sales rose just 1.4% from a year earlier in the November-December period, well below 2018’s 5.7% growth. Same-store sales at Kohl’s Corp., J.C. Penney Co. and L Brands Inc. also fell during the period.While the government reported December receipts at general merchandise stores rose 0.6%, the most since July, the department-store subcategory registered a 0.8% slump. That was the fifth-straight decline and evidence of the change in Americans’ shopping habits. For all of last year, department-store sales declined 5.5%, while receipts at nonstore retailers that include online purchases jumped 13.1%.Broad AdvanceThe retail sales report showed 12 of 13 major categories increased. At apparel stores, purchases increased the most since March and sales at building-materials outlets posted the best advance since August.Filling-station receipts increased 2.8%, the biggest gain since March, the report showed. Excluding automobiles and gasoline, retail sales climbed 0.5% after a 0.2% decline the previous month.The sales data don’t capture all household purchases and tend to be volatile as they’re not adjusted for changes in prices. The government’s first estimate of fourth-quarter growth will offer a fuller picture of U.S. consumption in data due Jan. 30.\--With assistance from Chris Middleton.To contact the reporter on this story: Vince Golle in Washington at firstname.lastname@example.orgTo contact the editors responsible for this story: Scott Lanman at email@example.com, Matthew BoeslerFor 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.
Moody's (MCO) has an impressive earnings surprise history and currently possesses the right combination of the two key ingredients for a likely beat in its next quarterly report.
(Bloomberg) -- Sign up to our Next Africa newsletter and follow Bloomberg Africa on TwitterThe South African Reserve Bank unexpectedly cut its benchmark interest rate to the lowest level in four years after slashing forecasts for inflation and economic growth.The Monetary Policy Committee unanimously voted to lower the repurchase rate to 6.25% from 6.5%, Governor Lesetja Kganyago told reporters Thursday in the capital, Pretoria. Of the 19 economists surveyed by Bloomberg, only three predicted the move, although forward-rate agreements showed the market foresaw an even-chance of a cut.After a 25 basis-point reduction in July, the central bank consistently said that its ability to ease further was limited by political and policy uncertainty that added to the risk premium investors pay for South African debt. Most economists predicted the central bank will remain cautious and hold rates because of risks coupled to South Africa losing its only remaining investment grade credit rating from Moody’s Investors Service.However, Kganyago said the decision to ease was based purely on the outlook for inflation and growth going forward and not on what the MPC expects from Moody’s.“If a downgrade was to take place it would be a shock and we will treat it the same way that we treat any other shock and try to see through it, and if there are any second-round effects we will respond to the second-round effects,” he said.New forecasts released Thursday show the central bank expects inflation to settle at 4.5% in the third quarter of next year and average at that level in 2022. That’s in line with the midpoint of the central bank’s target range.More Cuts?The MPC sees some growth in the fourth quarter of 2019, Kganyago said, suggesting the economy probably dodged a second recession in as many years. The Reserve Bank cut its forecasts for 2019 through 2022, when it sees expansion reaching 1.9%.Lowering the interest rate is a risky move given that the President Cyril Ramaphosa’s administration hasn’t made sufficient progress to address fiscal issues that could lead to a Moody’s downgrade this quarter, said Piotr Matys, a London-based strategist at Rabobank. A lot also hinges on global factors such as the U.S.-China trade pact.“If Moody’s maintains the current rating and the phase one trade deal doesn’t collapse in the first half of the year, the Reserve Bank will be looking for another opportunity to cut rates -- assuming that the rand remains stable,” he said.The central bank’s quarterly projection model now forecasts a repurchase rate of 6.1% by the end of this year and 6% by the end of 2021. Kganyago said the model prices in a 25 basis-point cut this quarter and another one in the final three months of 2020.The policy easing could take some heat off the central bank, which came under fire last year from politicians and labor unions who say it should be doing more to boost growth and help reduce unemployment of more than 29%.While the ruling African National Congress reaffirmed the Reserve Bank’s independence, role and mandate over the weekend, the institution could increasingly come under pressure as the ANC prepares for a conference in June to mark the mid-point of its current leadership’s term.What Bloomberg’s Economist Says“If growth continues to be weak and inflation remains subdued, the SARB will have space to lend further support to the economy. The big risk here is that the central bank may have underestimated the extent to which the slowdown in economic growth is reflective of wider slack rather than supply constraints.”\--Boingotlo Gasealahwe, Africa economist\--Click here to view the research\--With assistance from Andre Janse van Vuuren, Vernon Wessels, Liezel Hill, Simbarashe Gumbo, Renee Bonorchis, Adelaide Changole and Colleen Goko.To contact the reporters on this story: Rene Vollgraaff in Johannesburg at firstname.lastname@example.org;Amogelang Mbatha in Johannesburg at email@example.comTo contact the editors responsible for this story: Rene Vollgraaff at firstname.lastname@example.org, Gordon Bell, Vernon WesselsFor 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) -- China is opening the deepest, darkest corner of its strained financial system to American financial institutions. It’s not clear why investors would want to go there, even with their eyes wide open.As part of President Donald Trump’s phase one trade deal, China will allow U.S. institutions to apply for asset management company licenses (beginning with the provinces), permitting them to acquire non-performing loans directly from Chinese banks. Previously, foreign investors could only operate in the secondary market to buy portfolios of four or more loans from Chinese asset management companies.China needs the fresh capital. The mound of souring loans is growing and there are fewer ways to get rid of them. New investors are welcome. Banks have piled up non-performing loans of more than 2.2 trillion yuan ($319 billion). China’s distressed-debt asset management companies – better known as bad banks – charged with resolving these loans are reaching saturation. The banks have slowed acquisition but the net balance of distressed-debt assets is still rising. Besides the big four national bad banks established in the 1990s to resolve a heap of bad loans, more than 50 provincial distressed-asset management companies were created over the past three years. Seen as a potential solution to China’s soured debt problem, these provincial asset managers aren’t technically set up as financial institutions. That means they don't have official capital requirements, giving more room to soak up troubled loans. They’re allowed to directly acquire packages of bad debt from banks in their province. For distressed assets in other provinces, they must go to the secondary market. They’re funded mainly by issuing bonds and notes.Unsurprisingly, these provincial bad banks are contending with their own liquidity issues and face refinancing risks. That brings to mind last year’s market-rattling failure of Baoshang Bank Co., China’s first bank failure in decades. Can these institutions keep funding themselves as they take on more non-performing loans? What happens to the market when they can’t?It makes sense for China. Bringing in international investors helps the market mature, KPMG LLP’s Wilson Pang notes. But why would American investors want to wade through such treacherous territory? Chinese provincial asset managers operate in fuzzy, local networks that aren’t really transparent, according to Moody’s Investors Service Inc. The market remains largely unregulated, with limited oversight and disclosure. The quality of assets is also dubious. For bad debt, that’s saying something. One reason China has created so many provincial players is that non-performing loans from regional banks have poured in faster as the economic slowdown hurts the hinterland more. Smaller city-level commercial banks suffered 78% growth in such loans at the end of the quarter ending in September from a year earlier. They now account for over a third of bad loans in the banking system and their share is rising. Some rural banks are officially reporting non-performing loan ratios as high as 4% compared to 1% to 2% at larger banks. The trade deal states that U.S. institutions should be treated “on a non-discriminatory basis” with Chinese competitors, but these are already tightly knit with local and regional governments and banks. Lenders have used the asset management companies to park non-performing loans. The National Audit Office said last year that some regional banks hid around 7.2 billion yuan of loans between 2016 and 2018. In Sichuan province, an asset management company controlled by a local government took on 168 million yuan of non-performing loans. The relationships are potentially far too cozy for U.S. players to crack, even if they get licenses.Then, there is the looming question of creditors’ rights. The recent bankruptcy case of Dandong Port Group Co. is a reminder that foreigners, let alone domestic creditors, won’t have it easy no matter what the law says.If U.S. institutions go in anyway, can they make money? Going by the experience of the current operators, it depends how that’s defined. They have derived 30% to 50% of their income from managing distressed assets. The remainder includes a big chunk of so-called investment income. That means the asset management companies are doing more than just resolving bad loans and almost function as shadow banks. They generate fees by effectively acting as bad loan brokers, buying packages at auction and transferring them to investors. The risk-reward proposition is opaque. Foreign investors in distressed assets made a killing in the last credit cycle two decades ago. This time won’t be so lucrative. In this sector, at least, Beijing looks like it will come out on top of Trump’s “big, beautiful monster” of a trade deal.To contact the author of this story: Anjani Trivedi at email@example.comTo contact the editor responsible for this story: Patrick McDowell at firstname.lastname@example.orgThis 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.
Moody's Corporation (NYSE: MCO) will release its fourth quarter and full year 2019 results before the start of NYSE trading on Wednesday, February 12, 2020. A copy of the release will be posted on Moody's Investor Relations website, ir.moodys.com.
BNP Paribas Cardif has selected the Moody’s Analytics RiskIntegrity™ for IFRS 17 solution for its global implementation of IFRS 17.
(Bloomberg) -- Xerox Holdings Corp. has arranged a $24 billion loan with a group of banks as it continues a pursuit of HP Inc.It’s the largest-ever bridge loan in the technology sector, surpassing International Business Machines Corp.’s $20 billion facility in 2018 for its acquisition of Red Hat Inc., according to data compiled by Bloomberg. The rankings exclude the $51.2 billion bridge loan, which was part of a larger $100 billion debt financing for the failed Broadcom Inc. takeover of Qualcomm Inc. The deal was blocked by President Donald Trump.The Xerox bridge is also the first jumbo acquisition financing to emerge in the investment-grade loan market this year, which will be welcome news to banks hoping for more merger activity in 2020 after the pipeline dwindled last year.Read more: U.S. investment grade loans set for strong 2020 despite slow M&ACitigroup Inc., Mizuho Financial Group Inc. and Bank of America Corp. have provided the debt commitment. It’s comprised of a $19.5 billion 364-day facility, which is expected to be syndicated, and a $4.5 billion 60-day facility intended to be replaced by cash on HP’s balance sheet, according to a filing.Companies typically replace bridge loans with bonds before a deal is completed.The debt pledge is intended “to remove any doubt” about Xerox’s ability to raise financing, according to a public letter sent on Monday from Xerox Chief Executive Officer John Visentin to HP’s board of directors.The letter referenced conversations with HP’s largest shareholders that revealed HP, based in Palo Alto, California, and its advisers had questioned Xerox’s ability to raise the money needed to finance the acquisition.A representative for Xerox declined to comment.Norwalk, Connecticut-based Xerox initially lined up financing from Citigroup in November, Bloomberg reported. But HP rejected the initial offer saying the price was too low. The computer company also declined Xerox’s request to open its financial books and questioned whether the smaller suitor could raise the funding.The $4.5 billion facility offers an initial margin of the London interbank offered rate plus 1.25%, while the opening pricing for the $19.5 billion facility is Libor plus 1.375%. Existing ratings are BB+ from S&P Global Ratings and Ba1 from Moody’s Investors Service.Xerox, known for making copier machines, became a fallen angel in 2018 after both S&P and Moody’s downgraded the company to high-yield amid challenges in the sector and falling revenue. Personal computer maker HP is rated Baa2 by Moody’s and BBB by S&P.Xerox last raised a $2.5 billion bridge loan in 2018 for its purchase of Japan’s Fujifilm with a margin of Libor plus 1.375%. It carried higher ratings of Baa3 from Moody’s and BBB- from S&P at the time.“Though Xerox’s assertion that the combined company is expected to have an investment grade credit rating may remain in question, funding should no longer be a concern following $24 billion in binding financing commitments,” Bloomberg Intelligence analyst Robert Schiffman wrote on Monday.\--With assistance from Lara Wieczezynski and Deana Kjuka.To contact the reporters on this story: Paula Seligson in New York at email@example.com;Jacqueline Poh in London at firstname.lastname@example.orgTo contact the editors responsible for this story: Natalie Harrison at email@example.com, Boris KorbyFor more articles like this, please visit us at bloomberg.com©2020 Bloomberg L.P.