Key Data for the Week
Key economic data released this week:
The Australian sharemarket rose 0.8% yesterday, with all sectors higher except Materials. Mining heavyweights BHP and Rio Tinto both fell 0.7%, while Fortescue Metals slipped 1.8%.
Health Care stocks rose; CSL gained 1.1%, Cochlear added 1.2%, Sonic Healthcare rose 1.6% and Ramsay Health Care closed 1.9% higher.
Financials were buoyed by the big four banks; Commonwealth Bank added 0.7%, NAB rose 0.6% and Westpac gained 0.3%, while ANZ slipped 0.4%.
Auckland Airport gained 3.9% after receiving a waiver of its debt covenants from US investors.
Wind farm operator Infigen gained 7.3% after recommending an $835 million, $0.86 per share takeover bid from Spanish company Iberdrola.
The Australian futures market points to a 0.61% fall today.
European sharemarkets ended higher on Wednesday, with the board based STOXX Europe 600 up 0.7%. Consumer stocks were stronger; HelloFresh rallied 5.6%, Nestlé rose 3.2% and Tesco added 0.5%. Financials eased as Barclays and Lloyds Bank fell 2.7% and 1.7% respectively.
US sharemarkets were mostly lower overnight to end a three-day winning streak. Energy was the weakest performing sector, while consumer and technology stocks bucked the trend to close slightly higher. AT&T fell 1.7% as the company informed the Communications Workers of America of its plans to cut over 3,400 technician and clerical jobs across the country over the next few weeks. Financials services were mixed; PayPal and Visa rose 1.6% and 0.4% respectively, while MasterCard slipped 0.2%. E-commerce giants Amazon and Alibaba gained 1.0% and 0.7% respectively.
By the close of trade, the Dow Jones and S&P 500 fell 0.7% and 0.4% respectively, while the NASDAQ gained 0.2%.
Companies are asking lenders and bondholders to substitute last year’s profits for this year, to basically pretend the coronavirus hasn’t happened, to avoid breaching debt covenants.
US events group Live Nation and Hong Kong luggage maker Samsonite are among companies employing this tactic. Debt holders have so far accepted it because acknowledging depressed 2020 earnings could cause problems on both sides. If current profit figures were used, these companies would be unable to access their revolving credit facility, putting themselves in a worse position.
When companies breach terms known as covenants, such as a requirement to stick within certain ratios of debt to earnings, lenders are normally at liberty to demand immediate repayment, or in extreme cases, trigger restructurings and take control of business assets.
The use of historical figures is the latest move by cash-strapped businesses to increase the attractiveness of their books. Some have started reporting estimates of profits that would have been made if the viral outbreak had not happened and calling it ‘EBITDAC’, earnings before interest, tax, depreciation, amortisation and coronavirus.
If covenants are tested with real actual EBITDA and companies don’t receive a waiver, then they would likely default, which generally is not in the interest of bondholders and creditors. If many more borrowers try to pass off historical numbers as current, lenders may be less flexible next time around.
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