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Corona Capital

27 April 2020 By Breakingviews columnists

Corona Capital is a daily column updated throughout the day by Breakingviews columnists around the world with short, sharp pandemic-related insights.


– Small business bankruptcies

– NFL draft’s popularity

Squandered second chances. The U.S. government made another $310 billion in emergency relief for small U.S. businesses available on Monday. It will likely run out soon, leaving mom and pop shops in the lurch. Tweaks to the bankruptcy code are but a meager Band-Aid.

Congress recently changed Chapter 11 rules for small businesses, temporarily increasing the debt limit for eligibility from $2.7 million to $7.5 million. This enables them to take advantage of small-business provisions: A qualifying firm doesn’t have to pay quarterly trustee fees, and in most cases, a creditors committee will not be appointed.

But it is better to work out payment plans with landlords and banks, which are being more lenient, without involving a bankruptcy court. These new rules will buy small businesses some much needed time, but what they really need is money. (By Gina Chon)

Spike the ball. The National Football League just scored big. Its recent three-day draft pulled in around 55 million viewers – 16% more than the previous year. The virtual event could have gone very wrong. But action-starved sport fans tired of watching old games got the excitement of a live event and a peek into athletes’ and coaches’ living rooms, basements and, in one case, a yacht.

For the league, the timing is great. It hammered out a new 10-year contract with the NFL Players Association in mid-March and is now set to negotiate rights deals with television networks. Uncertainty surrounding this upcoming season may delay those talks and give networks more leverage to push back. But the NFL just proved that – even when it’s televising a livestream of a coach’s dog – its audience is ready for some football. (By Anna Szymanski)

Late to the hangover. General Motors has finally ditched its dividend more than a month after Detroit rival Ford Motor pulled the plug on its quarterly payouts. That’s just over $2 billion GM won’t have to spend over the next 12 months, with perhaps another $2 billion it will save from also putting share buybacks on hold.

All in, that’s enough to cover around four weeks’ worth of fixed costs, Breakingviews calculates. That doesn’t move mountains, but with the $30 billion or so in cash that GM has on hand, the carmaker run by Mary Barra can withstand a complete shutdown until at least the end of September. With its stock down a mere 1% Monday morning, the only question is why it took the company so long. (By Antony Currie)

Boeing’s necessary diversion. The aviation giant has ditched its $4.2 billion deal to buy 80% of Embraer’s commercial-aircraft division. The pandemic means Boeing has to stay on a survival course.

Airlines around the world are flirting with bankruptcy, and fuel prices have plummeted. That means there’s little demand for existing planes, let alone new fuel-efficient ones. Moreover, Boeing’s balance sheet is creaking with its cash cow, the 737 MAX, grounded for more than a year.

Exiting the Embraer deal saves cash. It also may help land government funding – using cash to buy Brazilian engineering expertise would have been awkward. Embraer may sue, but perhaps some agreement may eventually be back on the table. After all, the Brazilian company is in even worse shape – its market capitalization is now below $1 billion. (By Robert Cyran)

Zoom in. The white-hot videoconferencing sector has a new contender. Norway’s Pexip is raising $100 million of new equity and selling another $100 million of existing investor shares. Like Zoom Video Communications, Pexip is growing rapidly: it has seen a 50% surge in year-on-year first-quarter revenue growth as corporate customers have been forced to work from home. Less like Zoom, concerns about data security should be eased by a roster of big-hitting clients like the U.S. military.

With 2019 revenue of about $42 million, Pexip’s new $600 million valuation means it is valued at over 14 times sales; Zoom’s $44 billion enterprise value means its equivalent is 70 times. Assume both companies hit their 2025 revenue projections, and Zoom trades on 11 times sales and Pexip only 2 times – lower even than the mature $200 billion giant Cisco Systems. Investors that believe the Scandinavian group’s assumed growth won’t be nabbed by Facebook expanding beyond videoconferencing for casual chats have cause to dial in. (By Karen Kwok)

Common tear. Deutsche Bank’s Chief Executive Christian Sewing has good news and bad. The lender on Monday unexpectedly said first-quarter revenue would be 13% above analysts’ expectations. Investors can probably thank Sewing’s fixed income and currency traders. Less encouraging was the warning that the bank’s common equity Tier 1 capital ratio could fall “modestly and temporarily” below Sewing’s 12.5% target as customers push up risk-weighted assets by drawing down existing credit lines.

Deutsche is admittedly better capitalised than peers like BNP Paribas and Banco Santander. It’s also less profitable, though. Analysts expect it to make a loss this year and next. If capital keeps dropping, Sewing is therefore reliant on external help, such as regulatory relief and clients paying down their credit lines, to get it back up. That’s at least plausible, but it makes Deutsche’s capital journey riskier than most. (By Liam Proud)

Poverty plea. Global recessions can be useful when it comes to legal disputes. That may be the thinking of Werner Baumann, chief executive of German drug and pesticides maker Bayer, whose Roundup weed killer is claimed to have caused cancer. The $65 billion company disputes the allegations but is now saying that the new economic reality means that any settlement with 52,500 plaintiffs will have to tie up future claims and be “financially reasonable”.

Bayer’s first-quarter performance undermines that argument.  EBITDA rose 10.2% to $4.76 billion and beat analyst expectations, partly driven by gains in the unit that makes the crop chemicals in question. Bayer may argue a previously rumoured $10 billion settlement is now out of reach, and admittedly its stock is worth 16% less than at the beginning of the year and cash is tight. But given the German group’s share price has outperformed German and European stock indices, plaintiffs may disagree. (By Aimee Donnellan)


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