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Corona Capital

28 May 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.


– General Electric

– Macy’s

Inertia at work. General Electric chief Larry Culp likes to say he’s “redefining winning.” But investors want to see the company actually winning, and that’s not happening. Culp said on Thursday that the $64 billion GE will, overall, burn cash this year. His goal of getting $59 billion of debt under control is receding.

Coronavirus is, of course, the reason. Aircraft makers and hospitals are huge customers, and the pandemic has hobbled both. GE’s aviation business is 70% down, according to Culp, while 85% of aircraft leasing customers have asked for kinder terms. All who can are trying to pay less, or later.

Culp says GE is “embracing our reality,” which essentially means laying off staff and hoping for the best. That’s what most other companies are doing too. But unlike many CEOs, he has other options – like selling a stake in GE’s healthcare business. For a boss with so much still to prove, more dramatic action wouldn’t hurt. (By John Foley)

New Macy’s lifeline may become an anchor. The U.S. retailer priced $1.3 billion in five-year bonds on Wednesday at an interest rate of over 8%. Yield-hungry investors fell over themselves to lend, with the Wall Street Journal reporting almost $6 billion in orders. This may look a good deal given much of Macy’s debt is yielding in the double digits. But the company backed the bonds with collateral worth around $2.2 billion, including prime properties in Brooklyn, San Francisco and Chicago.

The deal will buy Macy’s time, but that’s about it. It was struggling long before Covid-19. And Fitch Ratings reckons its leverage could climb to a whopping 15 times EBITDA this year. That ratio should fall significantly as people start shopping again, but the company still faces almost $1.5 billion in debt maturities in 2023 and 2024 and perhaps an acceleration of traditional retailers’ decline. The pricey extra debt may, in the end, just weigh it down. (By Anna Szymanski)

Tech tar. Fallout from the coronavirus pandemic has put Twitter and its Chief Executive Jack Dorsey squarely in the crosshairs of U.S. President Donald Trump. Until now, the $25 billion social-media company’s boss had managed to navigate treacherous political waters better than his counterparts at Facebook and Alphabet. Twitter’s fact-checking of a tweet from the commander-in-chief claiming mail-in voting promoted fraud has changed that.

Many states are grappling with how to prevent polling booths becoming a Covid-19 health hazard in this year’s elections. Twitter’s move has prompted Trump to resuscitate plans for an executive order, which he may sign as early as today, that could seek to curb liability protections for social-media companies that stifle conservative voices. It’s unclear if the order would have any teeth, and it would almost certainly face court challenges. But it shows that Dorsey’s star in Washington is dimming. (By Jennifer Saba)

On the market. Salvatore Ferragamo needs a shake-up. The Italian maker of $600 Vara bow pumps recalled former boss Michele Norsa to repair the group after the virus knocked 31.5% off first-quarter sales. He’s a safe pair of hands, having led Ferragamo for 10 years and taken it public in 2011. When he left, the stock was worth almost twice what it’s trading at today.

At 71, however, Norsa can’t really be expected to embark on a long restructuring. His arrival suggests the Ferragamos, who tightly control the group, are preparing for deeper change. This could take the form of an outright sale to a bigger rival eager to boost its leather market share: say, Kering or Capri, the parent of Versace and Michael Kors. Private equity could also eye a revamp. At $2 billion euros, Ferragamo is small enough to attract plenty of cash-rich buyers. (By Lisa Jucca)

Easy does it. EasyJet is facing up to the harsh new reality for airlines. The UK budget carrier, which is due to restart services on June 15, on Thursday said it expects to fly about 30% of previously planned flights in the crucial months of July, August and September. The 3 billion pound company also said bookings for winter are ahead of last year, as locked-down customers reschedule holidays.

Like his rivals at other carriers, Chief Executive Johan Lundgren is being cautious about any recovery. He doesn’t expect demand for flights to return to last year’s level until 2023. That’s why easyJet is scaling back its fleet and cutting as many as 30% of its 15,000 employees. The sombre approach is in contrast to recent investor enthusiasm, spurred by the reopening of European tourist destinations. EasyJet shares are up a third this week. Still, it’s a long haul. (By Peter Thal Larsen)

Red line. South Korea’s central bank is edging closer to crossing the monetary precipice, cutting the main interest rate on Thursday to a record low of 0.50%. After early success with containing the virus, the country is struggling with smaller outbreaks that threaten plans to ease social distancing curbs. Analysts at Capital Economics expect the $1.6 trillion trade-dependent economy to shrink 3% this year as exports plunge, far more than the official forecast.

That adds pressure for the Bank of Korea to follow counterparts from the United States to Indonesia and ramp up asset purchases. It says it is prepared to “actively purchase” treasury bonds if long-term yields become volatile. With little room for more easing, and no sign that domestic or external demand will improve soon, South Korea is fast moving towards monetising its fiscal deficit, and all the problems that go with it. (By Robyn Mak)

Croupier’s rake. Blackstone has found a clever way to play bond market volatility. Last September Spanish gaming group Cirsa, which is controlled by the private equity giant, issued a 400 million euro bond in order to pay a dividend to its owner. Now Blackstone has bought back 120 million euros of those securities at a big discount. The bonds were trading at just 40% of par before Blackstone’s purchases were disclosed.

If the move looks cheeky, it’s arguably what private equity groups should be doing: making long-term bets, and spotting value that other investors don’t. If Blackstone cancels the debt, Cirsa and its creditors will be better off. The bigger question is why investors chose to sell at such distressed levels. On Wednesday the bonds were still trading at just 50% of face value, offering a yield of around 26%, according to Refinitiv data. That suggests investors think there is a limit to Blackstone’s charity. (By Neil Unmack)



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