Struggling borrowers and once-distressed issuers may be all that’s left for investors looking to juice returns in a market where bonds are now “high yield” in name only, Bloomberg News reported. The relentless hunt for risk assets pushed yields on junk bonds below 4% for the first time in the market’s history on Monday. The tidal wave of demand has slashed borrowing costs and opened up financing avenues for even the least credit-worthy firms, handing them an unprecedented opportunity to raise cash. Some $855 billion of junk-rated corporate debt, or around 58% of the entire market, is now trading at a yield of under 4%, according to JPMorgan Chase & Co. Less than 1% of all bonds in the Bloomberg Barclays U.S. Corporate High Yield Bond Index are below 70 cents on the dollar. Meanwhile, yields on bonds in the riskiest CCC bucket are now lower than the debt’s average coupon the first time since 2014, according to data compiled by Bloomberg.
Last year was a banner one for debt, but it didn’t look that way for America’s big banks, the Wall Street Journal reported. Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5% drop was just the second decline in 28 years. Bank of America Corp.’s loans and leases dropped by 5.7%. Citigroup Inc.’s loans dropped by 3.4% and Wells Fargo & Co.’s shrank by 7.8%. Among the biggest four banks, only JPMorgan Chase & Co. had more loans at the end of the year than the start. Lenders are flush with cash that they want to put to use, and executives say they are hopeful loan growth will pick up in 2021. Brisk lending typically suggests there is enough momentum in the economy to give companies and consumers the confidence to borrow. But the current weakness suggests questions remain about the vigor of the economic recovery. For banks, this weighed on profit. Net interest income, the spread between what banks charge borrowers and pay depositors, fell 5% across the industry last year — a consequence of shrinking loan portfolios and near-zero interest rates. It was the biggest drop in more than 80 years of record-keeping, according to research by Mike Mayo, a banking analyst at Wells Fargo.
Mortgage forbearance has been a financial lifeline for many Americans navigating the pandemic-ravaged economy, allowing homeowners to eliminate what is often their largest bill for months at a time. But the relief programs, largely designed to last a maximum of 12 months, are set to expire in the coming months, a serious challenge for borrowers who are still out of work or are earning less than they did pre-pandemic, the Wall Street Journal reported. More than half of 2.7 million active forbearance plans are set to end for good in March, April, May or June, according to mortgage-data firm Black Knight Inc. The federal Cares Act passed last March allowed borrowers to postpone payments on federally backed mortgages for as long as 12 months. About 75% of U.S. mortgages are guaranteed or insured by the U.S. government, according to Black Knight. Close to one in 10 homeowners signed up for forbearance at the peak of the program’s use last June. Like other consumer-relief programs crafted during the pandemic’s early, frenzied days — lenders also let struggling borrowers skip payments on credit cards and auto loans, and the government paused payments on federal student loans — mortgage forbearance was envisioned as a short-term fix, a way to buy time for the economy to recover and consumers to get back on their feet. The agreement has worked for many homeowners. Some paused their payments when they were laid off, then started paying again when they found new jobs. But others are still struggling. Fewer borrowers have exited forbearance plans in recent weeks, and the share of Americans unemployed for more than six months is rising.
House Democrats yesterday released key portions of their coronavirus relief package, including a section that would provide $1,400 checks to most Americans, The Hill reported. As with previous rounds of direct payments, single taxpayers with annual income up to $75,000 and married couples that make up to $150,000 would qualify for the full payment amounts. However, the payment amounts above those thresholds would phase out at a faster rate than the payments from the first two rounds. Single filers with income above $100,000 and married couples with income above $200,000 would not be eligible for any payments. The release of bill text came after policymakers and economists debated what the income eligibility requirements should be for the payments. Republicans and some centrist Democrats argued that the payments should be more targeted to lower-income households because those households are most in need of relief and most likely to spend the money quickly. But progressives argued that the income requirements shouldn't be tightened so people who lost substantial amounts of income during the pandemic could quickly receive their payments. Eligible households would be able to receive payments of up to $1,400 per person, including for adult dependents, who were left out of the previous rounds. The bill directs the Treasury Department to issue payments to people based on their 2019 or 2020 tax returns, and it allows the department to make payments to non-filers based on information available to it. Read more.
In related news, Democrats yesterday released a sweeping plan to provide more than $50 billion in additional assistance to U.S. airlines, transit systems, airports and passenger railroad Amtrak and create a $3 billion program to assist aviation manufacturers with payroll costs, Reuters reported. The $1.9 trillion COVID-19 relief proposal will provide $30 billion to transit agencies, $14 billion for passenger airlines, $8 billion to U.S. airports, $1 billion for airline contractors and $1.5 billion to Amtrak, the draft legislation says. U.S. House committees are set to vote on the legislation on Wednesday. President Joe Biden had proposed $20 billion for struggling U.S. transit agencies — and nothing for airlines — while Democrats had pushed for more transit help, citing the collapse in travel demand as a result of the COVID-19 pandemic. Transit agencies have previously been awarded $39 billion in emergency assistance by Congress. New York’s Metropolitan Transit Agency says daily subway travel has recently been down 70% or more. Read more.
Also, Democrats are furthering their efforts to expand the child tax credit in an attempt to reduce poverty and provide more assistance to families amid the coronavirus pandemic, The Hill reported. House Ways and Means Committee Chairman Richard Neal (D-Mass.) introduced his panel’s portion of House Democrats’ broader coronavirus relief package, which is expected to include a one-year expansion of the child tax credit. Additionally, Reps. Rosa DeLauro (D-Conn.), Suzan DelBene (D-Wash.) and Ritchie Torres (D-N.Y.) yesterday reintroduced a bill to permanently expand the credit. Both measures would make the credit fully refundable, so that lower-income families can receive the full credit amount. They would increase the annual credit amounts from $2,000 to $3,600 for children under age 6 and $3,000 for older children. The expanded credit amounts would phase out for higher earners, though the thresholds are slightly different in the two proposals. Additionally, the measures call for the IRS to make advance payments of the credits on a monthly basis, so that families could receive payments of $300 per month for children under 6 and $250 per month for older children. Each bill directs the IRS to establish an online portal in which taxpayers can notify the agency about changes that occur during the year pertaining to income, number of children and marital status. Read more.
Belk today reaffirmed that it expects to complete its financial restructuring through an expedited "pre-packaged, one-day" reorganization, according to a press release. The company expects to file for chapter 11 on February 24, 2021, and anticipates that the confirmation hearing to approve the restructuring will be held on the same day, at 2:00 p.m. Central Time. Lenders holding 99% of Belk's first lien term loan and 100% of Belk's second lien term loan have now entered into the previously announced Restructuring Support Agreement (the "RSA"), evidencing near unanimous term loan lender support for Belk's "one-day" reorganization. The RSA enables Belk to raise $225 million of new capital, significantly reduce debt by approximately $450 million, and extend maturities on all term loans to July 2025. Belk plans to continue normal operations throughout its financial restructuring. Under the RSA, suppliers will be unimpaired and will continue to be paid in the ordinary course for all goods and services provided to the company. Under the terms of the RSA, Sycamore Partners will retain majority control of Belk. Belk has secured financing commitments for $225 million in new capital from Sycamore Partners, leading global investment firms KKR and Blackstone Credit, and certain existing first lien term lenders. Belk has also secured an extension of the early consent deadline for additional lenders to provide commitments for the $225 million of new capital. The commitment deadline has been extended to 4:00 p.m. Central Time on February 11, 2021, although additional commitments are not required for successful completion of the restructuring. Members of an ad hoc crossover lender group led by KKR Credit and Blackstone Credit and other participating lenders will acquire a minority ownership in Belk.
Simon Property Group Inc. forecast higher full-year profit yesterday as improving store traffic at brick-and-mortar retailers helped drive a rise in the largest U.S. mall owner’s rent collection, Reuters reported. Sales of some brick-and-mortar retailers have improved from the pandemic troughs plumbed last year thanks to the launch of online shopping options such as same-day order pick-ups and government stimulus checks. Simon said it had collected 90% of the second, third and fourth-quarter net billed rents combined as of Feb. 5. It had collected only 85% of third-quarter net billed rents as of Nov. 6. However, total revenue fell 24% to $1.13 billion in the fourth quarter ended Dec. 31. Simon forecast 2021 earnings per share of $4.60 to $4.85, compared with a profit of $3.59 per share in 2020.
Treasury Secretary Janet Yellen said yesterday that she supports President Biden's plan for a large stimulus package, currently proposed at $1.9 trillion, calling it the best way to get the U.S. economy back to pre-pandemic levels, The Hill reported. Speaking on CNN's "State of the Union," Yellen explained that while the president was committed to working with "all members of Congress," the administration was more interested in passing a plan that addressed all of the needs brought forth by COVID-19. "There's absolutely no reason we should suffer through a slow recovery," Yellen said Sunday, adding: "I would expect if this package is passed, that we would get back to full employment next year." When asked whether Biden would support a plan passed with zero Republican votes, as well as concerns from moderate Democrats that the cutoff for direct relief payments in the plan is too high, Yellen appeared to side with progressives who have warned that Biden should worry about going too small, rather than too big, with the proposal. "We need a big package, and we need to get this done quickly," Yellen said. "[I] know the details need to be worked out, and the president is willing to work with Congress," Yellen continued, while adding of the calls from some Democrats to lower the cutoff for direct payments to $50,000 for individuals: "Middle class families need help too." Yellen's comments come amid a resurgent effort from progressives in both the House and Senate to urge the administration against heeding calls from centrists such as Sen. Joe Manchin (D-W.V.) to lower the cutoffs for direct payments in the stimulus package. Democrats appear to be ready to pass the package with little or no Republican support after a proposal offered by GOP senators last week for a new stimulus package was rejected during a meeting with the president as too small.
