U.S. lawmakers today will question the heads of the Federal Reserve and Treasury over the effectiveness of the nearly $3 trillion in emergency aid doled out to stem the economic fallout from the novel coronavirus pandemic, Reuters reported. The U.S. central bank, with Treasury’s backing, has launched programs to improve the flow of credit as economic activity cratered and millions of jobs were lost, including its new Main Street Lending Program for mostly medium-sized businesses. Treasury has been at the forefront of the $660 billion forgivable-loan Paycheck Protection Program (PPP) aimed at keeping small businesses afloat and their employees on payrolls. Fed Chair Jerome Powell and Treasury Secretary Steven Mnuchin are due to testify before the U.S. House of Representatives Financial Services Committee at 12:30 p.m. EDT to discuss how funds were disbursed to households and businesses. For prepared witness testimony and a link to the live web stream of the hearing, please click here.
The Federal Reserve yesterday formally opened its $500 billion lending program to support issuance of new debt by large corporations, the last of nine emergency programs it is running to backstop lending markets reeling from the coronavirus pandemic, the Wall Street Journal reported. The Fed began purchasing earlier this month individual bonds of large companies that were highly rated as of March 22, but it hadn’t yet said when it would initiate a companion effort to purchase newly issued securities by those companies. The Fed is offering two ways for companies to participate in the program. The central bank will purchase eligible syndicated loans and bonds alongside other investors, and it will also buy eligible bonds as the sole investor. For the latter option, the Fed said yesterday that prices for those bonds would be subject to minimum and maximum spreads over yields on government bonds of comparable maturities.
Chesapeake Energy Corp. yesterday sought bankruptcy court approval to cancel $311 million in pipeline contracts, setting up a battle with U.S. regulators and operators including Energy Transfer LP, according to court filings, Reuters reported. Chesapeake on Sunday became the largest U.S. oil and gas producer to seek bankruptcy protection in at least five years, falling to heavy debt and the impact of the coronavirus outbreak on energy markets. The company separately said in a filing that it plans to operate six to eight drilling rigs for the next two years, about half the 14 rigs active on average in the first quarter, as it battles a historic downturn in oil prices. The shale pioneer wants to walk away from contracts with units of Energy Transfer, Boardwalk Pipelines, and a Crestwood Equity Partners and Consolidated Edison gas joint venture. The contracts involve about $293 million with Energy Transfer’s Tiger Pipeline and $18 million with Boardwalk’s Gulf South Pipeline.
Canada’s Cirque du Soleil Entertainment Group filed for bankruptcy protection yesterday as the COVID-19 pandemic forced the famed circus operator to cancel shows and lay off its artistes, Reuters reported. The Montreal-based entertainment company, which runs six shows in Las Vegas, has struggled to keep its business running amid coronavirus restrictions that started in March, forcing it to lay off about 95 percent of its workforce and temporarily suspend its shows. “With zero revenue since the forced closure of all of our shows due to COVID-19, the management had to act decisively to protect the company’s future,” Chief Executive Officer Daniel Lamarre said. The company has signed an agreement with its existing investors private equity fund TPG Capital, China’s Fosun International Ltd, and Canadian pension fund Caisse de depot et placement du Québec under which the group will take over Cirque’s liabilities and invest $300 million to support a restart. As part of the investment, government body Investissement Québec will provide $200 million in debt financing. But creditors are unlikely to agree to the deal, which could result in existing debt holders getting about 45 percent equity in the restructured company.
NPC International Inc., one of the largest restaurant franchisees in the U.S., is preparing to file for bankruptcy protection despite its brands reporting a bump in sales since the coronavirus pandemic, the Wall Street Journal reported. The owner of more than 1,200 Pizza Hut restaurants and 385 Wendy’s Co. stores could file for chapter 11 protection as soon as today. The franchisee missed interest payments on its nearly $800 million in loans on Jan. 31, prompting S&P Global Ratings and Moody’s Investors Service to lower their views on the company’s debt. NPC was in conversations with its lenders for a possible bankruptcy filing at that time.
Global M&A activity tumbled to its lowest level in more than a decade in the second quarter, according to data provider Refinitiv, as companies gave up on expansion plans to focus on protecting their balance sheets and employees in the wake of the coronavirus outbreak, Reuters reported. Chief executives were reluctant to explore transformative deals without more certainty about the financial outlook of their companies, deal advisers said. Instead, they seized on favorable financing conditions to raise capital by selling stock and borrowing cheaply, driving equity and debt issuance to record highs. “It was the quarter for capital market activity. Companies are making sure their balance sheets are strong and durable for what comes next,” said Michael Carr, global M&A co-head at Goldman Sachs Group Inc. Global M&A totaled $485.3 billion in the second quarter, down 55% from a year ago and its lowest since the third quarter of 2009, according to Refinitiv. This was based on 8,272 deals, the lowest quarterly number since the third quarter of 2004.
Creative freelancers — with little job protection and incomes reliant on people leaving their homes — have been some of the hardest hit in the coronavirus-driven recession, according to economists, the Wall Street Journal reported. Performers, production crews, ride-share drivers and personal trainers were among the first to lose work and will likely be among the last to regain lost ground in the coming months, experts say. “These freelancers, they suffer more because they can’t rely on the big corporation to protect (them),” said William Yu, an economist at the UCLA Anderson School of Management. That is particularly bad news for Los Angeles, which has the country’s second-highest concentration of high-skilled creative freelancers after Nashville, according to an analysis from Fiverr International Ltd., which runs a website connecting freelancers and employers. L.A. had the sixth highest unemployment rate among major metropolitan areas in April, according to the most recent update from the U.S. Bureau of Labor Statistics. State figures for May put Los Angeles-area unemployment at nearly 21 percent. Some freelancers in L.A. say that they are thinking of leaving entirely, raising questions about the future of a city long full of creative workers who pay the bills with second, third, and fourth jobs. Nashville and New York, the other cities with highest concentrations of creative freelancers, are also outpacing national unemployment.
Chesapeake Energy Corp. yesterday filed for chapter 11 protection, becoming the largest U.S. oil and gas producer to seek bankruptcy protection in recent years as it bowed to heavy debts and the impact of the coronavirus outbreak on energy markets, Reuters reported. The filing marks an end of an era for the Oklahoma City-based shale pioneer, and comes after months of negotiations with creditors. Reuters first reported in March the company had retained debt advisers. Chesapeake was co-founded by Aubrey McClendon, an early and high profile advocate of shale drilling who died in 2016 in a fiery one-car crash in Oklahoma while facing a federal probe into bid rigging. Over more than two decades, McClendon built Chesapeake from a small wildcatter to a top U.S. producer of natural gas. It remains the sixth-largest producer by volume. Current CEO Doug Lawler, who inherited a company saddled with about $13 billion in debt in 2013, managed to chip at the debt pile with spending cuts and asset sales, but this year’s historic oil price rout left Chesapeake without the ability to refinance that debt. “Despite having removed over $20 billion of leverage and financial commitments, we believe this restructuring is necessary for the long-term success and value creation of the business,” Lawler said. Lawler last year spent $4 billion on an ill-timed push to reduce Chesapeake’s reliance on natural gas. The purchase sent its shares lower and this year the value of Chesapeake’s oil and gas holdings fell by $700 million this quarter. The company last month warned it may not be able to continue operations. Read more.
In related news, Chesapeake Energy Corp.’s bankruptcy will pile more pain onto leading energy service and pipeline companies whose revenues were already being slammed during the latest collapse in oil prices, according to energy analysts and corporate filings, Reuters reported. Williams Cos., Energy Transfer and Crestwood Equity Partners have contracts with Chesapeake that face rate cuts or rejections in bankruptcy court, said Ryan Smith, a senior director at energy information provider East Daley Capital. Consolidated Edison Inc. earlier this month asked U.S. gas regulators to declare Chesapeake must seek approval before canceling regulated natural gas contracts in bankruptcy court. Crestwood last month lowered its 2020 pre-tax earnings forecast by $60 million, but said it expected to generate “significant free cash flow” this year and next. Williams, one of the largest natural gas pipeline operators, reduced its exposure to Chesapeake, to 6% of revenue from 18 percent five years ago, and expects to continue providing services amid any restructuring, said Vice President Laura Creekmur. Patterson-UTI Energy, the driller that acquired a former Chesapeake unit, said in a February regulatory filing that under a tax-sharing agreement it could face a “material adverse effect” were Chesapeake to fail to pay taxes potentially due on the split. Ahead of the bankruptcy filing, Patterson-UTI said it did not believe it has “material exposure to any Chesapeake liability” based on its earlier filings. Read more.
West Texas fracker Sable Permian Resources LLC has filed for bankruptcy protection after years of riding the ups and downs of commodity prices in out-of-court restructurings, WSJ Pro Bankruptcy reported. Talks continue between the company and its top lenders, though secured bondholders owed more than $707 million say they have concerns about the company’s corporate governance. Damian Schaible, lawyer for a group of bondholders, said at a hearing Friday that Sable Permian’s top-ranking lenders had agreed on a restructuring plan weeks ago and presented it to the company. After a wait, Schaible said the company countered with an offer that he called dead on arrival, meaning it was unacceptable to the senior lenders. “The process that was used to reject it furthered certain concerns that our noteholders have had for some time about governance and management,” Schaible said. Instead of a negotiated turnaround strategy, Sable Permian opted for a “free-fall bankruptcy,” a proceeding ripe for contention, the bondholder lawyer said. Bondholders might ask for a court-appointed examiner to look into whether the company’s owners, including private-equity firms, were improperly intruding into decisions that should be left to independent directors, he said.
