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Automotive industry borrowers have raised $155 billion amid the coronavirus outbreak as the pandemic shutters showrooms and factories, Bloomberg News reported. Companies worldwide have been drawing down on existing credit lines and seeking new credit deals to weather the health crisis as it hits demand for vehicles. The $155 billion gathered in less than three months since mid-March is equivalent to the issuance in the eight-month period before global cities went into lockdown. The $44 billion of bonds sold in the period is greater than the industry’s issuance in any single quarter. The $111 billion of loans raised in the period could match the sales of $133 billion seen in 2019 once about $18 billion of pending deals get completed. General Motors Co., the industry’s biggest borrower, raised $21.6 billion of loans and sold $5.5 billion of bonds. GM, which had drawn down on a $16 billion revolving facility in March, subsequently added two more new loans. GM tapped capital markets again this month. Automakers including Ferrari NV and Toyota Motor Corp. followed suit as some industry output resumed and countries began to lift restrictions on travel.

The nation’s top two economic policy leaders offered contrasting visions about the economic outlook, with Treasury Secretary Steven Mnuchin favoring a wait-and-see approach to more federal aid and Federal Reserve Chairman Jerome Powell suggesting more would be needed, the Wall Street Journal reported. Their positions expressed yesterday reflected differing views on the prospects for a swift economic rebound from the coronavirus pandemic. Mnuchin, appearing alongside Powell at an online congressional hearing, reflected the Trump administration’s belief that the biggest danger to the economy is waiting too long to restart activity after two months in which millions of Americans have sheltered in their homes to slow the spread of infections. “There is the risk of permanent damage” to keeping commercial activity closed down too long, Mnuchin told the Senate Banking Committee. Mnuchin echoed comments by President Trump and other administration officials who are predicting a V-shaped recovery — a sharp downturn followed by a strong bounceback. Powell, meanwhile, challenged the premise that there is a trade-off between economic growth and protecting the public’s health. Fear of coronavirus infection is the economy’s biggest hurdle, he said, and the recovery will be held back until Americans believe it’s safe to resume commercial activities involving person-to-person contact. For the third time in a week, Powell suggested additional spending by the government could be needed to prevent long-term damage from high unemployment and waves of bankruptcies. “The scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II,” he said.

During the 2008 financial crisis, Wall Street banks and other big financial institutions were deemed “too big to fail.” The crisis unleashed by the pandemic has broadened that status to a significant swath of the American private sector, the New York Times reported. In a bid to soften the coronavirus’s economic blow, the government has stretched its financial safety net wide — from strategically sensitive companies, to entire industries such as energy and airlines, to the market for corporate bonds. “The ‘too big to fail’ that existed for banks has now extended to a lot of other firms,” said Luigi Zingales, a University of Chicago professor of finance who has long studied the interplay of government, regulation and the private sector. A decade ago, the Federal Reserve was instrumental in keeping the banking system from going bust. This time around, the Fed’s actions are far more sweeping, and it has essentially propped up entire financial markets with its bottomless ability to buy assets with freshly created money. Jerome H. Powell, the Fed chair, has signaled that the central bank will continue to do so. On Monday, the stock market closed up 3.2 percent, bolstered partly by comments from Powell, who said that there was “really no limit” to what the central bank could do with its emergency lending facilities. Read more. 

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

As the Federal Reserve pulls out all the stops to bolster credit markets, corporate America is gorging on debt, Bloomberg News reported. From Carnival Corp., Marriott International Inc. and Delta Air Lines Inc. to Gap Inc. and Avis Budget Group Inc., many of the companies hardest hit by the coronavirus outbreak have priced billions of dollars of bonds and loans in recent weeks. As expectations of a V-shaped economic recovery vanish rapidly, more and more industry veterans are starting to express concern about these debt dynamics. Some warn that the Fed is putting credit markets on course for a future wave of defaults that makes the current stretch of corporate bankruptcies look timid by comparison. In this scenario, some experts see moribund companies in industries deeply scarred by the pandemic continuing to keep borrowing. Market watchers such as Deutsche Bank AG chief economist Torsten Slok fear that a new breed of so-called zombie companies — firms that don’t earn enough to cover interest payments and are kept alive in part by central bank largess — could have profound and painful consequences for everyone from workers to investors for years to come.

National restaurant chains and other stable businesses are prodding their landlords for rent relief as the economic picture sours, setting the stage for court battles and protracted clashes between big tenants and property owners, the Wall Street Journal reported. A number of blue-chip companies that made rent payments the past two months have indicated they reached their limit with June. Chipotle Mexican Grill Inc. and Shake Shack Inc. said they are lobbying property owners to renegotiate the leases or offer deferred rent payments. Starbucks Corp. sent a letter to landlords asking for a range of concessions, including changes to lease terms and base rent for at least 12 months, starting next month. Restaurant and cafe operators are starting to reopen outlets again as more states like Florida, Texas and South Carolina begin to relax lockdown orders. But many of these companies say that social-distancing guidelines restrict them to only about a quarter to half of their normal capacity, forcing them to modify operations and cut expenses to stay in business. Rents usually account for around 8 percent of sales at restaurants. Now, with the pandemic causing restaurants to shut outlets or cut capacity, it can represent as much as 20 percent of sales, according to Jeffrey McNeal, president of Fessel International, a restaurant and hospitality consulting firm. That has many firms leaning on their landlords for help with another rent payment due in less than two weeks, and mounting evidence that the U.S. economy could be under pressure for an extended period. The Congressional Budget Office said yesterday that an economic recovery would drag on through the end of next year, and that gross domestic product will likely be 5.6 percent smaller in the fourth quarter of 2020 than a year earlier.

This month, the proprietors of more than 10 restaurants, bars and bakeries in Washington, D.C., including the Michelin-starred Gravitas and Pineapple and Pearls, sued their shared insurance company, joining a growing list of restaurateurs who are seeking relief from an industry they thought would protect them from any unpredictable event, including a pandemic of historic proportions, the Washington Post reported. The owners are pressing carriers to honor business-interruption policies during an outbreak that has wreaked so much financial havoc that it could bankrupt insurance companies and put at risk claims not related to covid-19. One side has few cash reserves and a trickle of revenue from takeout and delivery. The other side has an $800 billion surplus that, despite its size, could vanish in a matter of months, insurers say, if they start paying out these claims. After governments shut down dining rooms, restaurants large and small started taking their insurance cases to the courthouse: Boston-based Legal Sea Foods sued Strathmore Insurance Co. The owners of Musso and Frank, the century-old Los Angeles institution, sued Mitsui Sumitomo Insurance. A Houston restaurant company sued Scottsdale Insurance Co. Some complaints seek class-action status. Others have been filed by a single operator, such as Thomas Keller, the mastermind behind the three-star Michelin restaurants Per Se in New York and the French Laundry in California, who sued Hartford Fire Insurance Co. These operators’ claims have usually been denied for one of two reasons: The policy specifically excluded viruses or the property had not suffered any physical damage, like after a flood, hurricane or other natural disaster. Attorneys for the restaurants don’t think the denials are as clear as the carriers say, especially with all-risk policies, those with limited coverage for viruses (like Keller’s) or those that cover “civil authority” actions such as when a city, county or state shuts down in-person dining.

With changes taking effect today, all 50 states have begun to reopen in at least some way, more than two months after the coronavirus thrust the country into lockdown. But there remain vast discrepancies in how states are deciding to open up, with some forging far ahead of others, the New York Times reported. Connecticut will be among the last states to take a plunge back to business today, when its stay-at-home order lifts and stores, museums and offices are allowed to reopen. But not far away in New Jersey, the reopening has been more limited, with only curbside pickup at retail stores and allowances for certain industries. States in the Northeast and on the West Coast, as well as Democratic-led states in the Midwest, have moved the most slowly toward reopening, with several governors taking a county-by-county approach. (In Washington, D.C., a stay-at-home order remains in effect until June.) By contrast, a number of states in the South opened earlier and more fully. Though social-distancing requirements were put in place, restaurants, salons, gyms and other businesses have been open in Georgia for several weeks. Alaska went even further as Gov. Mike Dunleavy (R) yesterday said that he would lift restrictions on businesses by the end of the week, allowing restaurants, bars, gyms and others to return to full capacity. Sports and recreational activities will be allowed.