Market Summary #14

Hertz to Pay Creditors in full after bankruptcy court decision

The company filed for chapter 11 bankruptcy during the pandemic in 2020 and is on target to exit chapter 11 by the end of June. The company announced that the bankruptcy court confirmed the plan of reorganization. As a result, Hertz’s plan will cut over $5 Billion in debt, including the entire Hertz Europe’s corporate debt, a $2.8 Billion exit credit facility and approximately $7 Billion in of asset-backed vehicle financing facility. Following the announcement, the company’s corporate bonds reached values well above face value.

EU freezes 10 banks out of bond sales over antitrust breaches

The EU has temporarily suspended JP Morgan, Citigroup, Barclays and others from taking part in bond sales under the union’s debt issuance program as it carries out an
assessment of previous breaches of antitrust laws. Upon the assessment, these institutions will be admitted to the Primary Dealer Network but will not be invited to tender for individual syndicated transactions.

Fed Reverse Repo Operations hit $500 Billion for the first time ever

59 Participants parked just over $500 Billion at the overnight reverse repurchase facility at a 0% interest. Regulatory constraints are moving banks to turn away deposits and directing that cash to money market funds, with excessive liquidity in the system playing a big role in record amounts of parked cash. Credit Suisse strategist Jonathan Cohn said that, without any changes, take up at the facility could double due to another $840 Billion of quantitative easing through year-end.

El Salvador moves forward with plan to make Bitcoin a national currency alongside the US dollar

According to the proposed bill by President Nayib Bukele, Salvadorans can now pay taxes in Bitcoin, and “economic agents” will be obliged to accept the cryptocurrency as
payment for goods and services. This puts the country in severe default risk if it materializes, having already been affirmed with a “B-” rating by Fitch in April. Following the announcement, the 5-year credit default swap spread widened more than 200 basis points.

Netflix Enters Online Retail Selling Merchandise From Popular Shows

Netflix announced an online store to sell unique clothing and collectibles products based on its most popular movies and series, such as Stranger Things, La Casa de Papel and others. The Netflix Shop is now available in the US and, in the coming months, should expand to other regions around the globe. The company expects to generate revenues around the billion-dollar mark, a benchmark target reached by Disney and other studios.

Tesla enters luxury supercar market with Model S Plaid

Tesla has just launched its fastest, most powerful car yet, aiming to rival the Porsche Taycan and Audi RS e-tron GT, with the company expecting to deliver 1000 units per week by next quarter. Although the new flagship model will provide a boost to the company’s deliveries, mass market models such as the Model 3 and Model Y remain the core attention of the company. The flagship Plaid starts going on sale at around $130.000, undercutting its German rivals.

Citi CFO warns of revenue declines

Citigroup CFO Mark Mason said on June 15th that the strong economic recovery of 2021 may not translate into better results for the bank after the slowdown in institutional business. The lender has focused on investment banking, but the revenues are likely to be low even if the pipeline stands strong. In order to remain competitive, Citi expects to improve their profitability by exiting 13 of their markets, among which are Australia and China. The bank followed JP Morgan stating that trading revenues would decline due to lack of volatility in 2021.

UK and Australia reach trade deal agreement

Following the UK’s departure from the European Union, the country announced last Tuesday a free trade agreement with Australia. The bilateral agreement is yet to be published but it will remove, among other things, tariffs for cars, confectionery and whisky. It is estimated that the UK’s economic output will grow 500 million pounds over the next few years with the new agreement. Australia said it represents a great win for their agriculture and that makes Britain its eight-largest trading partner.