Financial Times Europe - 20.03.2020

Friday 20 March 2020 ★ 11

© The Financial Times Limited 2020 Week 12

Boeing has asked the US government

for $60bn to save the aerospace

sector, an injection that would bolster

the group and its supply chain but

increase it debt. Its stock has fallen

70 per cent in the past month amid

uncertainty since the virus outbreak.

AnalysisiPAGE 12

Boeing begs for $60bn to

salvage aerospace sector

C L A I R E B U S H E Y— CHICAGO

P E T E R C A M P B E L L— LONDON

E R I C P L AT T— NEW YORK

Fordhas suspended its dividend and

drawn down $15.4bn from two credit

lines to boost its balance sheet, as the

coronavirus pandemic forces it to shut

plantsinNorthAmericaandEurope.

It is the largest drawdown any company

has made because of the pandemic,

according to a Financial Times analysis.

The $15.4bn is intended to offset the cost

of the shutdown, which begins today

and will last until at least March 30.

“Like we did in the great recession,

Ford is managing through the coronavi-

rus crisis in a way that safeguards our

business, our workforce, our customers

and our dealers,” said Jim Hackett, chief

executive, adding that while the com-

pany did not see the pandemic coming,

“we have maintained a strong balance

sheet and ample liquidity so that we

could weather economic uncertainty”.

The company’s shares dropped 5 per

cent on the news, before climbing back

to $4.41. Ford’s lucrative dividend is

regarded as a significant positive for a

stock weighed down by the company’s

attempts to restructure.

Ford also withdrew its 2020 guidance.

The company had $22bn in cash and

$35bn in liquidity at the end of 2019,

which it said was sufficient to manage

through a downturn. “We’re able to add

cash to the balance sheet now because

we anticipated sooner or later we might

need that flexibility. Today’s the day,”

the company said.

The shutdown in North America by

Ford, as well asGeneral Motors andFiat

Chrysler, is the result of negotiations

with the United Auto Workers union.

Ford also moved to boost demand,

saying it would eliminate three months

of payments on new cars and trucks and

allow the next three months to be

deferred. It is not clear how quickly

demand will rebound once people are

no longer in quarantine.

“It’s something that we’re concerned

about,” said Stephen Brown, an automo-

tive analyst at Fitch Ratings said. “If this

blew over in a couple of weeks, it might

not be that significant, but unfortu-

nately, I think it may be more than that.

Ford borrows $15.4bn and suspends

dividend to deal with shutdown costs

how the disease spreads and the scale of

infection, as well as providing crucial

guidance on when emergency measures

such as school closures could be relaxed.

The pharmaceutical federation has

promised to share capacity to allow pro-

duction to increase quickly, once a vac-

cine or treatment has been developed.

The industry will also need to liaise

with governments and regulators on

how to distribute it fairly, said David

Loew, Sanofi’s executive vice-president.

Mr Ricks said any decision “should

transcend national borders: this is a

human crisis, not a national one”. The

price of the drug would be “down to the

inventors and manufacturers”, he said.

Severin Schwan, chief executive of

Roche, said the company was increasing

production of testing kits but that

“demand is far outstripping supply”.

Although millions of tests are now avail-

able a month, he said, only those at high

risk or with symptoms should be tested.

“Broad base” testing is not yet feasible.

The main block to a rapid increase in

testing capacity is not the cost but the

infrastructure and people required to

process samples, he said.

In addition to existing swab tests,

companies are racing to develop an anti-

body test that can determine whether

someone has had coronavirus. That

would allow scientists to understand

The move came just hours after disap-

pointing results from the first clinical

trial of existing antiviral drugs against

the virus and a day after the World

Health Organization announced trials

of potential treatments.

The European Medicines Agency

warned this week the growing number

of small studies of possible treatments

were unlikely to generate enough data

to give definitive results and called for

“a more co-ordinated approach”.

David Ricks, chief executive ofEli

Lilly, said it was crucial that pharma-

ceutical supply chains remained unin-

terrupted and critical workers could get

to labs and production plants.

C A M I L L A H O D G S O N— LONDON

The world’s biggest pharmaceutical
companies have said they will work
together to try to find treatments and a
vaccine to tackle the coronavirus
pandemic.
Executives from companies including
Roche,Sanofi Pasteur andJohnson &
Johnsonpledged yesterday to share
resources and clinical trial data with
governments and each other to help
increase testing capacity and develop
treatments. All members of the Interna-
tional Federation of Pharmaceutical
Manufacturers and Associations signed
up to the pledge.

Pharma groups unite to fight virus

3 Pledge of joint effort on treatment and vaccine 3 Resources and trial data to be shared

The English football season has been

extended indefinitely in a move to limit

the financial damage to the sport from

the coronavirus outbreak.

Last week, England’s top-tier Premier

League was among the many global

sporting competitions to suspend

fixtures, joining the likes of the National

Basketball Association and Formula One

motor racing. Yesterday, the groups that

run professional football in England

published a statement saying they were

“united in our commitment” to

complete all matches this season “as

soon as it is safe and possible to do so”.

The Football Association, English

football’s governing body, has changed

rules that dictated the season must be

completed by June 1, agreeing instead

that the deadline would be “extended

indefinitely for the 2019/20 season in

relation to professional football”.

The decision was made after the

Premier League, the world’s most

valuable domestic competition with

£9.2bn in broadcasting contracts, held a

crisis meeting. KPMG estimates that the

2 0 Premier League clubs stand to lose up

to €1.25bn from lost broadcasting,

ticketing and sponsorship income if the

season ends with no further matches

played.Murad Ahmed

Playing safe

English football

season extended

Efforts must

‘transcend

national

borders: this

is a human

crisis, not

a national

one’

Companies / Sectors / People

Companies
AMS.................................................................
AT&T..............................................................
Adobe.............................................................
Air Dolomiti.................................................
Alibaba...........................................................
Alphabet.......................................................
Amazon................................................7,12,
American Airlines....................................
Andurand Capital....................................
Antero Resources...................................
Apple................................................7,12,14,
Austrian Airlines .....................................
Bang & Olufsen..........................................
Bank of America......................................
Barclays.........................................................
Beyond Meat.............................................
Blackstone...................................................
Boeing.......................................................12,
Breas...............................................................
Brussels Airlines.......................................
California Resources..............................
Chantiers de l’Atlantique....................

Chesapeake Energy...............................

Chipotle.........................................................

Citigroup.......................................................

Copan................................................................

Crest Nicholson.......................................

Deliveroo.......................................................

Dell.....................................................................

Delta................................................................

Elementis.....................................................

Eli Lilly............................................................

Embraer.........................................................

Facebook......................................................

Fiat Chrysler................................................

Fincantieri....................................................

Ford...........................................................11,

General Motors....................................11,

Goldman Sachs.........................................

Gulfport Energy.......................................

Harley-Davidson.....................................

Hilton Worldwide....................................

Huawei.............................................................

Hugo Boss..................................................

HypoVereinsbank....................................

Impala Asset Management..............

Infineon.........................................................

IronClad.........................................................

JPMorgan.....................................................

Johnson & Johnson................................

Kesko.............................................................

Kirkland & Ellis.........................................

LG Electronics.............................................

Lansdowne Partners.............................

Lufthansa.....................................................

Lyft..................................................................

M&G................................................................

McDonald’s.................................................

McLaren........................................................

Meggitt..........................................................

Melexis..........................................................

Microsoft.................................................12,

Millennium Management....................

Morgan Stanley........................................

MorphoSys.................................................

Nissan............................................................

Occidental Petroleum................11,14,

Oracle..............................................................

Osram.............................................................

Panasonic.......................................................

Papa John’s.................................................

Penlon............................................................

Perella Weinberg.....................................

Pets at Home............................................

Philips...............................................................

Qiagen..............................................................

RCMA..............................................................

Roche........................................................11,

Roche ..............................................................

Rothschild & Co.......................................

SK Hynix.........................................................

STMicroelectronics................................

Samsung Electronics...............................

Sanofi Pasteur............................................

Sensirion......................................................

Shake Shack..............................................

Siare Engineering......................................

Skyryse..........................................................

Slack................................................................

Sony...................................................................

Swedbank.....................................................

SwissAir.........................................................

Tencent.........................................................

ThermoFisher...............................................

Twitch............................................................

Uber...........................................................14,

Walt Disney.................................................

Wells Fargo.................................................

Whiting Petroleum.................................

Zoom...............................................................

Sectors

Aerospace & Defence......................12,

Airlines................................................12,13,

Automobiles...........................................11,

Banks...................................................12,13,

Financials..............................12,13,14,19,

Food & Beverage...................................

Industrials.....................................................

Oil & Gas................................................14,

Retail...............................................................

Retail & Consumer.................................

Technology............................7,12,13,14,

Telecoms........................................................

People

Ackman, Bill................................................

Andurand, Pierre.....................................

Boehmig, Jason........................................

Butterfield, Stewart................................

Englander, Izzy.........................................

Evans, Michael.........................................

Groden, Mark.............................................

Hollub, Vicki...............................................

Jobs, Steve..................................................

Khosrowshahi, Dara..............................

King, Doug...................................................

Kun-Hee, Lee...............................................

Lekander, Per............................................

Levatich, Matt..........................................

Nadella, Satya...........................................

Parker, Doug..............................................

Spataro, Jared...........................................

Spohr, Carsten...........................................

Staley, Jes....................................................

Wolfson, Simon.........................................

Remote controlSlack and Microsoft

vie for home workers— ANALYSIS, PAGE 14

Pay backSilicon Valley is set to emerge

from crisis even stronger— INSIDE TECH, PAGE 12

Joe

Rennison

Tail

Risk

When energy companyOccidental Petroleumsold debt

last August, the possibility of a sharp, severe downturn in

both oil markets and credit markets seemed remote. As

such, the company raised $1.5bn through a 10-year bond

with a coupon of just 3.5 per cent.

But that 2029 bond now trades with a yield of over 9 per

cent, after its price has tumbled to just 65 cents on the dol-

lar: just one example of a ferocious turn in investor senti-

ment towards corporate credit.

Late on Wednesday Moody’s became the first agency to

withdraw Occidental’s top-quality credit rating, cutting

$35bn of its debt one notch to “speculative-grade”, or junk.

S&P has said that despite the company’s efforts to bolster

its balance sheet it may do l ikewise.

The sell-off in credit has been “so quick and dramatic”,

said Peter Tchir, chief macro strategist at Academy Securi-

ties in New York. “It is truly astonishing.”

The trend is certainly worth watching. A decade of low

interest rates has encouraged companies to gorge on cheap

debt, but not to the extent of

giving up their precious

“investment-grade” credit

ratings, which make them

eligible to be bought by insti-

tutional investors such as

pension funds and insurers.

Instead, companies like Occi-

dental have sat just above the

threshold marked junk, with

ratings equivalent to triple B.

Now, a deepening crisis stemming from the spread of

coronavirus, coupled with a global oil rout, means a vast

number of companies will join Occidental in slipping down

the ratings ladder. That could prompt fire sales by inves-

tors permitted to hold only higher-rated debt.

The average yield on the top tier of junk bonds, rated

double B, has risen to 7.75 per cent, from a low of 3.63 per

cent in January. But about $320bn of triple B bonds trade

with a higher yield than that, accounting for almost 10 per

cent of total triple Bs outstanding. Investors are in effect

pre-empting a slew of downgrades.

According to Mr Tchir, it is probably good news that the

market has moved ahead of the rating agencies. Down-

grades could be less explosive when they do happen. But if

that full amount does indeed topple into junk, it would

increase the speculative-grade market by 25 per cent. Such

an expansion would be tough to digest.

There is another caveat. Rising yields for triple Bs may

not be linked to higher chances of a downgrade, said Hans

Mikkelson, a strategist at Bank of America, but to some-

thing broader, and more ominous. Many investors are try-

ing to cut exposure to corporate bonds. That means that

even creditworthy companies with ratings a lot higher

than triple B are seeing falling prices and higher yields.

“The investment-grade bond market is broken,” he said.

“This is as ugly as I can remember it.”

joe [email protected]

The ferocious

turn in investor

sentiment

on corporate

credit ‘is truly

astonishing’

MARCH 20 2020 Section:2Front Time: 19/3/2020 - 19: 01 User: andy.puttnam Page Name: 2FRONT USA, Part,Page,Edition: EUR, 11 , 1