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Cash Hoarding During the Time of Love and COVID

Subsequent to our Capital Allocation Trends Webinar “Cash Hoarding During The Time of Love and COVID,” we’re providing updated and incremental insights to the total dollars hoarded.

We’ve added US Small Cap companies (Sub $1bn mkt cap but over $100mm excluding financials, real estate and utilities) to our dataset. The COVID dollar impact across our key metrics:

  1. >$14.5bn drawn down under credit revolver facilities
  2. $0 new term Loans Issued
  3. $0 new bonds issued
  4. >$1.7bn in dividends suspended
  5. >$1.4bn in share repurchases suspended
  6. >$3.3bn in Capex cuts
  7. >$3.8bn in opex/variable cost savings

While the numbers are nowhere near as big as those from the large caps, there are a few highly interesting considerations:

  1. The new debt (all revolver) as a % of total market cap is 44%
  2. Share repurchase cuts as % of total market cap is 26%
  3. Dividend cuts as % of total market cap is 16%

Across Large and Small Caps, the top 3 actions include:

  1. Guidance withdrawals: 274 companies
  2. Revolver drawdown: 202 companies ($133bn)
  3. Cutting opex/variable costs: 138 ($16bn)
  4. Bond Issuances (2nd Fewest actions but highest $): 49 ($136bn)

There are several other interesting “linguistic” / operating trends, which we haven’t gathered complete datasets but which warrant mentions:

  1. Levered small and large caps who’s stores, facilities, operations (cruise, airline) are closed  or not providing any revenues leading to significant bankruptcy risk
  2. Secondary wave of announcements extending facility / operation closures in early/mid april through end of April or early May
  3. The IRR of share repurchases for companies such as Carnival Cruise which repurchased a significant amount of shares outstanding  at significantly higher share prices over the last decade and are forced to issue shares at the current depressed prices
  4. Changes to covenant ratios (leverage, interest coverage, etc…) and their implications for managements inherent unstated EBITDA 2020 estimates
  5. New rights agreement plans emerging (fairly surprising given the high risk M&A / financing environment)
  6. Announced M&A deals widening spreads and termination clauses (what do annualized spreads imply for market risk)
  7. Executive and Board compensation reductions and changes to compensation plan such as swapping cash salaries to currently undervalued stock
  8. New corporate actions to enhance cash positions such as sale leaseback transactions
  9. There are “winners” in this environment and linguistics can help uncover those winners (i.e. companies talking about strong cash generation despite the environment and a willingness to repurchase shares today)

Stay tuned as we update all of our data for the last week’s information and prepare for earnings season where we’ll add transcripts to our sources of data.

Key Charts: