In our Coronavirus Market Impact Newsletters, we’ve explored what global public companies are doing in regards to capital allocation during a period of volatility unseen since 2008 – 2009. We’ve specifically explored the impact across:
- Credit: Drawing down on credit facilities or raising incremental capital without a clear use of proceeds
- Dividend policy: Dividend suspensions
- Share repurchases: Share repurchase suspensions
Using the Sentieo platform, we’ve pulled data together for all US public companies with a market capitalization greater than $1bn* excluding the financial and real estate sectors based on press releases and 8Ks* since the beginning of March to review the total impact of coronavirus:
- > $105.2bn has been drawn down under credit revolver facilities
- > $13.7bn of new term loans issued
- > $123.3bn new bonds issued
- > $13.3bn in dividends suspended
- > $49.0bn in share repurchases suspended
- > $15.9bn in Capex cut
- > $9.9bn in operating expenses cut
These companies have saved up or created dry powder of > $328bn. Of the companies who raised credit (all forms), the average amount raised is 20% of market capitalization.
Source: 8Ks and Press Releases
In addition, these numbers are very likely still significantly below the total amounts as we have not reviewed recent transcripts (results or Covid Update) and a lot of documentation highlights capex or cost reductions without providing numbers. It’s highly likely that in the released transcripts there is additional financial data not included in the above estimates. In the upcoming transcripts a lot more color will be provided regarding capex and opex savings. At the moment, at least 59 companies have mentioned capex or capital spend reductions in their 8Ks or press releases, while only 25 have provided actual numbers.
Without a doubt, the debt stockpiling is of most interest and a number of relevant facts are emerging:
- Increasing the size of revolvers
- The ability to increase the size of the revolver in the future (i.e., subsequent to the current increase)
- Increasing the size of any term loans attached to revolvers (accordion term loans)
- Extending the duration of revolvers (i.e., up to 5 years)
- Locking in more favorable covenants across all tranches of debt (implications for Covid Impacted EBITDA – i.e., Leverage covenants increased to provide headroom for significant 2020 EBITDA reductions)
- Significant issuance of Bonds today at low rates suggests numerous companies are keeping the revolvers undrawn and as a measure of last resort
- Several companies issued one tranche of debt in early March and thereafter drew their revolvers as well (or drew a portion of the revolver in early March and the remainder in early April)
- Companies which provided guidance in Q1 and as late as mid-March are now withdrawing guidance
In addition, we’re tracking: guidance withdrawals, debt maturity profiles, reduced executive compensation, board compensation pay / retainer cuts, increased and unused revolver facilities, extended revolver maturities, covenant language, furloughs, and many other key datasets.
We’re also building the same database for US companies with a market capitalization of under $1bn.
If you’d like additional insight, access to our database of information, or help to recreate this analysis yourself, please get in touch.
Additionally, in our webinar “Coronavirus Market Impact: Capital Allocation Trends” next Thursday, April 9 we’ll take a look at what global public companies are doing in regards to capital allocation during a period of volatility unseen since 2008 – 2009.
- Source of data: At the moment only reviewing 8Ks, Press Releases, and Offering documents
- Credit considerations: We only include Bond issuances which are finalized / issued and where the Use of Proceeds are for “General Corporate Purposes. Any bond issuances for M&A (TMO // Qiagen) or paying down upcoming bonds, or other standard operating procedures are not included in the credit calculations.
- Dividend suspensions or reductions calculations are based on the new dividend compared to the past fiscal year total dividend paid or annualized prior declared dividend
- Repurchase suspension numbers are calculated based on the prior fiscal year repurchase amount (if a company executed $500mm of repurchases in FY 2019 and announces the suspension of its repurchase in March 2020 we assume the total reduction is equal to the past year $500mm repurchase amount)