LONDON (Reuters) – Years into a bond market bull-run, investors are banking on a brighter future for funds that buy the debt of financially troubled European companies whose bonds are offering meatier returns because they are more risky
With European economic growth expected to be subdued in 2020, and default rates tipped to rise, investors expect an increase in the number of companies that will struggle to service their debt.
That creates an opportunity: to buy the bonds of a troubled company at a deeply discounted price, and make big profits if the company manages to turn itself around and the bond price recovers.
Private equity groups and asset managers are creating so-called special situation funds to identify suitable targets for these high-risk – and potentially high-reward – bets.
“We have seen a significant increase in the number of stressed and distressed European corporates being screened during our team’s discussions,” said Mark Brown, co-head of special situations in Europe at private equity firm KKR.
“We do think we are late-cycle and, as the fund is focused on deploying capital in a cyclical downturn, having capital ready to go makes sense,” he said.
The appeal of distressed debt is enhanced by the fact that a large chunk of the European bond market is offering yields close to or below zero.
KKR last year started fundraising for a third special situation fund and is seeking $1.5 billion.
Elsewhere, JP Morgan Asset Management launched its first ever special situations fund in November, raising just over $1 billion, while private equity firm CVC raised $1.4 billion for a global special situations fund in June.
PIMCO is also fundraising for a special situations fund, said a person familiar with the matter.
Bond prices show markets beginning to price in increased concern that the most troubled European companies will struggle to fund their debt obligations, providing an opportunity for those who specialize in dealing with such situations.
The ratio of European high-yield bonds trading at a spread of more than 1,000 basis points over their respective government benchmarks— one measure of distressed debt — hit 7% at end-2019 compared to 1.4% a year earlier, JP Morgan data showed.
In a slowing economy, most investors will have to look at challenging situations if they want to perform, said Amundi high-yield portfolio manager Marina Cohen.
“There are clearly going to be some opportunities in those types of (distressed) situations in the mid-term.”
Recent examples of such plays include Israel’s Teva Pharmaceutical (TEVA.TA), Britain’s Jaguar Land Rover and French supermarket chain Casino (CASP.PA), all of which found themselves in difficult situations earlier last year before rebounding and raising fresh debt.
Recent performance for distressed debt funds has lagged another favored debt play – lending money to help finance mergers and acquisitions via leveraged buyout funds (LBFs).
LBFs generated an internal rate of return of nearly 14% in the second quarter of 2019, according to the latest data available from the investment software provider eFront, compared to 8.5% for distressed debt funds.
But the volume of money flowing into distressed debt suggests investors see improving prospects there.
Assets under management in European distressed debt — which combine unrealized funds from existing investments and “dry powder” for future investments — hit a record $48.5 billion in June, Preqin data showed.
“They (special funds) have been waiting and watching for a few years now, and we may finally be moving towards an environment where this trade becomes viable,” said White & Case European leveraged finance lawyer Jeremy Duffy.
In one recent example, investors rushed into Jaguar Land Rover’s five-year bond offer in November, with demand so strong that the company had to print another seven-year tranche, raising 800 million euros in total. Jaguar – owned by India’s Tata Motors (TAMO.NS) – offered a yield of 5.875% and 6.875% on the tranches, respectively.
Earlier in 2019, the British carmaker was hit by a $4 billion writedown, a slump in China sales and Brexit worries that forced it to look for alternative funding from bond markets.
Adding to the appeal of distressed debt, European Central Bank stimulus has compressed yields across the European bond market to such an extent that volatility is likely to be quite high in a downturn.
“Wobbles within individual companies are triggering some quite severe selloffs,” said Laura Frost at M&G Investments.
“That presents an opportunity for people like us”.
(GRAPHIC – Bond ‘tourists’ added to Aston Martin’s summer travails: here)
DETROIT (Reuters) – A U.S. regulator said it will review part of a recommendation made last fall that India’s Mahindra and Mahindra Ltd infringed upon the intellectual property rights of Fiat Chrysler Automobiles’ Jeep SUV design.
The International Trade Commission (ITC) on Wednesday said it would review an administrative law judge’s initial determination last November that Mahindra’s Roxor off-road utility vehicle infringed on the “trade dress” of FCA’s Jeep. The judge recommended the commission bar entry of Mahindra vehicles or parts that infringe and issue a cease-and-desist order.
Trade dress consists of the unique characteristics that make a product stand apart and is generally accepted as identified with that product by the public. For example, FCA sees Jeep’s grille and round headlights as distinct to the brand.
The commission, which in September 2018 initially opened its investigation, said on Wednesday it is targeting completion of the inquiry by March 20.
If the ITC recommends a form of remedy, the U.S. Trade Representative would have 60 days to approve, disapprove or take no action on that determination.
Mahindra, which previously has called FCA’s claims without merit, on Thursday welcomed the commission’s review.
“We are optimistic that the ITC will in its review conclude that FCA did not establish previously unclaimed U.S. rights in trade dress and that there was no infringement of either trade dress or registered trademarks,” the company said in an emailed statement.
Mahindra said it has launched its model year 2020 Roxor with what it described as “significant styling changes” and said it would make additional changes if the ITC required it.
FCA was unconcerned the commission will overturn the judge’s initial recommendation.
“Review is a part of the commission process,” the Italian-American automaker said in an emailed statement on Thursday. “Based on the facts and law, FCA US remains confident the administrative law judge’s initial determination of violation by Mahindra will be adopted by the commission.”
The Roxor is assembled in Auburn Hills, north of Detroit, by Mahindra’s North American subsidiary.
Reporting by Ben Klayman in Detroit; editing by Jonathan Oatis
Unedited Newswire of Reuters
Fiat Chrysler’s motion to dismiss GM’s civil racketeering lawsuit was expected. The company has said GM’s lawsuit is baseless and aimed at disrupting the Italian-American automaker’s proposed merger with France’s Peugeot SA (PEUP.PA).
GM general counsel Craig Glidden told reporters in November the FCA-PSA merger had nothing to do with GM’s legal action.
Fiat Chrysler’s arguments were filed on Friday evening in U.S. District Court in Detroit.
In response, GM said it remained confident in the legal underpinnings of its case and will respond in court.
“We are confident in the legal and factual underpinnings of our case, which have already been documented in part through the guilty pleas and admissions of FCA executives made in connection with the government’s ongoing criminal investigation”, GM said in a statement.
GM sued Fiat Chrysler in November charging its rival with bribing officials of the United Auto Workers union in order to gain advantages in 2009 and 2015 labor contracts and have the UAW withhold those terms from GM. Fiat Chrysler’s now deceased Chief Executive Sergio Marchionne sat “at the center” of the schemes, GM charged in its lawsuit.
In its response Friday, Fiat Chrysler rejected GM’s claim that Marchionne tried to force a merger between GM and FCA by agreeing to labor contracts that favored the UAW.
GM failed to show “why Mr. Marchionne would want to saddle FCA and GM with unfavorable CBAs (collective bargaining agreements) if his ultimate goal was to run the merged company (presumably on a profitable basis).”
GM’s accusations relied in part on revelations from an active federal criminal investigation of corruption within the UAW. That investigation began at Fiat Chrysler but has since spread to past and present UAW officials at GM.
In its motion on Friday, Fiat Chrysler said GM’s lawsuit was “fatally flawed” for several reasons.
The lawsuit was filed after a four-year statute of limitations had expired, Fiat Chrysler argued. GM is not a direct victim of wrongdoing by FCA executives or UAW officials related to labor contracts, and so cannot bring a RICO action, FCA argued in its motion.
The UAW is such a large organization, “the notion that FCA seized control of the UAW by virtue of the alleged prohibited payments is implausible on its face,” the FCA brief stated.
Further, Fiat Chrysler argued that GM’s allegations about corrupt contract negotiations should be heard by the National Labor Relations Board, not by a federal court.
Reporting by Joe White; additional reporting by Kanishka Singh; Editing by Sandra Maler, Diane Craft and Grant McCool
WASHINGTON (Reuters) – Democratic U.S. presidential hopeful Michael Bloomberg unveiled a plan on Friday to slash greenhouse gas emissions from transportation by making electric vehicles accessible to even low-income families and improving access to public transit.
Bloomberg, a media billionaire and former mayor of New York City, has long fought to curb emissions, serving recently as a special envoy to the United Nations on climate action.
Other Democratic candidates have included transportation in their climate plans. Bloomberg, who is putting out a suite of climate plans, is the first to issue a specific strategy on transportation, the top U.S. source of greenhouse gases.
He wants to offer low and moderate-income communities a “Clean Cars for All” program with rebates for trading in old cars for electric ones.
“We’re looking to turn over the polluting stock faster,” a campaign aide said on condition of anonymity ahead of the plan’s unveiling. The aide said Bloomberg wants to help taxi and ride-share programs to electrify their fleets before 2035.
His plan does not specify where rare earth minerals would come from for the new vehicles.
Bloomberg aims to slash U.S. emissions linked to climate change by 50% by 2030 if he wins the November vote. Cutting emissions from the power sector and buildings are the other major planks of his clean economy plan.
This week Bloomberg, a late entrant into the race, introduced plans to prevent forest fires, directed in part at winning over voters in California, the most populous state, and one of 14 states holding primaries on Super Tuesday, March 3.
While California has struggled to build high-speed rail, another aide said an initial advanced rail project could be less ambitious than the state’s plan, yet still show Americans what many travelers have in other countries. “It might actually be a shorter course,” than current plans in California, he said.
Bloomberg, like other candidates, wants to reverse the policies of Republican President Donald Trump who is slashing rules on environment regulation while boosting output of fossil fuels.
But he is not putting a dollar figure on his climate plans because of the complexity of the issues, a difference from most of the other candidates.
This is an unaltered Newswire from Reuters
BERLIN (Reuters) – Around 250 Germans on Saturday protested in the outskirts of Berlin where electric car startup Tesla is planning to build a gigafactory, saying its construction will endanger water supply and wildlife in the area.
The U.S. carmaker announced plans last November to build its first European car factory in Gruenheide, in the eastern state ofBernd Kutz, a Gruenheide local.
Politicians, unions and industry groups have welcomed the move, saying it will bring jobs to the region, but environmental concerns drove hundreds of locals to the streets on Saturday.
“We are here, we are loud, because Tesla is stealing our water,” protesters called.
Saturday’s protest came after a Brandenburg water association on Thursday warned against “extensive and serious problems with the drinking water supply and wastewater disposal” for the proposed factory.
Anne Bach, a 27-year-old environmental activist, said Tesla’s plans published earlier this month showed it would need more than 300 cubic meters of water per hour which would drain the area’s declining reserves.
“I am not against Tesla … But it’s about the site; in a forest area that is a protected wildlife zone. Is this necessary?” Bach said.
“In such an ecological system like the one here and with the background that climate is changing, I cannot understand why another location was not selected from the beginning,” said Frank Gersdorf, a member of “Citizens’ Initiative Gruenheide against Gigafactory”, a local group that organized Saturday’s protest.
Environmentalist protests in Germany have previously halted and delayed major companies’ plans such RWE’s lignite mining at the Hambach forest, near Cologne, which has become a symbol of the anti-coal protests.
Saturday’s protest, which Gersdorf and Bach said developed spontaneously from a 50-people forest walk demonstration, highlighted the deforestation of around 300 hectares to build the factory and its impact on wildlife, including birds, insects and bats.
People were also protesting against an expected “enormous” increase in traffic on a nearby highway and through the villages.
Next to the protest, on the other side of the street, around 20 people carried banners welcoming Tesla in their village, with children chanting, “We are here, we are loud, because Tesla is building our future.”
Bernd Kutz, a Gruenheide local, said Tesla would bring improvement to the area, create jobs and give chances to young people.
“I am here because I don’t understand those demonstrators who shout and show us the finger,” Kutz said. “Why has it always to be negative?”
Reporting by Riham Alkousaa; editing by Christina Fincher
This is an Unaltered Newswire of Reuters
NEW DELHI (Reuters) – Great Wall Motor (601633.SS) has agreed to buy General Motors’ (GM) (GM.N) car plant in India, the companies said on Friday, as the Chinese automaker expands overseas amid slowing domestic demand.
The deal, which is expected to be completed by the second half of 2020, will jumpstart Great Wall’s plans to build and sell cars in India and bring to an end GM’s manufacturing operations in the country.
People aware of the deal told Reuters earlier on Friday that the two companies had agreed on the sale, with one of the sources adding that Great Wall is likely to pay around $250 million to $300 million to acquire the plant.
“The Indian market has great potential, rapid economic growth and a good investment environment. Entering the Indian market is an important step for Great Wall Motors’ global strategy,” Liu Xiangshang, vice president, global strategy at the Chinese automaker said.
Great Wall, one of the biggest sellers of sports-utility vehicles (SUV) in China, plans to enter India with its Haval and electric vehicle brands and will announce detailed plans at the Delhi auto show in February, Liu said in the statement.
However, Fiat Chrysler (FCHA.MI), Ford Motor (F.N) and GM are scaling back in India after battling it out in one of the world’s most competitive markets, which is dominated by smaller, low-cost cars made by Maruti Suzuki (MRTI.NS) and Hyundai Motor (005380.KS).
GM, which stopped selling cars in India at the end of 2017, has already sold its other plant to SAIC, where the Chinese automaker builds cars under its British brand, MG Motor.
Although the American automaker continued to build small cars for export at its plant in Talegaon in Maharashtra state, it has been exploring strategic options for the site, Julian Blissett, senior vice president, GM International Operations said in the statement.
“Our decision to cease production at Talegaon is based on GM’s global strategy and optimization of our manufacturing footprint around the world,” Blissett said, adding that the company will provide support to employees affected by the decision.
Great Wall is expected to upgrade and modify GM’s plant to suit its needs and set up a base for its suppliers, said one of the sources, adding that the automaker expects to begin production within a year.
The plant is expected to have an annual production capacity of about 150,000-160,000 vehicles, the source said.
Reporting by Aditi Shah in New Delhi, additional reporting by Yilei Sun in Beijing; Editing by Sanjeev Miglani, Shri Navaratnam; Kirsten Donovan
WASHINGTON (Reuters) – General Motors Co (GM.N) will revive the Hummer name to sell a new family of electric pickup trucks and sport utility vehicles and will tout the return with a Super Bowl ad featuring NBA star LeBron James, two people briefed on the matter said on Friday.
January 08, 2020 – Mercedes-Benz AG (Mercedes-Benz) and Zhejiang Geely Holding Group (Geely Holding), the German and Chinese automotive groups, today announced that they have formally established the global joint venture “smart Automobile Co., Ltd.” for the smart brand after receiving the regulatory approvals.
By World Auto Forum Think Tank
The Industry stands by Ratan N Tata as he faces one of the toughest battles of his career.
The Battle to uphold the Tata Code of Conduct as the detractors take the High Moral Ground
Click on “Recommend” Button in the Comments below if you stand by Ratan N Tata
The year was 2016. World Auto Forum was running an Online Poll where Industry People could vote for their favourite Chairpersons, MDs and CEOs of Auto Companies at India and across the World.
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On Oct 24 , 2016 Mr Cyrus Mistry who was the Chairman of Tata Group and also Tata Motors was sacked. As per protocol, our team switched Mr Mistry’s Pic with Mr Ratan Tata’s Pic as the latter had become the interim chairman.
2019 was a Great Year at World Auto Forum
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Automotive HR Action Plan 2020 : Time to Action our Dialogue on “People” : Our Most Important Asset
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The U.S. National Highway Traffic Safety Administration (NHTSA) said earlier this month it had opened an investigation into a 12th Tesla crash that may be tied to the vehicle’s advanced Autopilot driver assistance system after a Tesla Model 3 rear-ended a parked police car in Connecticut.
NHTSA did not say if autopilot was suspected in Sunday’s crash in Gardena in Los Angeles county.
Tesla did not immediately respond to a request for comment.
Los Angeles television station KTLA reported the driver exited the 91 Freeway in Gardena, ran a red light and struck a 2006 Honda Civic, killing its two occupants.
The two people inside the Tesla were hospitalized but did not have life-threatening injuries, KTLA reported, citing Los Angeles police.
Autopilot had been engaged in at least three Tesla vehicles that were involved in fatal U.S. crashes since 2016. The National Transportation Safety Board has criticized Autopilot’s lack of safeguards and said in September in its probe of a 2018 Culver City, California Tesla crash that the system’s design “permitted the driver to disengage from the driving task.”
Tesla and NHTSA both advise drivers that they must keep their hands on the steering wheel and pay attention at all times while using Autopilot. Tesla says Autopilot “enables your car to steer, accelerate and brake automatically within its lane,” but does not make the vehicle autonomous.
Some drivers say they are able to keep their hands off the wheel for extended periods when using the system. Last month, U.S. Senator Ed Markey said Tesla should disable Autopilot until it installs new safeguards to prevent drivers from evading system limits that could let them fall asleep.
NHTSA has previously confirmed special crash investigations in a number of Tesla crashes but until earlier this month had not disclosed the total number of crashes under review. NHTSA previously investigated another Tesla crash that it initially suspected of being tied to Autopilot but ruled it out.
Reporting by David Shepardson; Editing by Leslie Adler and Grant McCool