COVID – 19 – Spread Research’s Message and Actions2020-03-18
In light of extreme market conditions due to the COVID-19, Spread Research continuously monitors the situation and publishes updated views on the 180 companies within our coverage. As soon as February 14, 2020, we published a Special Comment which detailed the most exposed High-Yield issuers to China, facing major economic disruptions as the first country hit by the coronavirus. Since then, the coronavirus has been quickly developing in all regions, mostly affecting Europe.
On March 10, 2020, while stressing growing liquidity risks for those not having refinanced their debt due in 2020-2021, we fully reshuffled our Portfolio model and recommended to switch to more resilient names and sectors. The same day, we published a Sector Comment on the Automotive sector, which detailed the coronavirus impact on HY auto-parts and OEM issuers in the sector. In the following days, we published comparable Sector reports on the Healthcare, Gaming, Travel & Leisure and TMTs. Since the crisis has been escalating, we have been publishing updated reports on issuers as soon as managements provided their first estimates on the impact of the virus.
In the context of the current Sell-off of all risky assets, we are more than ever prepared to cope with what appears to be an even more severe downturn than in 2008-2009, during the global financial crisis. As we write, total return reached -16.5% on a YTD basis. The situation is hugely exacerbated by record outflows among HY ETF and active European funds over the past two weeks, i.e €2.1bn and €2bn respectively according to our proprietary data. As earnings season is progressing, we are currently monitoring issuers’ liquidity positions, assuming worst-case scenarii on a case-by-case basis by YE20 and YE21, whenever possible.
Our 10 fully operational analysts dedicated to EHY are monitoring the crisis and Spread Research will remain a key partner of the fixed income community across Europe, as we have been over the past 16 years.
Within the Qivalio group, we believe that independent Credit Research houses have to be in close ties with investors who are currently struggling with negative returns and likely substantial outflows. In light of such an exceptional situation, we have decided to extend our free trial period to 45 days, from current 3 weeks, still in accordance with the MiFID 2 framework. The team will remain fully committed to assist PMs, Buy-side Credit Analysts, traders and all other clients in this troubled period.
All the best,
The Spread Research Team