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Coronavirus Diligence Briefing

Our briefing for Monday June 22, 2020:

Jun 22, 2020 5:04:27 PM

  • As coronavirus cases top nine million around the world, health experts in the United States are worried Florida could be the next epicenter for the pandemic. The sunshine state are one of ten states to see a record number of cases in the last week as they now have surpassed 100,000 cases. Florida and Texas on Saturday, along with California on Sunday each reported record one-day cases in excess of 4,000. A Financial Times article notes that half of all new daily infections in the United States are originating in the deep south, some of which were the earliest in reopening to help stabilize their economies.
     
  • In Canada, the last three regions in Ontario, which includes the country’s most populous city, Toronto will be able enter stage 2 of its reopening on Wednesday. The move will allow residents of Toronto to dine-out on patios, get a haircut and shop within indoor malls, if they so choose. Elsewhere in the country, the Bank of Canada said the long-term economic damage from COVID-19 means a prolonged and bumpy course to recovery. In his first speech as the new governor of the Bank of Canada, Tiff Macklem warned Canadians that the short and sharp economic bounce-back over the coming months won’t likely last as ongoing physical distancing rules may mean workplaces can’t be as productive as they once were.

  • In the United Kingdom, 2.2 million of its most vulnerable residents will have more restriction rules eased as the country gains control over the coronavirus. As of July 6, those most vulnerable with pre-existing conditions will be allowed to form support bubbles with another household and meet in groups of up to six people outdoors. In recent weeks, the more vulnerable residents of the UK were only permitted to go outside once a day and meet with one other person outside, while maintaining social distancing.

  • Germany’s reproduction rate has jumped three times from what is needed to contain the virus after an outbreak at a meat processing plant has infected thousands of workers. The reproduction number indicates how much the virus is spreading in the country. A reproduction rate of 1 means each person with the coronavirus will infect another person. In May, Germany’s R-number had fallen to 0.75, but thanks to the outbreak, data published by the Robert Koch Institute puts the country’s current R-number at 2.88. Chancellor Angela Merkel, who has a scientific background, has repeatedly said Germany must keep their R-number below 1 if they want to successfully combat the virus.

  • Starting July 7, Dubai will open to tourists in an attempt to revive its economy. Those arriving at the Dubai Airport would need to present proof that they are not infected or take a test at the airport. Those testing positive will be required to enter quarantine for 14 days. Dubai also said nationals and residents will be allowed to travel outside the country with fewer restrictions as of Tuesday. Citizens will need to complete a health declaration form, be free of COVID-19 symptoms on departure and take a test again upon return. Anyone who tests positive upon re-entering Dubai must self-isolate for 14 days.

  • Australia is moving fast on trying to contain a fresh outbreak of the coronavirus in the Melbourne area. The region is home to the country’s second largest city and has accounted for nearly 90% of the 126 cases detected nationally over the last week. The Victorian state government has said it would reimpose restrictions on social gatherings after the surge they believe was caused by family get-togethers attended by people with mild symptoms. Officials have also criticized those who have gone to shopping while awaiting COVID-19 test results.

Covid-19 – Due Diligence And Asset Management

Schwarzman Sees ‘Big V’ Economic Rebound in Next Few Months

Brief: Steve Schwarzman, chief executive officer of Blackstone Group Inc., said the economy is likely to benefit from a V-type recovery in the next few months. The co-founder of the world’s biggest alternative asset management firm weighed in on markets in an interview Monday during the Bloomberg Invest Global virtual event. “You’ll see a big V in terms of the economy going up for the next few months because it’s been closed,” he said. Markets are benefiting from both liquidity and optimism that the coronavirus crisis can eventually be contained, Schwarzman said, but he cautioned on the economy, “It’ll take quite a while before we sync up and get back to 2019 levels.” The spread of the pandemic seized up credit markets and put an end to Wall Street’s longest-ever bull market earlier this year. The damage pushed the Federal Reserve to flood the markets with trillions of dollars in stimulus, which, combined with the easing of lockdown restrictions and hopes for a fast economic recovery, have helped the S&P 500 index rally almost 40% since its March low. Blackstone has been “aggressively” looking to put some of its $150 billion in dry powder to use, Schwarzman said in April.

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UBS May Increase Home Working After Coronavirus

Brief: A significant proportion of UBS’s (UBSG.S) staff could continue to work from home even after the coronavirus crisis has ended, the bank’s Chief Operating Officer Sabine Keller-Busse said on Monday.A third of the bank’s employees could work away from the office, she said, according to Bloomberg. UBS, Switzerland’s biggest bank, is deciding which tasks could be carried out from home and which would be transferred to the office. “It is conceivable that in the future up to a third of the staff will work remotely on a rotating basis,” a UBS spokeswoman said. The changes will be implemented globally, although the exact number of UBS’s 70,000 staff has not yet been determined. At the peak of the coronavirus crisis, more than 80% of the bank’s staff worked from home. Even before the pandemic, some of the employees did not come to the office, with this figure likely to be increased.

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Ackman’s Blank Check Company Could Raise Up to $6.45 Billion

Brief: Bill Ackman’s blank check company is seeking to raise as much as $6.45 billion through an initial public offering combined with a commitment from the billionaire’s hedge fund. The company known as Pershing Square Tontine Holdings Ltd. doesn’t specify what sectors it will be targeting, according to a regulatory filing Monday. The special purchase acquisition company, or SPAC, is aiming to initially raise $3 billion from outside investors with an a minimum of $1 billion in additional funds coming from funds associated with Ackman’s hedge fund, Pershing Square Capital Management. The blank check company plans to raise $3 billion from outside investors and between $1 billion and $3 billion from funds associated with Pershing Square. If the IPO over-allotment option -- the so-called greenshoe shares -- is exercised by the banks, it would bring the total to $6.45 billion. SPACs raise money on the public markets to make an acquisition within a set period of time. A target isn’t identified until after the shares start trading. At $3 billion, Pershing Square’s Tontine listing would be the largest SPAC IPO on record globally, according to data compiled by Bloomberg. That would surpass Michael Klein’s Churchill Capital Corp. III, which raised $1.1 billion earlier this year.

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Millennium Seeks $3 Billion of Private Equity-Style Capital

Brief: Millennium Management is in talks to raise as much as $3 billion in capital that it can draw on as needed to finance trades. The fundraising by Izzy Englander’s hedge fund will probably continue through the first half of next year, according to a person with knowledge of the matter. Building up such “callable” capital is a strategy often used by private equity funds. Investors would be required to commit at least $25 million to Millennium, and would only be allowed to withdraw 5% of their money per quarter, said the person, who asked not to be identified because the information is private. A representative of New York-based Millennium declined to comment. Millennium, which manages about $44 billion, is among a cohort of large hedge funds raising capital even as the industry endures an investor exodus. Investors have pulled more than $130 billion since the start of last year, according to data compiled by eVestment. This latest capital raising is part of Millennium’s drive to lock up investors’ money for longer to give it greater flexibility and avoid a rush of withdrawals when markets are in turmoil. The hedge fund was one of many that struggled in the first three weeks of March as coronavirus lockdowns shut much of the global economy. It has since recovered and was up 9% this year through June 15, the person said.

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U.S. Banks are ‘Swimming in Money’ as Deposits Increase by $2 Trillion Amid the Coronavirus

Brief: It’s the banking world’s version of the rich getting richer. A record $2 trillion surge in cash hit the deposit accounts of U.S. banks since the coronavirus first struck the U.S. in January, according to FDIC data. The wall of money flowing into banks has no precedent in history: in April alone, deposits grew by $865 billion, more than the previous record for an entire year. The gains were all driven, in one way or another, by the response to the pandemic: The government unleashed hundreds of billions of dollars to bolster small businesses and individuals via stimulus checks and unemployment benefits. The Federal Reserve began abarrage of efforts to support financial markets, including an unlimited bond buying program. And an uncertain future prompted decision makers, from two-person households to global corporations, to horde cash. More than two-thirds of the gains went to the 25 biggest institutions, according to the FDIC. And that was concentrated at the very top of the industry: JPMorgan Chase, Bank of America and Citigroup, the biggest U.S. banks by assets, grew much faster than the rest of the industry in the first quarter, according to company data.

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Brookfield Delays Payments While Asking Tenants to Pay Up

Brief: Asset manager Brookfield, which owns stakes in numerous malls, is demanding retailers pay back rent even as the Toronto-based investment group has missed mortgage payments, the Financial Times reported Sunday (June 21).Merchants who lease kiosks and small stores inside Brookfield malls have been told to pay rent for April and May, a time when they were forced to close, sources familiar with the discussions told the paper. The tenants, who requested anonymity, said they have asked for until next year to come up with the payments. In response, Brookfield has asked them to provide extensive financial information, including personal tax returns for 2019 and 2020, the merchants told the Times.A half dozen tenants wrote a letter to management at one of the Canadian group’s shopping centers seeking help, the report said. “I will not address the merits of your ‘petition,’ ” a Brookfield lawyer responded. The attorney added that confidentiality clauses in leases “could be deemed a default of your agreement with Brookfield. ”In a request for comment, Brookfield said 75 percent of its tenants have requested changes to their leases. The company said it had talked with all of them and they are prioritizing small businesses given their scale and immediate cash flow requirements.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Topics:Coronaviruscovid-19