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Coronavirus Diligence Briefing

Our briefing for Thursday February 25, 2021:

Feb 25, 2021 4:16:43 PM

  • In the United States, the Centers for Disease Control and Prevention (CDC) released their latest data on the country’s vaccination push. The results show that 20 million Americans, or 6.2% of the population have received two shots of a coronavirus vaccine. The data also revealed that 45 million, or 13.6% of the U.S. population have received one or more shots of the Pfizer or Moderna COVID-19 vaccines. On Wednesday, the Food and Drug Administration (FDA) endorsed the Johnson & Johnson vaccine for emergency use, which was a key step in getting a third inoculation into the American market. The Johnson & Johnson vaccine as noted earlier in Castle Hall’s COVID-19 Diligence Briefing during the week, only requires one shot.
  • A new study from a Canadian university has suggested that shorter, but more frequent lockdowns could lead to fewer cases of COVID-19. The study was conducted at York University in Toronto and found that Ontario’s current practice of initiating lockdowns for longer periods of time may actually decrease public compliance with these restrictions. Iain Moyles, lead researcher for the York University study noted: “What we found is that as these restrictions prolong, those extra costs and risks start to outweigh the risk of getting sick, so people begin to relax, and so it’s not surprising to see that some of these effects are starting to wane.”
  • On the other side of the pond, the United Kingdom’s recent statistics has reflected the positive effect the six weeks of lockdown has had on its COVID-19 case count. According to weekly statistics from the National Health Service Test and Trace, COVID-19 cases in England have fallen 78% since the government imposed the national lockdown on January 4th. Due to the consistent decline in COVID-19 cases, the Department of Health and Social Care lowered the coronavirus alert level from five to four on Thursday. The alert level reflects the risk of the National Health Service being overwhelmed by COVID-19 cases. 
  • Italy’s new Prime Minister Mario Draghi’s government has extended the coronavirus travel ban between its 20 regions until March 27th. Italy’s past government nationwide travel bans were set to expire on Thursday, however, authorities were not convinced restrictions could be eased considering the situation in the country and neighbouring nations. The coronavirus has infected over 2.8 million Italians, which has led to close to 96,000 deaths. 
  • Israeli media has reported the government has put on hold its program to send COVID-19 vaccines abroad following criticism they are the latest country to participate in what is called “vaccine diplomacy”.  Israel was planning to give its excess vaccine supply to as many as 19 countries with three seemingly random countries at the top of the list:  Honduras, the Czech Republic and Guatemala. According to media reports though, those countries weren’t random – all three have recently agreed to strengthen their diplomatic presence in Jerusalem, bolstering Israel’s claim to the contested city. One not on the list is neighbouring Palestine. United States Senator Bernie Sanders took to social media to criticize the move stating that as an occupying power, Israel is responsible for the health of all people under its control and is “outrageous” that so many Palestinians in occupied territories are still waiting on vaccines.
  • Sydney, Australia based airline Qantas Airways doesn’t expect to resume international travel outside of New Zealand until late October, the company’s CEO said on Thursday. Qantas had been selling seats on international flights starting July 1st since early January, but CEO Alan Joyce said tickets sold for flights after July 1st and before October 31st are being refunded due to the huge surge in COVID-19 cases around the world. The late October deadline is also when it is expected the Australian population will have received their COVID-19 vaccinations.

Covid-19 – Due Diligence And Asset Management

Fed Flashes $1 Trillion Warning for Businesses Hit by COVID-19

Brief : The Federal Reserve and other bank regulators are flashing a new warning sign for the U.S. economy: Businesses ravaged by Covid-19 are sitting on $1 trillion of debt and a high percentage of it is at risk of going bust. Watchdogs flagged 29.2% of complex corporate lending as troubled in 2020, up from 13.5% in 2019, according to a report released Thursday by the Fed and other agencies. Real estate, entertainment, transportation, oil and gas, and retail were cited as particular problem areas. A “disproportionate share” of the riskiest loans were held by nonbanks, such as investment funds that engage in leveraged lending, insurers and pension funds, the regulators added. “While risk has increased, many agent banks have strengthened their risk management systems since the prior downturn and are better equipped to measure and mitigate risks associated with loans in the current environment,” the Fed, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency said in a statement that accompanied the release of their Shared National Credit Review. Still, banks’ share of the weakest loans has also been rising, with some of their holdings -- particularly those associated with oil and gas -- facing credit downgrades during the pandemic, the report found. Banks’ percentage of borrowings deemed below the standards preferred by regulators increased to 45% from 35% a year earlier.

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What Will it Be Like When We Go Back to the Office?

Brief: If absence makes the heart grow fonder, what will a pandemic sabbatical do to our feelings about the office? We may miss the way we set up our cubicle, recall fondly the water cooler conversations, or cannot wait to use the office printer again. But for as long as COVID-19 remains a threat, and possibly even after most people are vaccinated, office life will be very different from what it was before the global pandemic. To understand what that might feel like, Reuters spoke to some experts on work and workspaces who predicted that social distancing measures and hybrid work models are here to stay.

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Canadian Securities Regulators Publish Findings of COVID-19 Disclosure Review

Brief: The Canadian Securities Administrators (CSA) today published key findings of recently completed reviews of issuers’ COVID-19 disclosure. Guidance and disclosure examples have been provided to assist issuers with reporting on the impacts of COVID-19 to their business and operations. “We are encouraged by the overall quality of disclosures issuers provided,” said Louis Morisset, CSA Chair and President and CEO of the Autorité des marchés financiers. “However, there were some instances where issuers did not provide sufficient detail related to the current and expected impact of COVID-19 on their operations and financial condition, including liquidity and capital resources. It is important that issuers review this guidance closely so that they provide transparent and balanced disclosure.” A majority of issuers reviewed provided detailed, quality disclosure. This included affected issuers significantly expanding their Management Discussion and Analysis section (MD&A) to explain the impact of COVID-19 to their industry, operations, customers and suppliers. Most issuers also adequately disclosed impairments of non-financial assets in light of deterioration in their business since the onset of the COVID-19 pandemic.

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PE and VC to Support UK’s Economic Recovery, says New Report

Brief: Private equity and venture capital investment will play a crucial role in supporting the UK economy as we begin the recovery from the pandemic, according to a new report. The British Private Equity and Venture Capital Association’s (BVCA) ‘New Horizons’ report highlights more than 30 examples of private equity and venture capital investments in companies which are supporting the economic recovery post-COVID, providing opportunities across the UK’s regions, driving UK global competitiveness, and working towards Net Zero. Each story illustrates how private equity or venture capital support and expertise has enabled the company to navigate the pandemic successfully, scale up to meet the demands of their customers and continually contribute to the UK economy through job creation, increased productivity, innovative new products and ideas or international exports.

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Markets Haven’t Moved in Lockstep Like This Since the Financial Crisis

Brief: Investors aren’t as diversified as they think. Hedge fund strategies that would normally be differentiated from each other are loading up on the same risks, even though their investment objectives are wildly different. In fact, hedge fund research and data firm PivotalPath says its indicators for this phenomenon are at record highs, even higher than levels recorded during the global financial crisis. PivotalPath has been tracking what are called pairwise correlations for more than 200 global risk factors since the beginning of 1998. (Think of global risk factors as anything a hedge fund could trade, from Treasuries and gold to commodities and fixed income.) The firm tracks pairwise correlations as an indicator of systemic risk. Correlations were at an all-time high in January, according to the firm. The indicator last month was higher than during March 2020, the beginning of the economic shutdown caused by the pandemic, and the 2008 financial crisis, which was the previous peak.

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Secondary Fund Managers Expect Rapid Rebound, says Investec

Brief: According to Investec’s latest secondaries research report, more than three-quarters, or 77 per cent, of secondary fund managers expect a return to 2018 deal flow levels within the next 12 months. “The secondaries market continues to evolve and, while it has not escaped the effects of Covid-19, neither has it suffered the long-term impact some feared”, said Ian Wiese, head of secondaries at Investec. “LPs haven’t faced the same liquidity crunch that they did after the global financial crisis, so they’ve been able to bide their time. As a result, there is a backlog of deals that we expect to progress throughout 2021 and beyond,” he added. Single asset deals are becoming a popular option for GPs looking to hold onto their best assets, with two-thirds (67 per cent) of those surveyed indicating that they would consider deals with only one asset involved.

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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