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Coronavirus Diligence Briefing

Our briefing for Tuesday October 6, 2020:

Oct 6, 2020 4:06:35 PM

  • In the United States, the US Food and Drug Administration (FDA) are in a public tug-of-war with the White House after making clear Tuesday that it wants to see two months of follow-up data after volunteers receive their second dose of potential COVID-19 vaccines. The timeline pretty much kills any hope the White House has of having a COVID-19 vaccine ready before the November 3rd election, a claim continued to be made by President Donald Trump in a brief video appearance posted to his Twitter account Monday evening after returning to 1600 Pennsylvania Avenue. A recent New York Times Article claimed the statement made by the FDA Tuesday was submitted more than two weeks ago and that White House officials were stalling, trying to block the new federal guidelines.
  • In Canada, the country’s public health authority has given the green light to a new COVID-19 testing option. Health Canada on Tuesday approved a rapid antigen COVID-19 test produced by a U.S. based firm. Abbot Laboratories can now sell and distribute the Panbio COVID-19 AG Rapid Test Device, which can produce results in less than 20 minutes. Health Canada has authorized its use as a point-of-care test, which means it can be used by trained professionals in pharmacies, walk-in clinics, or doctors’ offices. The move comes as the federal government has been criticized by opposition parties for its lack of producing more testing options.
  • The United Kingdom will conduct an inquiry after a technical error identified close to 16,000 positive COVID-19 cases unaccounted for in the country’s test and trace program. Health Secretary Matt Hancock told MPs he was investigating following an announcement from Public Health England (PHE) that claimed 15,841 cases between September 25th and October 2nd failed to be included in their daily reporting of statistics, and thus left out of the test and trace program. Hancock blamed the error on failure in the “automated transfer files from the labs to PHE’s data systems.”
  • In Italy, the new COVID-19 daily case rate remains significantly lower than France or Spain, and the country would like to keep it that way and are announcing new restrictions. The country’s health minister plans to make face mask usage compulsory in all outside places. The new rule would be adopted across Italy but has already been in place since the summer in places like Lazio, Rome and Naples. Italy’s new daily COVID-19 case rate hit close to 3,000 on Saturday, the most since April when the country was already in lockdown. Prime Minister Giuseppe Conte is expected to extend Italy’s state of emergency, which will allow his government to continue to quickly put in place new measures to combat the virus if needed.
  • With the country still seeing close to 75,000 new COVID-19 cases a day, India is moving forward, allowing schools to reopen as of October 15th. Prime Minister Narendra Modi’s government ordered the schools to be shutdown back in March during their initial lockdown, which left close to 270 million children out of the classroom. Prime Minister Modi said the decision on when and how to reopen schools will rest with state governments. For instance, in New Delhi, the nation’s capital city, authorities have already ruled out children returning to school until at least October 31st.
  • Starting this Thursday, South Korea and Japan have agreed to allow business travellers access to each country without having to enter into a 14-day quarantine. The fast-track entry of business visitors comes about seven months after both countries imposed restrictions due to COVID-19. Under the special entry procedure, business travellers from both countries can plan a short-term stay of up to three months as long as they submit a written business plan and a negative coronavirus test result from the last 72 hours. Their travel will also be limited to areas near their workplace. Japan and South Korea are the third largest trading partners of each other.

Covid-19 – Due Diligence And Asset Management

Goldman Eyes $14 Billion for its Largest Fund Since 2008 Crisis

BriefGoldman Sachs Group Inc. boosted the size of a new credit fund to $14 billion in what is shaping up to be one of the largest debut investment vehicles ever raised. The bank, which set out with a target of $5 billion to $10 billion, is now expecting to finish fundraising with a $14 billion war chest to pour into companies in need of fresh liquidity. A Goldman representative confirmed the goal for the first in a new family of funds, called West Street Strategic Solutions Fund I. The $14 billion mark is notable for the first iteration of a fund series new to investors. Such funds seldom crack $10 billion on their first go-round barring one exception: the $100 billion SoftBank Vision Fund, which is in a league of its own. The Goldman credit fund will provide a boost to the bank’s goal of raising $100 billion for investing in what’s known in the industry as alternatives. Instead of guiding client cash into plain-vanilla asset classes such as stocks and bonds, the funds are focused on seeking outsize returns in less-trafficked corners of the market including distressed credit, real estate and private equity. Fundraising success will also help cement Julian Salisbury’s profile as one of Goldman’s most powerful executives. The 48-year-old Brit has climbed rapidly, from running a secretive and successful group betting Goldman’s money inside its trading group, to now helping run a newly created division that rivals the firm’s dealmaking group in size and profitability, second only to the markets division.

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TPG, Onex are said to Circle Bankrupt Hertz’s Donlen Unit

Brief: Private equity firms TPG and Onex Corp. are preparing bids for bankrupt Hertz Global Holdings Inc.’s car leasing business Donlen, according to people with knowledge of the matter. TPG and Onex are working on offers that could value Donlen at about $1 billion, said the people, who asked not to be identified because they weren’t authorized to speak publicly. Rivals of Hertz are also considering bids, the people said. A representative for TPG declined to comment. Representatives for Onex and Hertz didn’t respond to requests for comment. Donlen performs fleet management functions such as vehicle leasing, maintenance and registration, according to its website. Hertz sees the business as non-core and is willing to sell it to help pay down debt, the people said. Hertz listed $24.4 billion in debt when it filed for bankruptcy in May. The company is negotiating with its creditors for financing after months of funding itself during bankruptcy, people with knowledge of the talks said last month. It’s considering two tentative loan offers of $1 billion to $1.5 billion, which could help bolster operations that have been hurt by the coronavirus pandemic and slump in travel, according to one of the people. Donlen made about $100 million in earnings before interest, taxes, depreciation and amortization last year, Bloomberg News has reported. Hertz bought the Bannockburn, Illinois-based business for $947 million including debt in 2011.

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Covid-19 Prompts More than Half of Asset Management Firms to Accelerate Adoption of Digital Marketing Technology

Brief: A research report commissioned by SDL, the intelligent language and content company, reveals that more than half (52 per cent) of European asset management firms have implemented client engagement, and digital marketing and communications technology, sooner than anticipated due to the Covid-19 pandemic. The pan-European research, conducted by WBR Insights, also discovered that almost a third (32 per cent) of firms admitted experiencing technical problems while implementing new digital technology during the pandemic. “There is no doubt that the pandemic focused hearts and minds on the protection of clients and their investments,” says Christophe Djaouani, EVP Regulated Industries, SDL. “It’s been a wake up moment for the industry, and they know they need to implement more robust client engagement and communications technology if they want to stay ahead of the increasing demands of anxious clients.” Asset management firms also plan to embrace digital marketing communications much more with nearly half (48 per cent) expecting to implement their initiatives across all their available digital channels this year, according to the research. Almost a third (27 per cent) admit that ROI is the key driver that led their firm to adopt digital communications to meet their clients’ needs.

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Companies to Shrink Offices as Remote Work Becomes ‘New Normal’

BriefMore than half of companies plan to shrink their offices as working from home becomes a regular fixture after the Covid-19 pandemic ends, according to a survey by Cisco Systems Inc. Some 53% of larger organizations plan to reduce the size of their office space and more than three quarters will increase work flexibility. Almost all of the respondents were uncomfortable returning to work because they fear contracting the virus, the poll found. Cisco, the largest maker of networking equipment, recently surveyed 1,569 executives, knowledge workers and others who are responsible for employee environments in the post-Covid era. The findings suggest many of this year’s radical changes to work life will remain long after the pandemic subsides. The poll, conducted for Cisco by Dimensional Research, concluded that working from home is the “new normal.” More than 90% of respondents said they won’t return to the office full time. 12% plan to work from home all the time, 24% will work remotely more than 15 days of each month, while 22% will do that eight to 15 days every month. Cisco’s Webex video conferencing service has benefited from lockdowns that have kept millions of people working and studying from home. It’s also faces rising competition from Zoom Video Communications Inc.

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And the Top Alternative to Traditional M&A Deals Is… SPACs, of Course.

Brief: When it comes to post-pandemic deal-making, blank-check companies and other alternatives are winning out over traditional mergers and acquisitions, according to a survey from consulting firm Deloitte published on Tuesday. A record number of special purpose acquisition companies (SPACs), which raise money in an initial public offering to be used for any type of acquisition, have gone public this year, with business titans including Bill Ackman and Reid Hoffman, co-founder of LinkedIn, creating huge pools of capital to be invested. Forty-five percent of U.S. corporate executives said they are most interested in pursuing SPACs, alliances, and joint ventures, while only 35 percent cited traditional acquisitions or merging with another company, according to Deloitte, which polled 1,000 executives at companies and private equity firms… Deloitte had seen the trend toward alternatives in M&A before the Covid-19 pandemic struck in March, but the economic impact of the virus has forced companies to consider every option given the low-growth environment, said Mark Purowitz, principal, Deloitte’s mergers and acquisitions consulting practice, and leader of the firm’s Future of M&A initiative, in an interview.

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SEC Staff Releases Report on U.S. Credit Market Interconnectedness and the Effects of the COVID-19 Economic Shock

BriefThe Securities and Exchange Commission today published a staff report titled U.S. Credit Markets: Interconnectedness and the Effects of the COVID-19 Economic Shock, which focuses on the origination, distribution and secondary market flow of credit across U.S. credit markets. The staff report also addresses how the related interconnections in our credit markets operated as the effects of the COVID-19 pandemic took hold. In addition, staff will host a Roundtable on Interconnectedness and Risk in U.S. Credit Markets to discuss the issues raised in the report on the afternoon of Oct.14. In the U.S. credit markets, banking and non-banking entities and intermediaries are intricately and inextricably interconnected. These interconnections are essential for the functioning of the markets, the provision of credit and the distribution of risk. These interconnections can also transmit and amplify risks in times of stress. The report identifies these interconnections and, with that framework, discusses how the COVID-19 economic shock reverberated through the credit markets in March and April 2020. The principal purpose of the report is to identify and place in context key structural- and flow-related interdependencies in the U.S. credit markets as well as areas of stress revealed by the COVID-19 shock, with an eye toward informing policymakers as they seek to improve the functioning and resilience of our financial markets. The report does not make policy recommendations. The report is accompanied by a cover letter from SEC Chairman Jay Clayton and SEC Chief Economist S.P. Kothari and will be discussed at the roundtable, which includes policymakers and market participants, on Oct. 14.

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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