Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Norwegian rescue, earnings to watch, a cautious Buffett and US-China tension on the rise
7 minutes to read
Peter Garnry
Chief Investment Strategist
Summary: Norwegian bondholders and lessors have agreed to debt-to-equity swap rescuing the airliner from immediate bankruptcy and the swap will increase the equity ratio above 8% needed to get a bailout by the Norwegian government. Earnings to watch this week are PayPal, Shopify, Uber and Booking as technology sentiment is still key for equity market to hold the line after the ugly session on Friday. Especially Booking is interesting given its nexus in the global travel industry collapse. The weekend also offered the first virtual AGM at Berkshire with Buffett talking the state of markets and the economy, and rising US-China tensions as US secretary of state, Mike Pompeo, launched into an attack on China.
With global airline industry fighting for its lives the weaker and more indebted airliners have been pushed to the brink of bankruptcies with Norwegian as the most imminent case. But over the weekend bondholders and aircraft lessors have finally agreed to a deal that will be swap around NOK 10bn of debt into equity with potential more debt-to-equity swaps in the future. The deal will push the equity ratio (the amount of equity to total assets) above the 8% required by the Norwegian government to provide state funds through the Government State Aid Package. In addition to the debt-to-equity swaps Norwegian expects to raise NOK 400mn in a public offering of new shares. The entire deal will go to vote on an extraordinary general meeting this morning.
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