wants to be first with carbon zero Atlantic commercial plane By Reuters


© Reuters. UK government daily briefing on coronavirus updates

LONDON (Reuters) – The United Kingdom wants to be the first to develop a commercial jet plane to fly across the Atlantic Ocean without any carbon emissions, Transport Secretary Grant Shapps said on Thursday.

Prime Minister Boris Johnson surprised some in the aviation sector on Tuesday when he promised the United Kingdom would produce the world’s first zero emission long haul passenger plane.

“We’ve set up the JetZero council specifically to take forward the objective of being the first country to develop a jet commercial airliner to fly zero carbon across the Atlantic,” Shapps told the British parliament.

“That will involve not just investment in sustainable aviation fuels, of which money has already been invested… but also work on electric planes, hybrid planes and hydrogen planes as well,” he said. “You can expect to be hearing a lot more.”

France and European planemaker Airbus have spelled out goals to make the next generation of passenger jets significantly cleaner. Britain builds wings for Airbus aircraft but few in the aerospace industry expect it to develop competing commercial aircraft independently of Airbus.

A global goal to achieve net zero carbon emissions by 2050 will not be met without a huge acceleration in clean energy innovation, the International Energy Agency (IEA) said on Thursday.

“As part of our mission to reach Net Zero CO2 emissions by 2050, we should set ourselves the goal now of producing the world’s first zero emission long haul passenger plane,” Johnson said on Tuesday.

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Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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There’s now a $32 billion pile of commercial real estate loans in special servicing, the first step to debt relief


Landlords have been scrambling for debt relief on hotels, stores, office buildings and other commercial properties that sat mostly vacant over the past two months of U.S. lockdowns, with more woes on the horizon.

There is now $32 billion worth of commercial property loans in “special servicing” as of May, or more than double the late-February tally when the coronavirus deepened its hold on the U.S., according to a new Moody’s Investors Service report.

Special servicing is the first stop for borrowers seeking relief on loans bundled into commercial mortgage-backed securities (CMBS), a type of bond deal. Transfers to special servicing often happen once a default occurs, a borrower threatens to default or one looks likely.

Like at a bank, special servicers handle debt payments, but do so on behalf of bondholders instead of a single lender. They also are in charge of negotiating any workouts with borrowers, sometimes offering debt relief and other times handling a foreclosure or bankruptcy.

Lately, however, more property loans are being transferred to special servicing even while borrowers remain current on their debts, but operate in industries hard hit by COVID-19.

That’s how $975 million of property debt on the famed Fontainebleau hotel in Miami Beach hit special servicing in April.

See: Miami Beach’s iconic Fontainebleau tops list of U.S. hotels facing debt woes during pandemic

Servicer notes for May indicate the borrow wants a forbearance.

Here’s a Moody’s chart showing the spike, so far, in special servicing activity during the pandemic.

Hotels and retail hardest hit


Moody’s

While the roughly $550 billion CMBS market isn’t the biggest source of funding for U.S. commercial properties, it’s an important one that offers an early glimpse into the health of commercial real estate, mainly through monthly bond reports.

As of a year ago, roughly 13.5% of the $3.5 trillion U.S. commercial property debt sector was financed in the CMBS market, with banks and thrifts making up the largest funding source at 39%, according to the Mortgage Bankers Association.

Like many sectors, early signs point to landlords in the CMBS market being caught off guard by fallout from the pandemic as swaths of the American economy ground to a halt, a threat to their ability to manage significant debt loads.

Optimism about more U.S. states reopening for business gave U.S. stocks another week of gains heading into the long Memorial Day weekend, with the Dow Jones Industrial Average
DJIA,
-0.03%

gaining 3.3% on the week, leaving it only 17% off its record close on February 12, according to Dow Jones Market Data.

Still, the human and economic toll of the coronavirus is still being counted, weeks after the outbreak closed borders and led stretches of the globe to work from home.

Read: Retail sales crater a record 16.4% in April amid coronavirus lockdowns and spending slump

Retail and hotel properties have been the hardest hit in the past two months, not only in terms of the balance of loans crashing into special servicing, but also when looking at late payments, according to Moody’s data.

Late payments spiked to 11.8% in May on “conduit,” or multi-loan CMBS that have exposure to most property types, up from 8.6% in April and only 2.6% in March, per Moody’s.

The office sector has been one of the better performing assets during the pandemic, although that could change too, particularly if more companies follow the footsteps of Facebook Inc.
FB,
+1.52%

and other tech companies and give employees the option to keep working from home, long after the coronavirus threat is tamped down.

Read: Facebook employees may face pay cut if they move to cheaper areas to work from home



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Distress signals are flashing in U.S. commercial real estate. But will it need a TALF rescue?


Hotel rooms, office buildings and other commercial properties were lonely places last month as much of the nation operated under stay-at-home orders.

Being a property owner might have made the lockdowns feel even lonelier.

But as regions of the U.S. begin exploring ways to lift restrictive measures to contain the coronavirus and resume business, there is still plenty of uncertainty around what the toll will be on commercial properties, particularly since new protocols for returning to work, visiting the dentist and dining out are still being formed.

Read: U.S. commercial real estate braces for defaults as pandemic cuts cash flows

Barry Sternlicht, chief executive officer of Starwood Property Trust, Inc.
US:STWD
, this week described how hotels might begin resuming operations. “I think hotels, all hotels, will figure out how to operate with lower breakevens with fewer less-profitable parts,” he said during the real-estate company’s first-quarter earnings call.

“There won’t be restaurants, there may not be room service, but they will try to fill heads and beds and staff to demand.”

And yet, commercial property owners are starting to see a key funding spigot, namely the issuance of commercial mortgage-backed securities, a type of property bond, stage a limited comeback after the sector froze in March as the pandemic took hold in the U.S.

“CMBS is starting to show signs of life,” Jake Remley, senior portfolio manager at Income Research + Management told MarketWatch, while underscoring that some new bond deals have excluded hard-hit property types, namely hotel loans.

By contrast, a range of highly rated U.S. companies, including retail giant Apple Inc.
US:AAPL,
have borrowed a record amount in the corporate bond market through the start of this year, effectively socking away cash to offset what may be several painful quarters of business.

Read: Apple borrows $8.5 billion, joins record corporate debt borrowing spree

Those floodgates opened only after the Federal Reserve unleased its balance sheet to shore up financial markets, including laying out plans in March to buy U.S. corporate debt for the first time ever, through a series of emergency funding programs. Later, its plans were expanded to include speculative-grade, or junk-rated, company debt, which are expected to start soon.

The program open to CMBS is the Fed’s $100 billion Term Asset-Backed Securities Loan Facility, of TALF 2.0, as it’s known on Wall Street.

See: How the Fed plans to keep credit, a crux of the American economy, flowing to U.S. consumers during the pandemic

But unlike the Fed’s corporate debt facilities, TALF’s current scope is more restrictive and excludes newly issued and riskier CMBS with below-investment-grade credit ratings.

“The Fed is signaling they’re willing to support liquidity,” Remley said. But he also said the central bank is sending a message that not all types of debt are welcome, since eligibility is partially dependent on ratings. “That is going to create winners and losers and have some knock-on effects in the economy.”

Terms still could change once the facility gets up and running.

Of note, the original version of TALF for CMBS didn’t really get off the ground until about September 2009, following the 2007-’08 global financial crisis, and only ended up funding about $12 billion in loans to 87 borrowers before markets stabilized, according to a report this week from Deutsche Bank analysts.

Their chart below shows the top 10 CMBS TALF borrowers from a decade ago.

Top borrowers during the last crisis.


Deutsche Bank

A dozen debt players, including BlackRock Inc.
US:BLK
and Voya Financial Inc.
US:VOYA
recently have been exploring their options in terms of investing alongside the Fed through new TALF funds, according to a Bloomberg report.

Analysts at Cantor Fitzgerald estimated a few weeks ago that returns, using leverage, could range from 6.5% to more than 20% for TALF borrowers. But that was before spreads, or the premium investors get paid over a risk-free benchmark on bonds, came crashing in from their widest recent levels.

Deutsche Bank analysts pegged 10-year AAA-rated CMBS spreads at a 52-week high of 318 basis points, which as of this week narrowed to closer to 150 basis points.

Meanwhile, U.S. stocks, including the Dow Jones Industrial Average
US:DJIA
, continue to recover, as the Fed works to kick off TALF. Other sources of lending for distressed real estate are emerging too.

Real estate giant Brookfield Asset Management Inc.
US:BAM
wants to spend $5 billion to shore up retailers hit by coronavirus fallout, using its own balance sheet, existing funds and investment strategies, according to a Wall Street Journal report.

And if CMBS spreads stay compressed it would mean less upside for TALF funds, since borrowers are slated to pay the Fed 125 basis points to 150 basis points over a risk-free benchmark for access to its short term loans.

“In two weeks, the market has tightened,” Remley said. “There’s still interesting in TALF, but it’s waning to a degree.”



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Bosses at commercial vehicle group CNH take pay cuts in show of solidarity By Reuters


© Reuters. FILE PHOTO: Italian-American industrial vehicle maker CNH’s truck unit Iveco presents its new full-electric and hydrogen fuel-cell battery trucks in partnership with U.S. Nikola

MILAN (Reuters) – Top executives and board members at commercial vehicle maker CNH Industrial (MI:) will take voluntary pay cuts in an act of solidarity with the group’s workforce during the coronavirus crisis, the Italian-American company said on Wednesday.

The spread of the virus has forced the manufacturer of farm machinery, Iveco commercial vehicles, construction equipment and powertrains to shutter most of its assembly plants in Europe, North America and South America.

The production freeze has hit revenue and pushed CNH Industrial to withdraw its financial targets for this year.

Acting Chief Executive Suzanne Heywood will halve her salary for three months while members of the Global Executive Committee will take a 20% pay cut for the same period, a statement said.

Board members will not be remunerated for the rest of the year, it added.

CNH Industrial this month said it was cancelling its planned dividend of 0.18 euros ($0.20) per share on last year’s results, amounting to a total payout of 234 million euros.

The company also said that its available liquidity at the end of last year amounted to $11.2 billion, the highest level in its history.

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.





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Fed to launch commercial paper liquidity backstop Tuesday By Reuters


© Reuters. FILE PHOTO: The U.S. Federal Reserve building is pictured in Washington

By Karen Pierog

(Reuters) – A funding backstop the U.S. Federal Reserve launches on Tuesday should help address liquidity problems that have lingered in the coronavirus-roiled commercial paper market, although participation by debt issuers may be short-lived, analysts said.

The Commercial Paper Funding Facility’s special purpose vehicle will purchase higher rated, three-month unsecured and asset-backed paper from eligible bank, corporate, special-purpose entity, and municipal issuers using financing from the New York Federal Reserve. The vehicle, which was announced on March 17, will begin making purchases on Tuesday according to the New York Fed.

The program is similar to an operation used during the 2008 financial crisis, in which the central bank acts as a lender of last resort for companies otherwise unable to borrow in the short-term market.

Short-term credit markets had come under strain amid worries that companies hit by efforts to slow the spread of the virus would not be able to repay their IOUs. That spurred the Fed to take steps aimed at thawing out markets frozen by spiking lending rates.

A Monday Citi Research report said that the program “should ultimately be successful at restoring liquidity to (commercial paper) markets.”

Deborah Cunningham, chief investment officer at Federated Hermes in Pittsburgh, said the move will provide a backstop for the market.

“I don’t know that it’s going to get a whole lot of utilization,” she said. “Having said that, I think it’s good that it’s there and it adds sort of a floor if spreads started to get too wide for whatever reason.”

Cunningham added that issuers may not like the fee they are required to pay to participate in the program. The 10-basis-point “facility fee” is based on the maximum amount of an issuer’s commercial paper that the special purpose vehicle may own.

The Federal Reserve said on March 17 that each user must pay a fee of 10 basis point of the maximum amount outstanding over last year.

Kevin Giddis, co-head of fixed income capital markets at Raymond James, agreed that the costs will dampen demand.

“The facility does help to support the market and the Treasury’s $10 billion backstop has meant that there is help there (should) things get worse,” he said in an email.

The facility is funded with $10 billion in equity from the U.S. Treasury, which the Fed is expected to leverage as much as 10 times should demand warrant.

John Canavan, lead analyst at Oxford Economics, said the Fed’s announcement of the program has helped ease rates and that he expects “significant” initial demand for the loans.

“The (commercial paper) market is clearly not back to normal despite the recent improvement though, so I still expect an initial burst of interest after it opens, but the facility open will allow the slow improvement to continue over the near-term,” he said in an email.

Companies rely on commercial paper as a source of short-term cash for payrolls, inventory and accounts payable as well as unanticipated funding needs.

Since the introduction of its facility, rates across maturities for both high-grade and lower-grade paper have fallen.

The average rate for overnight AA nonfinancial paper, was 1.56% in February, 0.86% in March and is currently at 0.06% for April. For lower-grade A2/P2 overnight nonfinancial paper that rate dropped from 2.31% in March and is currently at 1.58% for April.

Earlier this month, the New York Fed announced it hired Pacific Investment Management Company (PIMCO) to serve as investment manager for the facility and retained State Street (NYSE:) Bank & Trust Company to be the custodian and accounting administrator.





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