ABE Weekly 12/08/2020

Market Update  

It was a challenging week following the massive explosion in Beirut – our thoughts go out to all those affected. The pandemic situation globally is still far from over but closer to home what’s happening in Melbourne has the rest of the country on high alert. A second nationwide lockdown would really hurt the domestic economy, but we have every hope that we will get through this crisis and come out the over the stronger than before.

The RBA has also been active again in the market on the back of the Victorian uncertainty and started to buy government bonds in the 3year space to make sure that the market keeps having plenty of liquidity. The 10y yield in the meantime finally had a reversal this week with yields moving back up from a recent low of 0.80% to 0.92%.

It’s the deal that keeps on giving….a consortium led by the two largest creditors, Broad Peak and Tor Investment Advisors are taking on Bain’s bid for Virgin Australia in a deal that could see noteholders receive up to 67c in the dollar to unsecured creditors which we think most would agree is a great result.

Under their proposal, which is conditional on meeting Virgin management and stakeholders’ requirements including unions, lessors and QIC, the two funds would underwrite an $800 million capital raising and relist Virgin on the ASX.

Deloitte however said it was not going to consider the alternative proposal after signing a binding deal with Bain Capital which is fine but both proposals are subject to approval by all the creditors which of course includes all Virgin staff so it’ll be interesting to see how this plays out.

In further corporate news, the Australian profit reporting season is in full swing and today all eyes will be on the CBA result and comments from management which should give a further inside and guide for the future.

Clearly the investment landscape isn’t getting any easier and people are still trying to get their head around this low interest rate environment. As we mentioned in last week’s newsletter never has Australia experienced negative interest rates, so the corporate bond market continues to be an attractive alternative on a risk/reward basis to other asset classes.