Companies on watch lists of credit investors and ratings firms as virus fallout escalates

Hong Kong/New York — From Richard Branson’s Australian airline to US-based cinema chains and casino operators, the companies most vulnerable to the coronavirus outbreak are facing mounting pressure in global credit markets.

An escalating outbreak that drives off customers and revenue could lead to ratings downgrades, hinder refinancing efforts, and in some cases trigger defaults.

And it’s more than just travel companies: debt-laden commodities producers, shipping firms and luxury automakers have endured waves of selling by bondholders as they ratchet down expectations for global growth.

Investors who have spent years pouring money into nearly everything the credit markets had to offer are balking now that the outbreak has spread to more than 65 countries. That is stoking fears of a prolonged slump in riskier assets.

While central banks from the US to the UK and Japan have said they stand ready to roll out stimulus to support credit markets, it is not clear the tactic will work if the problem is a historic slump in consumer demand.

“We should all be worried,” said Azhar Hussain, head of global credit at Royal London Asset Management, who manages £6.1bn of assets. “First-order effects are likely to be travel and cyclicals with long supply chains, but the concern is that it spreads to the developed-market consumer.”

Diamond Hill Capital Management’s Bill Zox and John McClain told investors on Monday that they see little upside from more rate cuts if business activity is disrupted by the virus and everyone is forced to work from home. “Corporate CFOs won’t be Skyping in plans for new capital projects,” they wrote.

Below are some of the companies on the watch lists of credit investors and ratings firms as the human and economic toll of the virus increases.

Airlines

• Virgin Australia: The carrier, part of billionaire entrepreneur Richard Branson’s Virgin Group, saw its $425m of bonds due in 2024 plunge nearly 12c since the start of last week to a record low of 85.2c on the dollar on Monday. The airline warned last week that the coronavirus is expected to reduce earnings by A$50m ($33m) to A$75m in the second half of 2020. S&P Global Ratings last week lowered its outlook on the company to negative, citing restrictions on inbound tourism from Chinese nationals.

• Airline vendors are also feeling the pressure. Wi-Fi companies Gogo and Global Eagle Entertainment, which provide passenger internet for airlines including United, Delta and Southwest, are declining in debt and equity markets on concern that if more companies suspend business travel, the demand for in-flight Wi-Fi could drop. Both companies carry some of the weakest junk ratings and high debt relative to their earnings.

Gaming

• Codere: If the spread of the virus in Europe isn’t contained, the Spanish gaming company may find it more difficult to refinance bonds due next year, according to Lucror Analytics. The debt, €500m of notes due in November 2021, has plunged 9c on the euro since February. 21 to about 87c, Bloomberg data show.
• Macau casinos: China’s gambling hub shut down 41 casinos for 15 days to contain virus exposure, triggering a record drop in gaming revenue in February. March may bring more of the same, writes Bloomberg Intelligence’s Margaret Huang.
• That could pressurise US casino companies with business in Macau. MGM China, a unit of MGM Resorts International, sought to ease covenants tied to a HK$9.75bn ($1.25bn) loan to address what MGM China CEO Grant Bowie said “may be an extended recovery period.” The company’s junk-rated $750m of notes due in 2026 have dropped 5.25c on the dollar to a nine-month low of 101.25. Meanwhile, the $1bn of notes that Wynn Resorts’ Macau unit issued in December have plunged to 97c from almost 102 on February 12.

Travel

• Cruise lines: Passenger ships have been among the worst-hit in markets after a quarantined ship off Japan’s coast with more than 600 confirmed cases led to cancellations and profit warnings. While most of the sector brags of investment-grade ratings and strong balance sheets, the escalating crisis is raising concern that those ratings may be at risk if the virus isn’t contained. Take the credit-default swaps market, where credit investors buy insurance against losses. For cruise operator Royal Caribbean Cruises, the cost of the contracts has more than tripled in less than a week.

• Tui: The German travel service provider was downgraded to BB- from BB with a negative outlook on Friday by S&P, which said the coronavirus could jeopardise bookings, adding to risks it was already facing from the grounding of Boeing’s 737 Max and unusual weather patterns. Tui’s €300m of notes due in October 2021 have dropped almost 7c on the euro to 95.

Entertainment

• Companies and municipalities have been shutting doors to venues such as museums, casinos and movie theatres to prevent widespread exposure. AMC Entertainment’s bonds plunged to stressed levels last week after the chain closed 22 of its 47 theatres in Italy. While the closures in are not expected to have a major impact on the company, an outbreak in the US could be a problem, CEO Adam Aron said on an earnings call Thursday. The company has already been suffering from a decline in movie theatre attendance, reporting that ticket sales in the US slipped 4.4% in 2019. AMC’s $600m of notes due in 2025 dropped to 81.5c on the dollar to yield more than 10%.

Energy

• Oil and gas companies across the globe have come under pressure amid fears of a global slowdown. Some, such as Chesapeake Energy and Whiting Petroleum, have plunged to distressed levels in credit markets, with Chesapeake’s notes due 2025 dropping to 60c on the dollar and Whiting’s plunging to about 38c.

• In Asia, India’s Vedanta Resources, whose 2024 bonds fell 7.5c last week as the virus weighed on commodity prices, and Indonesia’s Medco Energi Internasional.

Shipping

• CMA CGM, the world’s third-largest shipping company is seeking to refinance $1bn of debt coming due next year, but coronavirus might disrupt the plans of the leveraged shipping operator, which opened shop in Shanghai in 1992. The company’s notes due January 2025 are up 1 point to 65c, but were trading at 70c last Monday.

Cars

• Aston Martin’s bonds lost about 6c on the dollar last week, with its April 2022 notes bid at about 92c on Monday after it declined to divulge its latest sales figures for a new SUV. The company is relying on growth in China to double its sales output. Notes issued by Jaguar Land Rover also lost about 6c on the euro in the same period. Its November 2024 notes were bid at about 95c on Monday as coronavirus fears nixed its plans to issue a US dollar bond.

Bloomberg