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GE drags premier U.S. corporate debt, which posts worst year since 2008





NEW YORK (Reuters) – The stock market’s gyrations have grabbed the year-end headlines, but another key financial market, investment-grade U.S. corporate debt, is turning in its worst yearly performance since the financial crisis a decade ago.

FILE PHOTO – A General Electric (GE) sign is seen during the China International Import Expo (CIIE), at the National Exhibition and Convention Center in Shanghai, China November 6, 2018. REUTERS/Aly Song

General Electric Co’s (GE.N) securities have weighed on both markets as the 126-year-old conglomerate founded by Thomas Edison has suffered staggering losses and asset writedowns.

GE shares have skidded around 56 percent in 2018, the fourth-biggest decline in the S&P 500 Index .SPX. GE’s $120 billion of bonds are not down as much, but the securities, which have long been a staple for fixed income managers around the globe, are among the leading drags on the main indexes tracking the $6 trillion investment-grade corporate debt sector.

GE’s bonds have crashed by around 14 percent – a monumental underperformance in bond market terms. Analysts worry this could signal worse times ahead for investment grade credit overall. According to the Bank of America/Merrill Lynch index, the sector’s total 2018 return is negative 2.5 percent, the largest drop since 2008.

U.S. companies feasted on low interest rates in the decade since the crisis, leaving corporate balance sheets leveraged to the hilt with some $9.1 trillion of debt, almost double the 2007 total of $4.9 trillion, according to Securities Industry and Financial Markets Association.

Now the Federal Reserve’s gradual tightening of its easy-money policy has investors rethinking their commitment to these assets. Bonds from dozens of formerly high-quality issuers are already trading as though they were no longer investment grade.

As interest rates rise, “the weaker links are going to be exposed,” said Kathleen Gaffney, director of diversified fixed income at Eaton Vance.

After this year’s sharp slide in GE shares, its debt load now stands at roughly twice its market capitalization of $63 billion.


GE’s debt is not alone in the doghouse.

Bonds from Ford Motor Co (F.N), AT&T Corp (T.N), Kinder Morgan (KMI.N), CVS Health (CVS.N), General Motors Co (GM.N) and Verizon Communications (VZ.N) also ranked among the weakest performers as the year wound down. Of the bottom 20 performers, 14 were triple-B rated, the lowest tier of investment grade. GE debt has been slashed to BBB+ which is just three steps above junk, and more than a third of GE’s bonds are already trading at junk bond levels.

Bonds most likely to be downgraded to junk are expected to be among the worst performers when the next economic downturn hits, according to Monica Erickson, portfolio manager of global developed credit at DoubleLine Capital LP.

She noted that around $3 trillion of triple-B bonds are now outstanding, comprising roughly half of the investment grade market, up from only about 20 percent a decade ago.

“With the triple-B market worth about $3 trillion, finding a buyer in the $1.2 trillion high-yield market could be difficult” in a downturn, she said. Many fund managers are required to keep only investment-grade debt in their portfolios, so they could be forced to sell at steep discounts if the debt gets downgraded to junk.

Currently, the junk market totals $1.2 trillion. Were GE to lose investment grade status, those bonds alone would suddenly account for around 10 percent of the high-yield market.

Not all triple-B credits will be downgraded in the event of a downturn, however, “you will probably have a larger percentage of this entire (investment grade) market shift into this high-yield market than has been the case historically,” Erickson said.


GE’s new Chief Executive Officer Larry Culp is battling to restore profits and slash debt after the company lost $22.8 billion last quarter, mostly from its ailing power unit.

To shore up cash, it has slashed its once-fat quarterly dividend to just a penny per share, and Culp said GE would proceed with “urgency” on selling assets.

Those efforts have so far fallen short in the eyes of bond holders and credit ratings agencies.

In response to a request for comment, a GE spokesperson referred to Culp’s statements in its third-quarter earnings report and in recent media interviews about debt-reduction plans.

All three major bond raters have slashed GE’s credit ratings twice in the last 13 months. It is now labeled “BBB+” by Standard & Poor’s, with equivalent ratings from Moody’s and Fitch.

Roughly $43 billion worth of GE bonds sport prices of less than 90 cents on the dollar, with more than $17.5 billion selling for less than 80 cents. The lowest, a $2 billion perpetual bond sold in 2015, is currently quoted at about 63 cents on the dollar and now yields 17.5 percent versus its 4.1 percent coupon rate.

By comparison, the average triple-B bond yields 4.7 percent, according to BAML index data.

The cost to insure GE bonds against default is near the highest since the financial crisis. Yet the biggest risk facing bond investors is being unable to sell their holdings if the company’s credit fundamentals worsen.

“You’ve got a lot of sellers and no buyers,” said a GE debt investor who asked not to be named because of compliance reasons. And so “we have not yet sold our debt holdings.”

“You’ve seen people head toward the exit, and there’s not a buyer, so you get a big trade down,” the investor said. “Everyone’s getting questions from their boss or their client asking ‘how much GE do you own?’”

Reporting by Kate Duguid; Editing by Dan Burns and David Gregorio


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Canadian Tire and NuPort Robotics to commercialize Canada’s first automated heavy duty trucks





Canadian Tire Corporation and Toronto based start-up NuPort Robotics, Canada’s first autonomous trucking company, are partnering with the Ontario government to invest $3 million to undertake an automated heavy duty trucking project to test a “first-of-its-kind-in-the-world” technology. 

The breakthrough technology provides a transportation solution for the middle mile, the short-haul shuttle runs that semi-tractor trailers make between distribution centres, warehouses and terminals each day.

It is designed to enable next-generation automated trucks that are more fuel efficient, safer to operate, and provide an enhanced driver experience.

Backed by $1 million in support from the Ontario government through Ontario’s Autonomous Vehicle Innovation Network and matched by $1 million investments from Canadian Tire and NuPort Robotics, respectively, the two-year project is applying proprietary, artificial intelligence technology from NuPort Robotics to retrofit two conventional semi-tractor trailers – which will always be attended by a driver – with high-tech sensors and controls, a touchscreen navigation system, and other advanced features such as obstacle and collision avoidance.

Caroline Mulroney, Minister of Transportation, says: “Ontario is proud to be a global leader in automated and connected vehicle technology and this innovative project is an exciting milestone toward automated vehicle tech in the trucking industry.

“Ontarians rely on goods being delivered by trucks across the province every day and projects like this are demonstrating the ways that automated truck technology could help businesses meet delivery demands more efficiently while supporting a strong supply chain in Ontario.”

Vic Fedeli, Ontario Minister of Economic Development, Job Creation and Trade, says: “This project applies unique and made-in-Ontario Artificial Intelligence technology that offers increased safety and efficiency, with a reduced carbon footprint, to the goods supply chains on which we all rely.

“This is the latest example of how Ontario’s Autonomous Vehicle Innovation Network acts as a catalyst, fostering partnerships between ambitious technology start-ups and industry to develop and commercialize next generation transportation technologies that strengthen our economy and benefit society.”

Raghavender Sahdev, CEO of NuPort Robotics, says: “The trucks are currently transporting goods between a Canadian Tire distribution centre in the Greater Toronto Area and nearby rail terminals within a 12.5 mile radius, and early results are promising.

“The aim of the project is to develop a system that incorporates an autopilot feature for conventional trucks with a driver, leading to the most efficient way to drive and increase safety.

“The sensors work as a ‘safety cocoon’ to cover blind spots and prevent accidents and the end result is peak fuel efficiency, meaning lower carbon emissions, and peak driving performance for an overall more optimal transportation experience.”

NuPort Robotic’s approach to autonomous trucking is unique in the industry because it focuses only on solving the middle mile challenge, using a known set of predetermined trucking routes that are repetitive and high frequency as opposed to general highway driving.

Ultimately, when implemented on fixed routes in the future, Canadian Tire will benefit from faster commercial deployments and improvements in supply chain sustainability.

Gary Fast, vice-president of transportation, Canadian Tire, says: “Canadian Tire embraces innovation and is always testing new technologies to improve our operational efficiency and safety.

“As proud Canadian companies, the safety of all stakeholders, including drivers, employees, customers, and public will be the top priority as we work together towards deployment of this technology.”

Cari Covent, vice president of intelligent automation, Canadian Tire, says: “Over the last three years, Canadian Tire has made a significant effort to solve complex business problems by using the Canadian start-up Artificial Intelligence ecosystem, and NuPort Robotics exemplifies what we look for in a start-up with a focus on innovation, automation and artificial intelligence.”

Sahdev says: “As NuPort Robotics continues to develop new technologies to overcome middle mile supply chain problems and advance autonomous trucking, I am extremely grateful for the support of the Ontario Government through AVIN and the Ontario Centre of Innovation.

“With their continued support, we are striving to position Canada as the leader in autonomous transportation.”

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Constellation Software is money in the bank, this fund manager says





If you’re looking for a long-term hold in Canadian tech then Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) should definitely be on your radar. So says Jason Del Vicario of Hillside Wealth Management who likes not only Constellation but its recent spin-off Topicus (Topicus Stock Quote, Chart, News, Analysts, Financials TSXV:TOI) which Del Vicario says could do even better than CSU over the next ten years.

Software consolidator Constellation has been running on the same game plan for years, buying small vertical market software companies providing so-called mission critical software solutions globally. Over the years CSU has completed over 500 such acquisitions, buying the top names in their respective niche verticals and then using its clout and breadth to grow the business and expand into new markets. The resulting cash flow is then plowed back into more acquisitions and the cycle repeats.

The strategy has worked wonders for Constellation, which has grown its revenue from $631 million in 2010 to almost $4 billion for 2020 while taking earnings from $4.12 per share in 2010 to $20.59 per share this past year.

Shareholders were given a special treat last month when Constellation spun out recently acquired Topicus, giving CSU owners about 1.9 Topicus shares for every Constellation share as a dividend-in-kind. Constellation bought Netherlands-based software company Total Specific Solutions BV (or TSS) in 2013 and that subsidiary recently acquired Topicus BV, a Dutch information service company focusing on sectors such as healthcare, education and finance.

Topicus was singled out by Constellation founder Mark Leonard for its ability to grow without using outside shareholder funding. Leonard said the spin-out was part of the intention since a purchase agreement was struck last year.

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Nuvei wins price target raise from National Bank





Strong quarterly results and an even brighter outlook for 2021 are reasons to celebrate for Canadian payments company Nuvei (Nuvei Stock Quote, Chart, News, Analysts, Financials TSX:NVEI), according to National Bank Financial analyst Richard Tse. In an update to clients on Wednesday, Tse left his rating unchanged at “Outperform” while raising his price target from C$85.00 to C$100.00.

Montreal-headquartered Nuvei is a provider of payment technology solutions to merchants and partners around the world, with a platform geared for high-growth mobile commerce and e-commerce markets. Nuvei’s solutions include a fully integrated payments engine with global processing capabilities, a turnkey checkout solution and a suite of data-driven business intelligence and risk management tools and services.

The company released its fourth quarter and full year 2020 financials on Wednesday, showing Q4 revenue of $115.9 million, up 46 per cent year-over-year, and adjusted EBITDA of $51.3 million, up 61 per cent year-over-year. Total dollar value of transactions processed by merchants (‘total volume’) with Nuvei rose by 53 per cent to $13.9 billion. (All figures in US dollars except where noted otherwise.)

The 2020 year featured revenue up 53 per cent to $375.0 million and adjusted EBITDA up 87 per cent to $163.0 million, with total volume rising a full 76 per cent year-over-year to $43.2 billion.

“Our performance continues to be driven by strong momentum in the high-growth verticals we serve, as well as by our customizable, scalable and feature-rich technology platform which provides one of the industry’s most complete payment technology solutions going well beyond merchant acquiring,” said Philip Fayer, chairman and CEO, in a press release.

The company said the fourth quarter represented the strongest growth yet experienced by Nuvei, driven by wallet share expansion from current merchants along with accelerated uptake of new merchants. New e-commerce business almost tripled compared to a year earlier, Nuvei said, while the company expanded its connectivity coverage over the quarter, introduced new product innovations on its platform and continued to execute on M&A.

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