The Daily Ten – Snowflake IPO, Nikola investors sue, the Musk Method, $120 billion worth of commercial property going up in flames
The Daily Ten
1. There’s $120 billion worth of commercial property debt threatened by West Coast fires | Market Watch
Risk of climate change to commercial properties will likely rise: CFTC report
Wildfires choking West Coast skylines with smoke and ash and burning more than 4 millions of acres already have put an estimated $120 billion worth of commercial properties at risk.
That’s the latest tally from analysts at BofA Global Research who looked at 58 counties in California, Oregon and Washington with ongoing wildfires and then cross referenced properties in those areas with debt that’s been packaged into commercial mortgage backed securities (CMBS), a popular form of property bonds.
It’s still too early to tell what the actual commercial property damage might be beyond the CMBS market or how much carnage could still occur. But this year’s fire season already has morphed into an unprecedented beast, one that an angry California Gov. Gavin Newsom on Friday called “a climate damn emergency.”
The threat of fires also are forecast to be a continuing issue in parts of California through October and November.
2. Debt default risks are on the rise — but there may be investing opportunities | CNBC
SINGAPORE — Debt default risks have grown since the pandemic — but there are still opportunities for investors, said William Bohnsack, president of investment firm Oak Hill Advisors.
Some of the sectors that have a higher risk of default include retail, restaurants, airlines, and certain sectors within energy, he told CNBC as one of the attendees of the Singapore Summit, which is being held virtually this year.
“We see that they’re struggling more so than in other parts of the economy. Yields are at very low levels, and default rates are increasing, so that creates challenges even within debt — where investors can find good opportunities,” he said.
“This is not an easy time for any kind of fixed income investor,” Bohnsack concluded.
3. New York City Council OKs Restaurant Surcharge During Pandemic | WSJ
Small restaurants will have option to charge customers 10% fee to offset financial hardship brought on by coronavirus.
New York City restaurants would be able to charge customers a 10% Covid-19 relief fee under legislation approved Wednesday by the City Council.
The move would temporarily end a ban on restaurant surcharges in the city that has lasted more than four decades. The new fee is intended to ease some of the financial hardship city restaurants have faced since March because of the coronavirus pandemic and lockdowns meant to curb the spread of virus.
4. Snowflake IPO Spurs Flood of Wealth for Silicon Valley Elite | Bloomberg
Snowflake Inc.’s initial public offering isn’t just creating new fortunes, it’s adding to the wallets of some of Silicon Valley’s biggest names.
Iconiq Capital, a multifamily office whose clients include Facebook Inc.’s Mark Zuckerberg, LinkedIn Corp.’s Reid Hoffman and Twitter Inc.’s Jack Dorsey, took part in multiple Snowflake funding rounds beginning in 2017. Its 12% stake in the company, purchased for $245 million, was worth more than $4 billion at the initial offering price of $120. By the end of Wednesday, the same stake was worth a staggering $8.6 billion.
Shares of the cloud-computing company surged as high as $319 in New York trading before dropping back to close at $253.93. That made it worth $70 billion, about as much as Goldman Sachs Group Inc. and almost six times the $12.4 billion it was valued at in a February fundraising round.
Cloud computing “is a secular trend right now,” said Bloomberg Intelligence analyst Mandeep Singh. “We have already seen Zoom, DocuSign and Datadog do well this year. Investors understand the cloud business model well and that makes a high-growth company like Snowflake attractive.”
The San Mateo, California-based firm’s top executives also saw their wealth surge. Four of them — Frank Slootman, Bob Muglia, Michael Scarpelli and Benoit Dageville — now own stakes worth a combined $8 billion.
5. Owner of New York Sports Clubs Strikes Potential Lender Takeover Deal | WSJ
Parent company Town Sports filed for bankruptcy after closing gyms due to the Covid-19 pandemic.
The owner of New York Sports Clubs and Lucille Roberts gyms is preparing to sell itself out of bankruptcy to lenders that have agreed to supply the financing needed to keep the fitness chains open.
Town Sports International Holdings Inc. said in a bankruptcy-court hearing on Wednesday it is working out a deal with a group of lenders and private-equity firm Tacit Capital LLC for them to serve as the lead bidder, or stalking horse, for the assets. The offer would come in the form of debt forgiveness of no more than $85 million,
6. Nikola Investor Sues After Short-Seller Claims Sink Shares | Bloomberg
A Nikola Corp. investor sued the electric vehicle maker, its chairman and two executives over an 11% share price drop that followed a Sept. 10 short-seller’s report.
Arab Salem seeks to represent all other shareholders that bought Nikola stock from June 4 to Sept. 9, according to a complaint filed Wednesday in Brooklyn federal court. He accused the company and the executives of making false and misleading statements about Nikola’s operations.
The report by Hindenburg Research, a firm that owns a short position in the company’s stock and stands to gain from a decline in the share price, claimed the maker of electric and hydrogen-fuel-cell heavy-duty vehicles made non-working products appear as fully functional. The report also alleges that Nikola staged misleading videos and told “dozens of lies” about its capabilities, partnerships or products, among other issues.
7. Why Unemployment Claims May Be Overcounted by Millions | New York Times
Weekly tallies of jobless claims were not meant to be treated as an economic indicator. The pandemic has exposed the shortcomings of doing so.
Economic statistics were never designed to measure the sudden shutdown and restart of large segments of the U.S. economy. Still, if there is one question that the government seemingly should be able to answer, it is this: How many Americans are receiving unemployment benefits?
Since the start of the pandemic, however, federal data on the unemployment insurance system has been plagued by errors, double counting and other issues. And even after the initial flood of layoffs slowed, the problems have only grown in recent weeks, in part because of an apparent spike in fraudulent claims for benefits.
The biggest problems appear to involve Pandemic Unemployment Assistance, a program created by Congress in March to cover freelancers, self-employed workers and others who are left out of the regular unemployment system. Federal data implies that nearly 15 million Americans are now receiving benefits under the program, but some economists believe that overstates the true number by millions.
8. What retailers should expect going into a holiday season during a pandemic | Fortune
Despite the massive unemployment rate nationwide and the worst economic climate since the Great Depression, holiday retail sales overall are still expected to increase this winter, albeit between a modest 1% and 1.5%, according to Deloitte. Analysts are projecting sales of about $1.15 billion between November 2020 and January 2021.
But with limits on the number of customers allowed in stores to accommodate social distancing, many shoppers will be turning to e-commerce more than ever before. Deloitte forecasts that e-commerce sales will grow by 25% to 35%, year over year, during the 2020–2021 holiday season, a great leap from the 14.7% uptick in online holiday shopping from 2018 to 2019. E-commerce holiday sales are expected to generate between $182 million and $196 million this season.
Deloitte analysts are predicting two possible scenarios for which retailers should prepare: one in which the entire holiday season remains relatively flat, and one that offers some hope for future growth going into 2021.
The first scenario calls for just 0% to 1% year-over-year sales growth, based on continued consumer anxiety over both personal health and finances. Analysts attribute this lack of confidence to a variety of factors, including the expiration of the unemployment insurance benefit supplements, continued school closures, skyrocketing unemployment, and the ongoing wait for a COVID-19 vaccine.
9. The Musk Method: Learn from partners then go it alone | Reuters
Elon Musk is hailed as an innovator and disruptor who went from knowing next to nothing about building cars to running the world’s most valuable automaker in the space of 16 years.
But his record shows he is more of a fast learner who forged alliances with firms that had technology Tesla lacked, hired some of their most talented people, and then powered through the boundaries that limited more risk-averse partners.
Now, Musk and his team are preparing to outline new steps in Tesla’s drive to become a more self-sufficient company less reliant on suppliers at its “Battery Day” event on Sept. 22.
Musk has been dropping hints for months that significant advances in technology will be announced as Tesla strives to produce the low-cost, long-lasting batteries that could put its electric cars on a more equal footing with cheaper gasoline vehicles.
New battery cell designs, chemistries and manufacturing processes are just some of the developments that would allow Tesla to reduce its reliance on its long-time battery partner, Japan’s Panasonic, people familiar with the situation said.
10. Under a Second Federal Moratorium, Eviction Filings Plummet | Bloomberg
In many cities, landlords are filing far fewer legal actions to remove tenants who can’t pay rent since the CDC imposed an eviction ban.
Less than two weeks after the Centers for Disease Control and Prevention imposed new restrictions on landlords, eviction filings have fallen sharply.
The second federal eviction moratorium, which lasts through the end of the year, went into effect on September 4. During the second week of September, with the new rule on the books, eviction filings declined in 16 cities where Princeton University’s Eviction Lab is currently tracking data.
Eviction filings typically shoot up after the first week of the month, since grace periods are common in lease agreements. Instead, for September, several cities saw a steep drop-off. In Cincinnati, for example, filings fell 79% for the week of September 6–13. In Richmond, Virginia, where evictions had returned to pre-pandemic levels in recent weeks, eviction filings dropped by 89%, from nearly 300 in the first week of September to just over 30 the following week. And in Cleveland, there were zero eviction filings last week.
“New filings did drop in all sites, in some cases dramatically,” says Peter Hepburn, assistant professor of sociology at Rutgers University-Newark and a research fellow at Eviction Lab, in an email. “With that being said, we’re still seeing a larger number of new filings in several cities. So clearly some effects of the guidelines are being felt, but there’s also significant variation in how they’re being implemented, which is leaving a large number of families potentially unprotected.”