“There Are Basically No Sales”: U.S. Auto Industry Enters Total Collapse As A Result Of Nationwide Lockdown

2020 is shaping up to be nothing short of a complete and total meltdown for the U.S. auto industry.

The industry was already barely holding on by a thread before the coronavirus pandemic started, with China leading the rest of the globe’s auto industries into recession over the last 18 months. Now, in a post-coronavirus world, automakers in the U.S. are expecting nothing less than full collapse.

And the things that were barely holding the industry up to start 2020, namely low rates and modest consumer confidence, don’t matter. Businesses are closed, would-be buyers are strapped for cash and the country’s economy has simply been turned off. The industry’s annualized selling rate could slow to 11.9 million in March, according to Edmunds.

Jessica Caldwell, executive director of insights for market researcher Edmunds, told Bloomberg“The whole world is turned upside down right now.”

The coronavirus lock downs across the nation will also put a damper on April, which is traditionally a good month for auto sales. Ford is all but shutting down and names like Fiat and GM are expected to release extremely weak numbers later this week.

Morgan Stanley analyst Adam Jonas put it simply: “There are basically no U.S. auto sales right now. Investors have fully embraced the reality that the U.S. auto industry may be shut down for one or two full months. We’re now being asked to run scenarios of six-month or nine-month shutdowns.”

The President’s extension of his social distancing guidelines to the end of April will also act as a headwind for the industry. Factory shutdowns that started in March will now head toward their second month of no production, as the U.S. consumer, for the most part, remains stuck at home. 

Jeff Schuster, senior vice president of forecasting for research LMC Automotive commented: “We just don’t know when and how this ends, and that’s the biggest problem right now. All of this uncertainty creates a lot of angst and that has been spreading really like a wildfire through the industry.”

Largest US mall owner, Simon Property, Furloughs 30% Of Workforce, Adding To Avalanche Of C19 Related Retail Layoffs

The biggest U.S. mall owner, Simon Property Group, has furloughed about 30% of its workforce, CNBC has learned, as the company copes with all of its properties being temporarily shut because of the coronavirus pandemic.

The furloughs impact full- and part-time workers, at its Indianapolis headquarters and at its malls and outlet centers across the U.S., a person familiar with the situation told CNBC. The person asked to remain anonymous because the information has not been disclosed publicly.

Simon permanently laid off some employees also, but the exact number could not be immediately determined.

CEO David Simon will not receive a salary during the pandemic, the person said. Salaries of upper-level managers at the real estate company will be cut by up to 30%.

As of Dec. 31, Simon had roughly 4,500 employees, of which 1,500 were part time, according to its latest annual filing. About 1,000 of those people worked from Simon’s Indianapolis headquarters, it said.

A representative from Simon did not immediately respond to CNBC’s request for comment.

Wave of retail furloughs

To date, hundreds of thousands of workers in the retail industry have been furloughed because of COVID-19, between recent announcements from J.C. PenneyMacy’sKohl’sGap, Loft-owner Ascena and others. 

Luxury retailer Neiman Marcus is furloughing most of its about 14,000 workers. 

With a $4.3 billion debt load, Neiman Marcus has been on many analysts’ so-called bankruptcy watch lists, as it is in more financial distress than some of its peers. The coronavirus will prove to be a bigger burden for these companies already fighting to stay in business. 

“Unlike past recessions, this does not seem like companies are trying to figure out how to run their businesses on lighter operations … or adjust their expense structure to their revenue base,” BMO Capital Markets analyst Simeon Siegel told CNBC. “This seems like companies are trying to press pause on the world.” 

Department store chain Macy’s said Monday it is moving to the “absolute minimum workforce needed to maintain basic operations.” It has furloughed the majority of its workforce, which is roughly 130,000 people. 

“While the digital business remains open, we have lost the majority of our sales due to the store closures,” a Macy’s spokeswoman told CNBC in an emailed statement. 

Kohl’s, meantime, said Monday it will be furloughing about 85,000 of its approximately 122,000 employees. 

Penney announced Tuesday it is furloughing the majority of its hourly store workers, effective Friday. Starting Sunday, the company said a “significant portion” of workers at its headquarters in Texas will be furloughed. It had previously started furloughing workers for its supply chain division and at its logistics centers. And Penney said Tuesday that these furloughs will continue. 

Apparel maker Gap is furloughing the majority of its store teams in the U.S. and Canada, or roughly 80,000 people, pausing pay but continuing to offer “applicable benefits” until stores reopen, it said. 

Ascena Retail Group, which owns Ann Taylor and Loft, said it is furloughing all of its store workers and half of its corporate staff. As of Aug. 3, Ascena employed 53,000 people. 

Tailored Brands, which owns Men’s Warehouse and Jos. A. Bank, has furloughed all of its store workers in the U.S., in addition to a “significant portion” of workers in its distribution centers and related offices. 

Urban Outfitters said Tuesday it is furloughing a “substantial” number of store, wholesale and home office employees for 60 days, effective this Wednesday. 

Nordstrom, Victoria’s Secret parent L Brands, David’s Bridal, Steve Madde and Designer Brands are among the other retailers that have announced their plans to furlough workers, amidst the coronavirus pandemic, where already so far at least 164,610 cases have been reported in the U.S., according to the latest data from Johns Hopkins University. 

As retailers are working to slash costs, the furloughs are more akin to “Band-Aids” than a “structural shift” in these retailers’ business models, Siegel said. “Ultimately Band-Aids don’t heal.” 

The layoffs and furloughs at Simon show the commercial real estate industry is not immune to this, either. 

Similar cuts are expected to happen at other U.S. mall owners in the coming weeks, or days. Simon on March 18 announced it would be closing all of its properties temporarily, to try to help halt the spread of COVID-19. Others, such as Taubman CentersWashington Prime Group and Unibail-Rodamco-Westfield, have followed suit. 

Rent is due

These landlords are grappling with the fact that countless retailers and restaurants, with their stores temporarily shut, will not be able to pay April rent. High-end mall owner Taubman, however, has sent a letter to its tenants saying they must still meet their lease obligations. 

Talks between many tenants and their landlords remain ongoing, as some are trying to work out abatements or deferrals. Mall owners still have their own obligations, such as utility bills and mortgage payments, that must be met. 

The Cheesecake Factory, which has 294 locations in North America, has already said publicly that it will not be paying rent in April. Simon has 29 Cheesecake Factory locations, more than any of its peers, according to an analysis by RBC Capital Markets and CoStar Realty. 

Simon on March 16 announced it had amended and extended its $6 billion revolving credit facility and term loan, giving it additional liquidity. 

Simon shares have fallen more than 60% this year. It has a market value of about $17.3 billion. 

Source: by Lauren Thomas | CNBC

***

Coronavirus job losses could total 47 million, unemployment rate may hit 32%, Fed estimates

J.C. Penney furloughs most of its 90,000 workers as stores remain closed until further notice

Macy’s will furlough the majority of its 125,000 employees

Kohl’s to keep its stores closed indefinitely, plans to furlough store employees

U.S. Manufacturers See Biggest Plunge In New Orders And Employment In 11 Years — ISM Finds

ISM manufacturing index shows biggest drop in orders since 2009

Most manufacturers are suffering, but not all of them. Those that make foodstuffs and safety equipment are holding up better than others. Getty Images

The numbers: American manufacturers began to feel the brunt of the coronavirus pandemic toward the end of March as new orders and employment fell to the lowest level since the end of the 2007-2009 Great Recession, a new survey of executives showed.

The Institute for Supply Management said its manufacturing index slipped to 49.1% last month from 50.1%. Readings under 50% indicate more companies are contracting instead of expanding.

Economists surveyed by MarketWatch had forecast the index to drop to 44%, but the survey was completed before widespread sections of the U.S. economy were shuttered.

The index is all but certain to sink next month, though a few industries are likely to hold up surprisingly well because of an increase in demand for products such as toilet paper, sanitizer and other consumer goods in short supply.

What happened: New orders for manufactured goods slumped in March. The ISM’s new-orders index fell 7.6 points to 42.2% — the lowest level since the end of the 2007-2009 Great Recession.

“COVID-19 has caused a 30% reduction in productivity in our factory,” said an executive at machinery manufacturer.

Production and employment also declined, with employment also sliding to an 11-year low.

The ISM index is compiled from a survey of executives who order raw materials and other supplies for their companies. The gauge tends to rise or fall in tandem with the health of the economy.

Big picture: Efforts to contain the coronavirus epidemic by shutting down large parts of the economy are slamming virtually every company, including manufacturers. Some have had to close, others can’t get necessary supplies and others have are seeing a big slump in demand.

A few manufacturers such as those that produce food, medicine, safety equipment and home supplies are faring better, in some cases even seeing an increase in sales.

“We are experiencing a record number of orders due to COVID-19,” said a senior executive at a company that makes food and beverages.

But they are few and far between. The news is only going to get worse in the short run.

What they are saying? “The headline looks not too terrible, but the details are far worse. The new orders and employment indexes both fell to their lowest levels since 2009,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics.

Market reaction: The Dow Jones Industrial Average DJIA, -4.44% and S&P 500 SPX, -4.41% fell in Wednesday trades as investors remain nervous about the COVID-19 illness. The 10-year Treasury yield TMUBMUSD10Y, 0.581% slipped again to 0.60%. 

Source: Jeffry Bartash | MarketWatch

Landlords Squeezed Between Missed Rent and Overdue Mortgages

(Bloomberg) — Chuck Sheldon, a landlord and property manager in Albuquerque, New Mexico, has owned apartments for more than half a century. These days, he can barely keep up with all the moving pieces.

He’s talking with owners of roughly 1,700 units he manages, who are worried what’s going to happen if rent checks stop coming in. He’s talking with tenants, about half of whom he assumes will be delinquent this month because they lost jobs or choose not to pay. And he’s in discussions with banks, trying to figure out how he’ll make mortgage payments on the properties he owns during a rapidly worsening global health crisis.

“That’s the $100,000 question,” said Sheldon, the president of T&C Management. “I’ve never seen something like this.”

It’s rent day in America, with roughly $22 billion in monthly payments on apartments due, according to CoStar. But just how much of it gets paid in the coming days is anybody’s guess.

Some large property owners have already rolled out payment plans and halted evictions as the coronavirus outbreak roils the economy. But many apartments in the U.S. are essentially small businesses that tend to have less financial flexibility and will need help in the coming months.

Few Choices

There are few good choices for the millions of Americans who lost their jobs and have no clear prospects for when they’ll get them back. Eviction moratoriums, unemployment benefits and cash payments from the federal government could help many keep a roof over their heads.

But nearly half of the nation’s 44 million renter households were already stretched financially. Over the next six months, they could need as much as $96 billion in relief, according to a recent analysis by the Urban Institute.

Housing advocates have urged Congress to protect low-income renters and homeowners as deadlines loom. On a conference call Tuesday, the Center for Popular Democracy called for eviction freezes and rent and mortgage payment cancellations. The group stopped short of pushing for a rent strike, an idea other activists have floated.

Sid Lakireddy, a landlord and the president of the California Rental Housing Association, said such efforts are “just plain wrong.” Property owners need to help tenants if they’re able, but renters should not take advantage of the situation, he added.

Withholding Payment

On a recent visit to an apartment building he co-owns in Berkeley, California, Lakireddy bumped into a tenant who threatened to withhold rent because of a new ban on evictions. He pointed out that the tenant hadn’t lost a job.

“I said, ‘You’re not affected by this economy. You’re on Social Security,’” Lakireddy recalled. “‘Don’t screw with me, man.’”

Not far away, in Oakland, Krista Gulbransen manages a duplex for a small property owner. She recently got a request from a tenant to lower the $3,495 monthly rent on his three-bedroom unit by roughly 40%. The renter makes about $172,000 a year at an established technology company, she said.

“I just didn’t understand,” said Gulbransen. “He’s asking for a rent reduction of about $1,500, saying he doesn’t know where his job is going to be in the next few months.”

Such anecdotes are probably rare, said Maya Brennan, a policy analyst at the Urban Institute.

“There will be a very small sliver of economically privileged renters who will try to use this to get some extra advantage,” she said. “The vast majority of renters know that they need to figure out a way to keep a roof over their heads and are going to be trying to ask only for the level of relief that they truly need.”

Not all the conversations between landlords and tenants are fraught. Hasan Leviathan, 20, lives by himself in a two-bedroom house in Frostburg, Maryland, where he is studying to become a physical therapist. In March, he lost his job at Kay Jewelers. Without that income, his $570 in rent is too burdensome, even with help from his mother, he said.Leviathan was prepared to move home, but his landlord agreed to stretch the April payment over the next six months, and also offered him a minimum wage construction job, which he plans to accept.

“People need help more than ever,” Leviathan said.

Trickling In

Chris Athineos, a Brooklyn landlord who owns nine buildings with about 150 apartments, half of which are rent-stabilized, said he’s sure some of his tenants have lost jobs and plans to work with them, perhaps offering the option of making partial payments.

Some rent checks for April have trickled in, he added. And a handful of tenants who have relocated out of the city called about making payments electronically, he said. It won’t be until the middle of the month that he’ll get a full accounting of how much of the expected rent came in.

Athineos said rent freezes don’t make sense, unless landlords get relief from property taxes. For now, he’s still paying a staff of five maintenance workers — on top of his mortgage, taxes and water and sewer bills.

“It’s kind of wait and see,” he said. “We’re holding our breath.”

Source: byNoah Buhayar, Oshrat Carmiel and Nic Querolo Bloomberg, In Yahoo

The First Crude Oil To Price Below $0.00 Happened This Week

When Goldman’s crude oil analysts wrote on Monday that “This Is The Largest Economic Shock Of Our Lifetimes“, they echoed something we said last week – nameley that the record surge in excess oil output amounting to a mind blowing 20 million barrels daily or roughly 20% of global demand…

… which is the result of the Saudi oil price war which has unleashed a record gusher in Saudi oil production, coupled with a historic crash in oil demand (which Goldman estimated at 26mmb/d), could send the price of landlocked crude oil negative: “this shock is extremely negative for oil prices and is sending landlocked crude prices into negative territory.”

We didn’t have long to wait, because while oil prices for virtually all grades have now collapsed to cash costs…

… Bloomberg points out that in a rather obscure corner of the American physical oil market, crude prices have now officially turned negative as “producers are actually paying consumers to take away the black stuff.”

The first crude stream to price below zero was Wyoming Asphalt Sour, a dense oil used mostly to produce paving bitumen. Energy trading giant Mercuria bid negative 19 cents per barrel in mid-March for the crude, effectively asking producers to pay for the luxury of getting rid of their output.

Echoing Goldman, Elisabeth Murphy, an analyst at consultant ESAI Energy said that “these are landlocked crude with just no buyers. In areas where storage is filling up quickly, prices could go negative. Shut-ins are likely to happen by then.”

While Brent and WTI are hovering just around $20 a barrel, in the world of physical oil where actual barrels change hands  producers are getting much less according to Bloomberg as demand plunges due to the lock down to contain the spread of the coronavirus.

Brent is a waterborne crude priced on an island in the North Sea, 500 meters from the water. In contrast, WTI is landlocked and 500 miles from the water. As I like to say, I would rather have a high-cost waterborne crude oil that can access a ship than a landlocked pipeline crude sitting behind thousands of miles of pipe, like the crude oils in the US, Russia and Canada.

As we noted last night, when we asked who would see zero dollar oil first, several grades in North America are already trading in single digit territory as the market tries to force some output to shut-in. Canadian Western Select, the benchmark price for the giant oil-sands industry in Canada, fell to $4 on Monday, while Midland Texas was last seen trading just around $10.

Southern Green Canyon in the Gulf of Mexico is worth $11.51 a barrel, Oklahoma Sour is changing hands at $5.75, Nebraska Intermediate at $8, while Wyoming Sweet prices at $3 a barrel, per Bloomberg.

While there is very little hope of a dramatic improvement in the situation, late on Tuesday, President Trump said the U.S. would meet with Saudi Arabia and Russia with the goal of halting the historic plunge in oil prices. Trump, speaking at the White House Tuesday, said he’s raised the issue with Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman.

“They’re going to get together and we’re all going to get together and we’re going to see what we can do,” he said. “The two countries are discussing it. And I am joining at the appropriate time, if need be.”

It’s unclear what if anything Trump “can do” in what is effectively a collusive war between the two nations meant to crush shale oil.

Trump’s intervention comes as April shapes up to be a calamitous month for the oil market. Saudi Arabia plans to boost its supply to a record 12.3 million barrels a day, up from about 9.7 million in February. At the same time, fuel consumption is poised to plummet by 15 million to 22 million barrels as coronavirus-related lock downs halt transit in much of the world.

There is another problem: oil demand has been so battered by government lock downs to stop the spread of the coronavirus that any conceivable oil production cut agreement between the U.S., Canada, Russia and OPEC members would still fall well short of what’s needed to shore up the market, Goldman calculated. In fact, assuming roughly 20 million in excess supply currently, the only thing that could balance the oil market is nothing short of both Saudi Arabia and Russia halting all output together. And that will never happen.

Finally, below we put the “long history” of oil prices in context:

Source: ZeroHedge

Airbnb Bails Out Highly Leveraged Superhosts As Travel Industry Crashes

Airbnb CEO Brian Chesky wrote a letter to all hosts informing them that the company is committed to a $250 million bailout to cover some of the cost of COVID-19 cancellations. The canceled check-ins are for March 14 through May 31, Airbnb will pay hosts 25% of what they would’ve received via their cancellation policies, and the “payments will begin to be issued in April.”

Chesky said a separate $10 million Superhost Relief Fund would be designed for “Superhosts who rent out their own home and need help paying their rent or mortgage, plus long-tenured Experience hosts trying to make ends meet. Our employees started this fund with $1 million in donations out of their own pockets, and Joe, Nate and I are personally contributing the remaining $9 million. Starting in April, hosts can apply for grants for up to $5,000 that don’t need to be paid back.”

And here’s where the story gets interesting… 

Of the four million Airbnb hosts across the world, 10% are considered “Superhosts,” and many have taken out mortgages to accumulate properties to build rental portfolios. 

With the travel industry crashed, many of these Superhosts have seen their rental incomes plunge in March and risk missing mortgage payments in the months ahead. Chesky was forced to bailout Superhosts because some of these folks have overextended their leveraged in building an Airbnb portfolio and risk imminent deleveraging.

Highly leveraged Superhosts could be the first domino to fall that triggers a housing bust this year. Superhosts can have one property and or have an extensive portfolio, usually built with leverage. So when rental income goes to zero, that is when some have to make the difficult decision of missing a mortgage payment or having it deferred or liquidate the property to raise cash. These decessions are all happening all at once for tens of thousands of people not just across the world but all over the US and could trigger forced selling of properties into illiquid housing markets in the months ahead.

Some of the horror stories are already playing out on Twitter: 

And just like in 2008, when the rent payments stopped, landlords also felt the crunch and went belly up. What’s happening with highly leveraged Airbnb Superhosts is no different than what happened a decade ago. Again, no one has learned their lesson. And we might have discovered the next big seller that could ruin the real estate market: Airbnb Superhosts that need to get liquid. 

Source: ZeroHedge

“Stop The Revolver Run”: Cash-Strapped Banks Quietly “Discourage” Companies From Drawing Down Their Loans

One week after the Fed expanded its “bazooka” by launching a “nuclear bomb” in the words of Paul Tudor Jones , at fixed income capital markets which it has now effectively nationalized by monetizing or backstopping pretty much everything, some signs of thaw are starting to emerge in the all important commercial paper market, where the spread to 3M USD OIS is finally starting to tighten, coming in by 60bps overnight.

But while the move will be welcomed by companies in dire need of short-term funding, it is nowhere near enough to unfreeze the broader commercial paper market, with the spread still precipitously high even for those companies that have access to commercial paper, which is why most companies continue drawing down on revolvers.

As ZeroHedge reported over the weekend, according to JPMorgan calculations, aggregate corporate revolver draw downs represent 77% of the total facilities, with JPM noting that the total amount of borrowing by companies is likely significantly greater than this, well above 80%, as it only reflects disclosed amounts by large companies, and there are likely undisclosed borrowings by middle market companies.

In nominal terms, this means that corporates that have tapped banks for funding has risen further to a record $208 billion on Thursday, up $15 billion from $193 billion on Wednesday and $112BN on Sunday. That’s right: nearly $100 billion in liquidity was drained from banks in the past week; is there any wonder the FTA/OIS has barely eased indicating continued tensions in the interbank funding market.

Yet the bigger problem remains: with banks already pressed for liquidity, they are suffering a modern-day “bank run”, where instead of depositors pulling their money, corporations are drawing down on revolvers at unprecedented levels, something we first described three weeks ago “Banking Crisis Imminent? Companies Scramble To Draw Down Revolvers.”

Of course, at the end of the day, liquidity is liquidity, and banks are starting to fear when and if this revolver run will ever end, and just how much liquidity they need to provision, especially since many of these companies will have to file for bankruptcy in the coming months, sticking banks with a pre-petition claim (albeit secured).

As a result, and as Bloomberg reports, the biggest U.S. banks have been quietly discouraging some of America’s safest borrowers from tapping existing credit lines amid record corporate draw downs on lending facilities.

as Bloomberg notes, investment-grade revolvers, “especially those financed in the heyday of the bull market,” are a low margin business, and some even lose money. The justification is that they help cement relationships with clients who will in turn stick with the lenders for more expensive capital-markets or advisory needs. While this is fine under normal circumstances when the facilities are sporadically used, “with so many companies suddenly seeking cash anywhere they can get it, they’re now threatening to make a dent in banks’ bottom lines.

The second issue is more nuances: while Bloomberg claims that the draw down wave “is not an issue of liquidity for Wall Street” we disagree vehemently, and as proof of strained bank liquidity we merely highlight the fact that after $12 trillion in monetary and fiscal stimulus has been injected, it has failed to tighten the critical FRA/OIS spread which remains at crisis levels.

The good news is that at least some corporations – those who have the most alternatives – are willing to oblige bank requests, turning instead to new, pricier term loans or revolving credit lines rather than tapping existing ones. “McDonald’s  last week raised and drew a $1 billion short-term facility at a higher cost than an existing untapped revolver” Bloomberg notes, adding that while rationales will vary from borrower to borrower, analysts agree that for most, staying in the good graces of lenders amid a looming recession is important.

The bad news is that most companies remain locked out of other liquidity conduits – be they new credit facilities, or commercial paper – and are thus forced to keep drawing down on existing lines of credit, which puts bankers – especially relationship bankers – in a very tough spot.

“The banker is coming at it trying to manage two things — the relationship profitability and their portfolio of risks and assets,” said Howard Mason, head of financials research at Renaissance Macro Research. “Bankers have some cards to play because they can talk to their clients that have undrawn credit lines. The sense is that there’s a relationship involved so relationship pricing and good will applies.”

Meanwhile, as banks quietly scramble to raise liquidity of their own – because, again, liquidity is always and everywhere fungible – U.S. financial institutions have sold almost $50 billion of bonds over the past two weeks to bolster their coffers, ironically even as corporate bankers are advising companies not to hoard cash unless they urgently need it. Some are even telling certain clients to hold off on seeking new financing to avoid over-stressing a system already stretched to its limits operationally as bankers are inundated with requests while stuck at home due to the coronavirus pandemic.

“The banks are open but if everybody asks at the same time then it’s going to be difficult from a balance sheet perspective,” Bloomberg Intelligence analyst Arnold Kakuda said in an interview.

Kinda like the whole fractional reserve concept: banks have money in theory… as long as not all of their depositors demand to withdraw money at the same time. With revolvers, it more or less the same thing.

“The corporate banker doesn’t want everybody to take a hot shower at the same time in the house,” said Marc Zenner, a former co-head of corporate finance advisory at JPMorgan Chase & Co. “They want to use their capital where it’s most beneficial.”

Amusingly, even McDonald – right after it signed a new revolver – immediately tapped the full $1 billion as a “precautionary measure” to reinforce its cash position, the company said in a regulatory disclosure Thursday. It also priced $3.5 billion of bonds last week as part of its broader liquidity management strategy.

In short, it’s a liquidity free for all, and the bottom line is simple: those bigger companies that still have access to liquidity will survive; those that are cut off, will fail, giving the bigger companies even greater market share, and crushing the small and medium businesses across America.

As a result, the prevailing thinking across corporate America is is “it’s ‘better safe than sorry,” said Jesse Rosenthal, an analyst at CreditSights Inc. “They might believe with all their hearts that the bank has all the liquidity they need, but it’s just fiduciary duty, due diligence, and prudence in a totally unprecedented situation.” Ironically, we reported last week that a bankrupt energy company, EP Energy, listed a trolling risk factor in its annual report, in which the company mused that it may be challenged if one or more of its lender banks collapsed.

Meanwhile, confirming that this latest freak out is all about liquidity, bankers are now including provisions in new deals that ensure they’ll be among the first to be paid back when companies regain access to more conventional sources of financing, according to Bloomberg sources.

And for those insisting on drawing down revolvers now, Renaissance Macro’s Mason says banks will ultimately seek to recoup the costs down the line.

“The message to corporate clients is, ‘you can continue to do this, but we are looking at profitability on a relationship business, so if we don’t make our hurdles here we need to make them somewhere else,’” Mason said. Of course, those companies which have already drawn down on their revolvers and/or have anything to do with the energy sector… see you after you emerge from Chapter 11.

Source: ZeroHedge