EM LATAM CREDIT: Braskem: Banks take control? - Positive
(BRASKM; Caa3neg/CCC-neg/CCC+)
• Brazil banks holding Braskem stock as collateral for defaulted Novonor loans were reportedly considering foreclosing on Novonor and seizing the stock. BRASKM bonds are quoted about 2 points higher today.
• If they took all the stock that would give them a 50.1% voting stake in Braskem and arguably trigger a change of control and there is a COC clause in most, if not all, of the bonds. However, that would be an expensive proposition and not a very likely scenario.
• The transaction that businessman Tanure had proposed involved taking most of the Novonor stake but not all as it envisioned leaving Novonor with a small stake of about 5% or less but still enough for Tanure to not be a majority owner. Reportedly Novonor was proposing to the banks that they be allowed to keep a small stake as well, according to Estadao and Bloomberg.
• If the banks seized the collateral the next step could be to team up with IG4 capital to exchange the shares for ownership in a fund with Petrobras remaining a partner as they have a 47% voting stake.
• Petrobras has been angling for more decision-making authority by revising the ownership agreement as well as engineering a major corporate restructuring that would involve significant changes in management which would be a big positive. That would boost the going concern value and recoveries.
• We still envision some sort of debt restructuring as the debt load is too heavy relative to EBITDA generation. In the short run, the likely goal would be to stem the cash burn and get free cash flow to a more neutral level.
• Tanure’s proposed transaction was approved by Brazil anti-competition regulator CADE but as far as we know Tanure has not gotten a final settlement of environmental liabilities that he specified as a requirement to close the deal. Maybe Tanure ends up getting involved on a smaller scale like buying some of the non-core assets.
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US: FED Reverse Repo Operation: New Lows
RRP usage continues to retreat to lowest levels since early April 2021 today: $17.923B with 17 counterparties this afternoon, from $21.066B yesterday. Compares to this year's high usage of $460.731B on June 30.
FED: What To Watch In The Beige Book - 1400ET
The Fed’s Beige Book is still to come today at 1400ET, with anecdotal data from liaison programmes remaining an important input in FOMC decision-making
- Ahead of Friday’s payrolls report, we note that July’s Beige Book characterized the labor market in fairly mixed fashion, though was generally stable to slightly-positive across most Fed Districts compared with June. It was arguably the most solid Beige Book on the employment front since the start of the year.
- July’s description of inflation suggested relatively steady price pressures compared with June, though it seems that what were previously "plans" to pass through tariff-related costs to customers have begun to materialize.
- In probably the most important finding for the FOMC, the biggest price increases were yet to come: "Contacts in a wide range of industries expected cost pressures to remain elevated in the coming months, increasing the likelihood that consumer prices will start to rise more rapidly by late summer." This materialization of higher costs, or lack thereof, should be watched closely.
- Finally, on the activity side, we’ll also be watching to see whether July’s notable improvement from June was maintained. Most Fed Districts reported flat growth: 7 were in that category (Boston, Cleveland, Atlanta, St Louis, Minneapolis, Kansas City, San Francisco), with 3 reporting slight/modest growth (Richmond, Chicago, Dallas) and 2 seeing modest declines (New York, Philadelphia). That’s compared to June when 3 reported flat growth, 3 slight/mild growth, and 6 slight/modest/moderate slowdowns/declines (NY and Philly remain in the latter category).
GBPUSD TECHS: Bearish Threat
- RES 4: 1.3681 High Jul 4
- RES 3: 1.3636 76.4% retracement of the Jul 1 - Aug1 downleg
- RES 2: 1.3550/3595 High Sep 1 / High Aug 14
- RES 1: 1.3742 20-day EMA
- PRICE: 1.3451 @ 16:36 BST Sep 3
- SUP 1: 1.3322 Low Sep 3
- SUP 2: 1.3315 61.8% retracement of the Aug 1 - 14 bull leg
- SUP 3: 1.3249 76.4% retracement of the Aug 1 - 14 bull leg
- SUP 4: 1.3142 Low Aug 1 and a key support
Tuesday’s sell-off in GBPUSD undermines the recent bull theme. The pair has traded through a key support at 1.3391, the Aug 22 low. The clear break of this level signals scope for a deeper retracement and exposes 1.3315 next, a Fibonacci retracement. Clearance of this level would strengthen a bearish threat. For bulls, a breach of 1.3595, the Aug 14 high, is required to reinstate a bull theme. Initial resistance is at 1.3742, the 20-day EMA.
