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| Here's your daily business briefing: - Corporate defaults have seen the worst year start since the Great Recession
- Lithium Americas received a record $2.2B loan to boost domestic lithium production.
- The U.S. federal budget deficit expanded in February, reaching $296B.
Thank you for reading. Feedback/comments are welcomed! Stjepan
p/stjepan-kalinic | |
| 1 | | Corporate defaults have reached record levels in 2024, surpassing any start to the year since the global financial crisis, with 29 defaults globally, according to S&P Global Ratings. Inflationary pressures, high-interest rates, subdued consumer demand, and rising wages have contributed to this increase, particularly affecting highly leveraged companies. More: - The majority of defaults occurred in the U.S., but Europe has seen twice as many defaults since January compared to any year since 2008.
- Factors such as the implementation of regulations like the No Surprises Act in the healthcare sector have contributed to defaults, with three U.S. healthcare companies defaulting in February.
- Distressed exchanges, where creditors receive assets worth less than the debt's face value, have been utilized by roughly half of the defaulted companies globally this year to avoid costly bankruptcy proceedings.
- Consumer-sensitive stocks, chemicals, and healthcare companies are the sectors most exposed to potential defaults in 2024 due to high concentrations of poorly rated incumbent companies with negative cash flow.
- Despite the bleak outlook, there's optimism for stabilization. S&P anticipates Europe's default rate to stabilize at around 3.5% by the end of the year, which is in line with 2023's figure, assuming an improving macroeconomic outlook and a potential decline in interest rates.
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| 2 | | Lithium Americas has secured a record $2.2B loan from the U.S. Department of Energy to advance its Thacker Pass project, marking a significant milestone for the largest lithium deposit in the United States. The loan, under the Advanced Technology Vehicles Manufacturing Loan Program, is intended to construct a lithium carbonate processing plant. What are the numbers saying? The Thacker Pass mine, situated in Northern Nevada, covers approximately 6,000 acres of disturbed area, mostly functioning as a chemical processing plant. Estimated to cost around $2.93B for Phase 1 construction slated to be completed in 2027, the mine anticipates an annual production of 40,000 tons, with Phase 2 aiming to double that output. After investing $650M, General Motors gained exclusive access to Phase 1 lithium production for 15 years. Relevance: U.S. demand for lithium is growing exponentially while its ability to secure a supply of lithium is becoming questionable in the face of deglobalization. The U.S. wants to decrease its dependence on Chinese battery supply by increasing its domestic production. Still, traditional lithium mining methods raise environmental concerns; thus, Exxon Mobil's application of direct lithium extraction technology in Arkansas comes into the spotlight as a possible solution. | | | |
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| 3 | | The U.S. federal budget deficit expanded in February, reaching $296B, driven by rising outlays and interest costs on the national debt. According to the U.S. Treasury Department, the deficit is 13% larger than in February 2023. More: - The deficit for February 2024 was $296B, a 13% increase from the $262B shortfall in February 2023, with outlays reaching a record $567B for the month.
- Receipts rose to $271B, marking a 3% increase, though economists had expected a deficit of $299B.
- For the fiscal year's first five months, the deficit expanded by 15%, totaling $828B, largely due to rising interest costs on the national debt.
- Individual tax refunds surged to $58B, an 11% increase from the previous year, driven partly by new IRS scanning technology expediting paper returns.
- Interest expenses on the national debt hit $76B in February, a 67% increase from February 2023, with the weighted average interest rate on Treasury securities rising to 3.2%.
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| 4 | | The Pentagon withdrew its planned $2.5B chip grant for Intel, causing a 3% drop in Intel Corp.'s shares. The withdrawal shifted the burden of funding to the Commerce Department, as Intel aims to secure incentives totaling over $10B from the CHIPS and Science Act. More: - President Biden's spending package had initially earmarked $3.5B in defense funding for Intel, intended for producing advanced semiconductors for military and intelligence purposes.
- The withdrawal comes amid Intel's recent contract with the U.S. government and its ambitions to expand Intel Foundry's capabilities, potentially reshaping the global semiconductor market.
- The CHIPs Act, signed into law in August 2022, aims to incentivize semiconductor manufacturing in the U.S. Still, disbursement of funds has been sluggish, with companies like BAE Systems, Microchip Technology, and GlobalFoundries receiving varying amounts in recent months.
- While some companies, such as BAE Systems, Microchip Technology, and GlobalFoundries, have received CHIP Act funding, the disbursement process has been relatively slow since the legislation's passage, with Intel facing uncertainty regarding its anticipated federal support.
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| 5 | | Dollar Tree announced plans to close nearly 1,000 stores following a disappointing holiday quarter. Shares dropped by 14% as the company's 2024 sales and profit forecast were below expectations. More: - Dollar Tree will shutter 970 Family Dollar stores, including 600 in the first half of 2024 and 370 Family Dollar and 30 Dollar Tree stores over the next few years, as part of efforts to revamp its struggling business.
- The decision to close stores came after a review aimed at addressing underperforming stores and investing in improved standards and growth. The decision only impacts U.S. stores, while Canadian stores remain unaffected.
- The company took a significant hit, recording a $950M impairment against the Family Dollar trade name and a $1.07B goodwill charge, leading to a net loss of $1.71B for the reported quarter.
- Dollar Tree's acquisition of Family Dollar for over $8B in 2015 experienced challenges, as evident by the ongoing struggle to absorb and turn around the chain.
- The company experienced significant domestic competition from Walmart and Target that appealed to discount-oriented shoppers while also being under pressure from foreign entities such as the fastest-growing online discount retailer Temu.
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| 6 | | President Joe Biden expressed opposition to Nippon Steel's acquisition of U.S. Steel, noting that it is vital that an iconic American steel company remain domestically owned and operated. Biden's re-election campaign has domestic manufacturing in focus, thus a $14B acquisition, despite coming from a long-standing ally, represents a challenge in an election year. More: - The decision risks straining relations with Japan, a key ally at a time when the U.S. seeks to rally support from allies in the face of challenges from China.
- Nippon Steel defended its acquisition, arguing that it would strengthen U.S. supply chains and economic defenses against China, emphasizing its commitment to contributing advanced technologies to U.S. Steel without layoffs or plant closures.
- The intervention raises questions about the future of the deal and the role of the Committee on Foreign Investment in the U.S. (CFIUS) in evaluating transactions with potential national security implications.
- Biden's stance has garnered support from United Steelworkers and some lawmakers, who share concerns about foreign ownership of critical American industries and the implications for national security and jobs.
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 | Freelance Writer | | Stjepan Kalinic is an analyst and writer with a background in institutional investment research. He's passionate about reading, playing music, lifting weights, and practicing martial sports. He values interesting books above everything else, and you can send recommendations through LinkedIn. | | This newsletter was edited by Megan LaBruna | |
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