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It's the corporate debt market's turn to ignore the real economy

The corporate debt market is beginning to follow the public equity market's lead in decoupling from the real economy.

Why it matters: Private equity and its lenders spent 2009 staring into the abyss. In 2020, they're just pretending it doesn't exist.


Driving the news: KKR reportedly is prepping a $2.75 billion dividend recap for Epicor Software, a portfolio company it tried and failed to sell last year. It would be the first such deal since before the pandemic began.

  • The argument for this deal is that KKR has cut Epicor's leverage load since acquiring it from Apax Partners in 2016, and that it has strong recurring revenue and cash flow.
  • The argument against this deal is that Epicor is selling enterprise software in the midst of a severe recession, with a particular focus on retail, manufacturing and distribution. It's one thing to keep the ship steady, it's quite another to encumber it with new debt.

The big picture: Overall credit conditions have steadily improved since March, thanks in large part to Fed backstops.

  • Private equity execs tell me that high equity prices, not debt availability or terms, is their stumbling block for new deals. As one explained: "The banks obviously know there's a pandemic, but you wouldn't know it when you talk to them about financing a new deal."
  • Defaults and bankruptcies have steadily increased since March, but much of that has been siloed in particularly hard-hit industries (retail, hospitality/leisure) or for companies that were already struggling.
  • Overall, the percentage of corporate bonds trading at distressed rates has fallen from more than 30% in March to 12.7% in June.
  • Within the leveraged loan market specifically, the current default rate is at less than one-third of its 2009 financial crisis peak.

Bond investors see brighter days

U.S. government bonds could breakout further after yields on the benchmark 10-year Treasury note ticked up to their highest since early June last week.

But, but, but: Strategists say this move is about an improving outlook for economic growth rather than just inflation.

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The dangerous instability of school re-openings

Schools across the country have flip-flopped between in-person and remote learning — and that instability is taking a toll on students' ability to learn and their mental health.

The big picture: While companies were able to set long timelines for their return, schools — under immense political and social strain — had to rush to figure out how to reopen. The cobbled-together approach has hurt students, parents and teachers alike.

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Trump doesn't have a second-term economic plan

President Trump has not laid out an economic agenda for his second term, despite the election being just eight days away.

Why it matters: This is unprecedented in modern presidential campaigns, and makes it harder for undecided voters to make an informed choice.

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How Trump’s energy endgame could go

Expect President Trump to redouble his efforts loosening regulations and questioning climate-change science should he win reelection next month.

Driving the news: A second Trump administration would supercharge efforts by certain states, countries and companies to address global warming. But some wildcards could have a greener tinge.

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The swing states where the pandemic is raging

Data: The COVID Tracking Project, The Cook Political Report; Table: Andrew Witherspoon/Axios

Several states that are likely to decide which party controls Washington next year have exceptionally large coronavirus outbreaks or are seeing cases spike.

Why it matters: Most voters have already made up their minds. But for those few holdouts, the state of the pandemic could ultimately help them make a decision as they head to the polls — and that's not likely to help President Trump.

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Tropical Storm Zeta may strengthen into hurricane before reaching U.S.

The U.S. Gulf Coast and Mexico are bracing for another possible hurricane after Tropical Storm Zeta formed in the Caribbean Sea Sunday.

Of note: Zeta is the 27th named storm of the 2020 Atlantic Hurricane season — equaling a record set in 2005.

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Rockefeller Foundation commits $1 billion for COVID-19 recovery

The Rockefeller Foundation announced on Monday that it will allocate $1 billion over the next three years to address the pandemic and its aftermath.

Why it matters: The mishandled pandemic and the effects of climate change threaten to reverse global progress and push more than 100 million people into poverty around the world. Governments and big NGOs need to ensure that the COVID-19 recovery reaches everyone who needs it.

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How Amy Coney Barrett will make an immediate impact on the Supreme Court

In her first week on the job,Amy Coney Barrett may be deciding which votes to count in the presidential election. By her third week, she’ll be deciding the fate of the Affordable Care Act.

Where it stands: The Senate votes on Barrett’s nomination tomorrow. If she’s confirmed, Chief Justice John Roberts is expected to swear her in at the Supreme Court within hours, an administration official tells Axios.

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