From the Securities Lending Trading Desk


Demand for Goldman Sachs BDC has increased following a proposal of $100 million worth of convertible senior unsecured notes, due in 2022. In Asia, Boaxin Auto Group Ltd shares saw a sharp fall, and there has been strong lending demand for IMAX China Holding Inc. due to weak growth. Whilst in Europe, the rally in offshore drillers is attracting short sellers.

Below please find the October 5 edition of From the Trading Desk, which provides timely commentary about top security earners, revenue drivers and other factors influencing the securities lending market from the BBH Securities Lending Trading Team.


There has been increased demand for Goldman Sachs BDC, Inc. following a proposal of $100 million worth of convertible senior unsecured notes, due in April 2022. The total issuance amount could go up to $115 million if the over-allotment option is exercised. One analyst indicated that the transaction was positive, because it reduces Goldman Sachs BDC’s reliance on its revolving credit facility, and diversifies its debt funding sources. Goldman Sachs BDC intends to use the proceeds from the convertible notes deal to reduce its existing outstanding debt. With limited supply, fee levels have trended higher.

Poor first-quarter financial results announced last week by Cal-Maine Foods Inc. sent the company’s shares tumbling to a 52-week low, resulting in additional short interest. The company posted a net loss of $0.64 per share on $239.8 million in revenue. One consensus estimate had called for a net loss of $0.33 per share and revenue of $274.5 million. Cal-Maine’s president stated that the first quarter of fiscal 2017 reflected a disappointing shell egg market with challenging market conditions, and significantly lower market prices than the first quarter of fiscal 2016. The increase in demand, coupled with limited market liquidity, drove fee levels higher 

Asia Pacific 

Baoxin Auto Group Ltd shares fell sharply in Hong Kong after they resumed trading following a 90-Day trading halt. Shares fell 42% following the resumption on 21 September after a three-month suspension, during which major shareholders pledged or sold stakes. Investors remain concerned about the auto dealers results after an 84% drop in first half profit. We have seen strong lending demand for Baoxin Auto Group Ltd since shares resumed trading.

China’s third quarter box office returns are likely to continue to disappoint due to weak growth in IMAX format films. The lack of high quality films, significant decrease in subsidies from Internet companies and fast growth in other entertainment types, such as mobile games and self-made shows, is damaging future sector growth prospects. We have seen strong lending demand for IMAX China Holding Inc. which was recently downgraded by several analysts due to a weak earnings outlook.


Capital raising via convertible bonds and rights issues has driven securities lending demand. Probi and Nibe announced rights issues of SK602 million and SK3 billion respectively. Both rights issues with begin trading at the beginning of October. In France, demand was seen for Eurazeo after Credit Agricole will sell EUR300 million bonds exchangeable for Eurazeo stock. Also, Eramet are selling EUR100 million of undated convertible bonds. Shareholders holding 62.7% of the capital have committed to subscribe in line with their stakes.

The rally in offshore drillers is attracting short sellers. Spot oil prices and offshore drillers have rallied in the short term, causing funds to execute on the short side of Seadrill, Transocean, Tullow Oil, Subsea and Aker Solutions. The contrarian side views the recent OPEC deal and significantly depressed valuation multiples as a turning point for these stocks with a high risk of being squeezed at higher prices. Offshore drillers have fared among the worst stocks globally since the summer ’14 oil downturn. Seadrill has lost more than90% of its value in that time; current levels trade near all-time highs with utilization nearing 100%. M&A activity is unlikely at this time, but should crude prices move into the $50-$60/barrel range some anticipate better capitalized drillers to acquire smaller competitors.