From the Securities Lending Trading Desk

Streetwide demand and utilization remain high on Sirius XM Holdings Inc. as some investors track the stock spread between SIRI and Liberty Media. A prominent activist hedge fund has called for stronger corporate governance in one of Japan’s leading internet firms. Whilst in Europe, Dutch telecom provider Altice confirms plans to sell towers in France and Portugal. 

Below please find this week’s 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.

Americas

Streetwide demand and utilization remain high on Sirius XM Holdings Inc. (SIRI) as some investors track the stock spread between SIRI and Liberty Media (LSXMK). Back in 2009, LSXMK floated a loan to SIRI, essentially saving the company from bankruptcy. Since then Liberty has converted their debt, bought more shares and is now the majority holder, owning roughly 65.5% of the SIRI shares outstanding. While the valuation disparity between SIRI and LSXMK exists, some investors are shorting SIRI and going long LSXMK. Until these stocks significantly narrow the gap in their valuations, we anticipate continued demand for SIRI.

There has been increased demand for Frontier Communications Corp. (FTR) as the share price declined roughly 18% since announcing the suspension of their common stock dividends on 2/27. As the company looks to improve their credit profile through discontinuing dividend payments, amending loan covenants, and tender offers for senior notes, analysts fear the company will not stabilize their EBITDA for years. When comparing stocks in the sector, bullish investors seem to favor Verizon, while bears seem focused on FTR. The telecom sector in general has seen fierce competition as each company navigates changes in the industry and look for the best route forward. FTR has been a long-term focus of demand and with fee levels trending higher and market availability nearly fully utilized, we don’t foresee any major changes in demand.

Asia Pacific

A prominent activist hedge fund has called for stronger corporate governance in one of Japan’s leading internet firms. Oasis Management Co Ltd, which owns over 6% of GMO Internet Inc, has called on all minority shareholders to force the internet and cryptocurrency firm to implement governance restructuring changes. Oasis’ proposals include the abolition of a takeover defence measure and partial amendments to the articles of incorporation of the company. Separately, GMO was fined by the country’s regulator, the Financial Services Agency (FSA), and ordered to improve its anti-money laundering procedures in the aftermath of a recent $500 million hack at rival cryptocurrency exchange, Coincheck Inc. We have seen strong securities lending demand for GMO in recent weeks.

Hong Kong listed luxury retailer Prada SpA’s shares surged 23% after the company predicted a recovery in sales.  Prada SpA executives forecast mid to high single digit sales growth following the successful launch of a new e-commerce platform. Prada SpA’s share price has fallen over 60% since its 2013 peak after the retailer opened too many stores in China and pushed up prices. We have seen only moderate securities lending demand for Prada SpA.

Europe

Dutch telecom provider Altice confirms plans to sell towers in France and Portugal. Altice has been one of Europe’s top specials in 2018 as it announced plans to spin-off its US unit. On Friday, Altice announced it will dispose of more assets to cut debt after racking up 31 billion euros of debt after many acquisitions. Markets reacted positively to the news as shares were up 2.5%. Altice short interest remained steady and we can expect demand to rise should any taxable elements result from spin-offs.

Improved offer from Melrose Industries drives securities lending demand. This week saw an improved final offer from Melrose of 1.69 of its own shares plus 81p cash with a final dividend of 6.2p for each GKN share. The automotive and aerospace producer was quick to reject the revised offer on Tuesday stating that it fundamentally undervalued the company. Demand has remained strong this week as a number of high profile GKN clients have cast doubt on the deal. Airbus Chief Operating Officer warned that it would be practically impossible to give any new work to GKN under the ownership model of Melrose. Fees to borrow the stock have gradually risen throughout the week with the desk continuing to monitor the ongoing potential deal.