From the Securities Lending Trading Desk

In the U.S., The B&G Foods (BGS) dividend continues to yield one of the highest pay-out ratios among its peers. The escalation of the trade war between China and the United States has forced one of Japan’s largest electronics manufacturers to cancel a proposed share sale. Whilst in Europe, rights issues continue to be key driver for securities lending demand with Prysmian and Elementis both making announcements.

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

The B&G Foods (BGS) dividend in Q2 spiked securities lending fees as it continues to yield one of the highest pay-out ratios among its peers. With the industry mean pay-out ratio (div/EPS) at 57% and a BGS ratio of 88%, the BGS dividend continues to attract borrowers around record date. Dividend aside, B&G Foods has been a substantial and consistent lending name as doubts exist surrounding its lean margins and growing debt figures. Currently, the company is unable to meet its debt obligations, should that debt reach maturity, so they are facing debt refinancing and the prospect of asset and equity sales. Demand and utilization remain high.

Russell Reconstitution 2018. We are seeing increased demand for names being added to, and deleted from, the Russell 3000 index as long holders that track, or loosely track, the index adjust their holdings accordingly. This re-balance typically results in a squeeze in liquidity. Some of the most sought-after names due to deletions in the Russell 3000 include: Fred’s, Inc. (FRED), Hudson Technologies, Inc. (HDSN), Navios Maritime Acquisition Corp. (NNA) and The ExOne Company (XONE). Some of the most sought-after names due to additions in the Russell 3000 include: 22nd Century Group Inc. (XXII), Colony Credit Real Estate, Inc. (CLNC), CASI Pharmaceuticals Inc. (CASI) and Vuzix Corp. (VUZI).

Asia Pacific

The escalation of the trade war between China and the United States has forced one of Japan’s largest electronics manufacturers to cancel a proposed share sale. Sharp Corp, which is controlled by Taiwanese electronics manufacturer Foxconn Technology Group, announced on Friday last week that the share sale would be scrapped as it would not be beneficial for shareholders given the current market instability, which has been fuelled by increased trade frictions between the two countries. Sharp had planned to raise as much as $1.8 billion with the proceeds to be used to buy back preferred shares and improve its finances. We have witnessed strong securities lending demand for Sharp Corp in recent weeks, whose shares jumped by as much as 15% following the announcement.

The battle to acquire one of Australia’s largest outdoor billboard advertising specialists finally came to a close last week. Australian advertiser oOh!media outbid rival APN Outdoor for bus stop advertising business Adshel, with a final offer of A$570 million ($416 million) in an all-cash deal. oOh!media and APN Outdoor had been locked in a bidding war in the past few months for Adshel which ultimately resulted in oOh!media offering an additional A$150 million than its original bid in April. However, the announcement earlier last week of French giant JCDecaux”s A$1.1 billion bid for APN Outdoor paved the way for oOh!media to close out the deal to acquire Adshel. We have seen limited securities lending demand for oOh!media whose shares slumped by nearly 10% upon resumption of trading last week.

Europe

Old Mutual spins off U.K. wealth manager Quilter and sells US and LatAm units. Old Mutual PLC, the 173-year-old insurer terminated its London listing, leaving Old Mutual Ltd with the former parent’s African insurance, asset management and banking businesses. Quilter and Old Mutual Ltd commenced trading last week, spurring modest arbitrage demand between both UK and South Africa lines. As new shares settle into accounts, levels for all 4 lines should move in easy-to-borrow category.

European rights issues continue to be key driver for securities lending demand. This week Prysmian and Elementis both announced rights issues which has put pressure on the share prices. Prysmian, the Milan based telecommunications company approved an issue of new shares following profit warnings associated with the operational costs of a large UK project. €500M of capital increase is sought with option rights exercisable between July 2nd to July 19th. In the UK, Elementis announced a proposed $600M acquisition of Mondo using in part, funding from a $280M rights offering. Shares fell 12% late into the week as the market waits for further details of the issuance. Also in the UK, ITE Group £265M issuance of capital via rights began trading this week and will finish on 10th July. Shares fell as much as 25% early in the trading period. We continue to monitor the spread between the rights and ordinary shares to monetize any spread.