From the Securities Lending Trading Desk

In the US, with the deal expected to close in Q1 of 2019, trading volume and velocity of SIRI shares have increased. In, Asia, Takeda Pharmaceutical’s shareholders approved a $62 billion acquisition of Shire Plc, enabling the company to continue its quest to become a global drug giant. In Europe, A seesaw week for Thomas Cook as Moody’s downgrades the travel operators outlook to negative.

Americas

Sirius faces a bumpy litigation-filled ride towards its completion of the Pandora acquisition. When Sirius announced its $3.5billion all-stock deal to acquire Pandora back in September, it was initially met with substantial approval in the M&A and financial markets. Since that time, according to Bloomberg, at least eight [Pandora] shareholder lawsuits have been filed in federal court challenging the proposed deal. Pandora investors claim they are being shortchanged by the $10.05-per-share offer which does not price in the upside of Pandora stock. Nonetheless, with the deal expected to close in Q1 of 2019, trading volume and velocity of SIRI shares have increased. In early December, options trading of SIRI had spiked and in the lending market, increased demand for, and sales of, the stock had driven up lending levels. We anticipate this name to remain a top lending name up until the close of the deal. No end date in Q1 2019 for the deal has been announced yet.

The deterioration of credit markets continues to drive down investments in low grade debt. BKLN, the Invesco Senior Loan ETF with over $6 billion in assets, is down 2.3% since early November alone. Sharp outflows have persisted over the last month and assets in the fund now stand at their lowest in over two years. BKLN is the largest passively managed fund which tracks low grade debt and is suffering from investor apprehension over the rising interest rate environment and growing corporate debt landscape. Trading volumes have spiked over this time, thus driving up fees and generating top earnings in the lending space.

Asia Pacific

Shares in one of Australia’s largest rare-earth miners declined sharply last week after the Malaysian government announced tougher conditions on its operating license. Lynas Corp, which explores and mines rare earth minerals that are used in the electronics and gas industries, has been handed down additional conditions on its license which are focused around the management of radioactive waste at its plant in Kuantan, Malaysia. One of the conditions will require the miner to export its radioactive waste out of the country. In response, Lynas has said it would consider all options, including taking legal action against the Malaysian government, to reach an appropriate outcome for the new conditions. We have seen moderate securities lending demand for Lynas in recent months which fell by over 25% last week.

Takeda Pharmaceutical’s shareholders approved a $62 billion acquisition of Shire Plc, enabling the company to continue its quest to become a global drug giant. The purchase will be the largest-ever overseas acquisition by a Japanese company. In order to finance the deal, Takeda launched a USD $30 billion bond sale which has left the company highly indebted and raised concerns among investors. Completion of the acquisition could lead to possible downgrades from both S&P Global Ratings and Moody’s Investors Service amid speculation the company will be forced to sell off assets to reduce the debt burden. We have seen strong securities lending demand for Takeda in recent weeks.

Europe

Lending demand for Kier Group PLC continues as the UK construction company launches a surprise rights issue. A surprise rights issue announced by Kier (KIE LN) saw its share price tumble 47% as investors saw it as a sign that the UK construction company was required to raise capital in order to reduce debt and meet operating targets. It is reported (Bloomberg) that Kier’s net debt has increased from £185.7m in June to £624m at the end of October. Many hedge funds have taken increased directional interest in the group and further interest has been seen since the spread between the ordinary share price and the rights share price started trading negative i.e. the rights price is more expensive than the ordinary shares. Short interest has been increasing throughout the year and is now at 19.5% of free float. Industry borrow utilization is currently at 86% according to Datalend.

A seesaw week for Thomas Cook as Moody’s downgrades the travel operators outlook to negative. Thomas Cook (TCG LN) suffered a sell-off early in the week as the company published a second profit warning and Moody’s raised concerns regarding its ability to recover profitability and cash generation in light of continued uncertainty around Brexit negotiations. The Travel operator sought to allay investor concerns following the news and, late in the week, shares surged as the company reportedly (Bloomberg) met investors to assure them that a rumored rights issue would not be required to remediate debts. Short Interest and utilization has historically been low but has spiked in recent weeks with short interest increasing from 0.5% to 3.32%.