Weekly Commercial Awareness Update - 4th Week September 2020
Private Equity Got the Power
US-based private groups have nearly $847bn of dry powder. Dry powder is unspent cash yet to be invested. This has given private equity groups greater negotiation power and increased the number of portable loans.
Normally, loans have a change of control provision so whenever a company is sold, the loan is accelerated and needs to be paid immediately. However, with more and more private equity firms inserting portability provisions into the loan terms, loans can be transferred to the new owner of a company rather than being repaid. This makes it easier for private equity firms to seek buyers. This benefit comes at the expense of banks, who will have to bear a greater risk of change of ownership of the company and obtain fewer fees because fewer fees are involved when debts are transferred.
UK Economy is Suffering
UK’s GDP has fallen by more than a tenth. This is partly due to its economy being heavily reliant on services; services cannot be delivered if everyone is staying home and service providers cannot go out to their workplaces.
The government will be providing further business support schemes, such as paying part of the wages of employees, and has announced emergency funding for the rail industry earlier this week.
A shift of Trend in the Energy Sector
Demand for traditional energies like oil and gas is falling. This is due to countries reducing reliance on fossil fuels due to the fatal impact in the environment and development of technologies like solar panels and wind turbines that directly provide electricity, unlike fossil fuels, which provide heat which is then used to move electric generators.
Falling demand for fossil fuels means that the power is shifting away from producers of traditional energies to consumers. This means that China, which is currently the world’s biggest importer of fossil fuels, will have great negotiating power; they can influence the price of oil. Also, its rapidly expanding renewable energy industry means it is going to be the new leader in the rising clean energy trend.
Death of RBG and its Political Implications
Now that Ruth Bader Ginsburg, former Supreme Court justice, has passed away, the Republicans and Democrats are fighting for the emptied seat in the Supreme Court. The Republican majority in the Senate is trying extremely hard to sit a conservative justice before the November election. Many are criticising the Republicans for the hypocrisy because when Antonin Scalia passed away before the 2016 election and President Obama tried to replace him with more liberal Merrick Garland, Republicans blocked this arguing that the Americans must have a voice in choosing the next appointee and thus the new justice must be decided after the election. Now, in the same situation, Republicans are arguing that the new justice should be appointed before the election.
Although the Supreme Court is supposed to be politically-neutral, the competition between the Republicans and Democrats to have a majority of justices favouring their own party seems like it is becoming a ground for a political battle. If this becomes the case, the political parties may be able to exploit the court to pass or block certain policies to their favour.