Today on Yahoo! Finance, Gordian Group’s President, Peter S. Kaufman discussed the impact of the Coronavirus on the US economy. He offered his thoughts on the proposed stimulus package, how fast and effective it may be and whether we’ll see a wave of bankruptcies. Below is a timestamped breakdown of the interview and a full transcript.
00:00 | Is $2 trillion stimulus package enough to get us through this crisis and are we headed for a recession?
01:44 | How urgent is it for companies to receive stimulus funding especially since they’re being asked to keep employees on the payroll?
03:22 | What’s the potential effect on companies credit ratings and will we see a wave of bankruptcies? What types of companies are at risk given these unprecedented times?
05:04 | Have you seen any credit facilities being created to provide short to mid term relief for companies yet?
Adam Shapiro (00:00):
Welcome back to Yahoo Finance. We are watching the Dow, which is up more than 470 points right now. S&P 500, up eight points. NASDAQ is down 38 points. We’re awaiting the vote on the $2 trillion stimulus package in the US Senate and joining us now to talk about the ramifications of this historic stimulus is Peter Kaufman. He is president of Gordian Group and the big fear, well, it’s not fear, it’s a foregone conclusion. We will have a recession. The question is, will this $2 trillion in stimulus be enough, I guess to get small business and the rest of the economy in the country past the crisis? Peter, what do you think?
Peter Kaufman (00:36):
Good morning. Nice to see you, Adam. Still don’t know the details of what’s going to pass the Senate, what’s going to pass the House. They seem to have two different philosophies. I think the bigger picture for me as a distressed investment banker is that a couple of bubbles have been burst and I think for a long time. Number one, the asset inflation bubble. I don’t think that stocks, bonds are going to rise to these levels anytime soon, and the credit bubble which is of most interest to me, the easy money for … cheap, easy money for undeserving companies, which has been going on for about the past 10 years. I think that ebullient environment has passed and I think the widening of spreads means that these companies are going to have a much tougher time getting credit on any terms or bad terms or anything at all. Even if the banks get money liquidity from the Fed, which I’m sure they will, I’m not sure the banks are going to be making loans to bet companies that at this point in time, so I think it’s going to be a new world for quite some time in terms of credit and inflated assets.
Speaker 3 (01:44):
Peter, one of the things we’ve heard, you know everybody from Gary Cohn to Neel Kashkari to all the lawmakers out there, which is to say that they want the companies to keep their employees on the payroll and that the help is coming, and keep them on the payroll so that when the bounce back actually comes back, it will be a lot quicker. And I’m looking at the stimulus bill today thinking, well how long is it going to take for these checks to go out? You know, I’m wondering if you can speak to that in terms of the urgency of the timing of all of this to get the help to these small and medium sized businesses that need it.
Peter Kaufman (02:19):
I think it’s very urgent. You know, historically the government’s been really good about bailing out large companies and not so much small businesses. I’ve read that it might be until May that these checks go out. I think the timing is critical. I think it’s a very daunting task for the politicians candidly to be balancing the health issues with the economy and trying to get it restarted. But this much I really believe no matter when these checks goes out, no matter what these bills say, I think that there’s not going to be a V shaped recovery here. We’re in a ditch. The coronavirus implications has got us into a recession. No question about that. I don’t see that coming out anytime soon.
Peter, it’s Julie here. When you talk about the credit structure here that we have heard from a lot of folks about that we are going to see many companies rerate lower during all of this, whether you’re talking about those larger companies or smaller companies, what kind of wave of bankruptcies are we going to see? I mean I would imagine it’s tough for you like it’s tough for everybody to put numbers around it, but what color can you give to any kind of forecast or prediction you might have?
Peter Kaufman (03:34):
Sure. Julie, that’s a great question. I personally believe the bankruptcy courts are going to have to be expanded. They’ve got qualified judges in waiting. I think there’s going to be a whole lot more companies that are going to have to restructure financially because they’re no longer going to have access to easy credit. I think it’s across industry lines and I think you’re going to see a lot of financial restructurings which could inundate the bankruptcy courts, so I think this is yet to be written, but I think it’s a real problem. I know that it’s already a really busy time for those of us in the advice giving business for financially troubled companies and our clients aren’t the usual suspects. Our clients include companies that aren’t here because they did anything wrong because they were careless or they were overlevered. They’re just in the way of the tsunami.
Peter Kaufman (04:23):
Of course there are a lot of companies that are overlevered and have been careless and I think all of them are going to need to financially restructure, deal with their creditors. I think it’s across industry lines. We’ve been very focused in the energy space. We’ve got a joint venture with the Seaport Global to do that, but this is across industry lines at this point and it’s going to continue that way. There’s no easy fix. Whatever comes out of Washington, there is no panacea to make this all right. There’s only an emulatory action that’s going to try and soften the blows, but the damage has already been done and the longer this goes on, the worse the damage is going to be.
Brian Chung (05:04):
Hey Peter, it’s Brian Chung here. So the Fed had its commercial paper funding facility that it’s using to try to at least call them the short term debt markets, at least for these corporates, up to 90 days. I’m wondering, have you already seen any sort of improvement in the short term funding market for companies that really need financing to get through this key period of time? If it does indeed last a quarter, and with the Fed announcing what it did on Monday with medium term facilities for primary and secondary corporate debt. Do you think that’s really going to provide the relief that’s necessary given the strains that you were just discussing?
Peter Kaufman (05:35):
Well, Brian, based on all the phone calls that I’ve been receiving from boards and private equity firms, the answer is no. It really hasn’t gotten anything done yet. I think it’s yet to be read how effective and how fast that’s going to be. I just don’t yet have a view.
Adam Shapiro (05:53):
All right. Peter Kaufman is joining us from Gordian. We appreciate your being here. The president of the Gordian Group.