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US Fed calls third emergency meeting, announces unprecedented moves to calm corporate debt

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The Federal Reserve called a third emergency meeting to combat the economic impact of the novel coronavirus and unveiled a number of new and “extensive” measures on Monday that would expand the Fed’s efforts to calm corporate debt markets. The Fed also said a direct lending program to Main Street businesses will be announced soon.” data-reactid=”16″>The Federal Reserve called a third emergency meeting to combat the economic impact of the novel coronavirus and unveiled a number of new and “extensive” measures on Monday that would expand the Fed’s efforts to calm corporate debt markets. The Fed also said a direct lending program to Main Street businesses will be announced soon.

With turmoil continuing in corporate financing markets, the Fed expanded the scope of its asset purchases under its quantitative easing program and announced four new measures to grease the commercial paper, corporate bond, and even ETF markets.

The Fed also committed to the “establishment of a Main Street Business Lending Program to support lending to eligible small-and-medium sized businesses,” similar to programs from the Small Business Administration.

The Fed estimates the impact of its measures to provide about $300 billion in new financing available to businesses.

“While great uncertainty remains, it has become clear that our economy will face severe disruptions,” The Fed said in a statement Monday morning. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

 

The Fed announced that it was suspending its previous guidance on quantitative easing, which sought to buy “at least” $500 billion in U.S. Treasuries and $200 billion in agency-backed mortgage-backed securities “over coming months.” The Fed now says it will purchase securities “in the amounts needed,” and will also expand the scope of those purchases to include agency commercial mortgage-backed securities.” data-reactid=”22″>The Fed announced that it was suspending its previous guidance on quantitative easing, which sought to buy “at least” $500 billion in U.S. Treasuries and $200 billion in agency-backed mortgage-backed securities “over coming months.” The Fed now says it will purchase securities “in the amounts needed,” and will also expand the scope of those purchases to include agency commercial mortgage-backed securities.

The central bank also unveiled a Primary Market Corporate Credit Facility (PMCCF) that would directly purchase eligible corporate bonds from investment grade issuers in addition to a Secondary Market Corporate Credit Facility (SMCCF) that would buy corporate bonds in the secondary market, which could include some eligible investment grade corporate bond exchange-traded funds.

Both programs will last until September 30, 2020.

Federal Reserve Chair Jerome Powell announces emergency action as the coronavirus pandemic shuts down parts of the global economy. (AP Photo/Jacquelyn Martin)
Federal Reserve Chair Jerome Powell announces emergency action as the coronavirus pandemic shuts down parts of the global economy. (AP Photo/Jacquelyn Martin)

To further ease corporate credit conditions, the Fed also reduced the pricing of its previously-announced efforts to buy commercial paper and expanded the program to include high-quality, tax-exempt commercial paper.

In the wake of the coronavirus, the Fed had already slashed interest rates to zero, announced over $1 trillion of liquidity support to money markets, and coordinated with central banks around the world to address a U.S. dollar shortage. But because of the harsh and accelerated impact of the virus to businesses of all sizes, many have called on the Fed to re-think the use of its toolkit, which has historically targeted the banking and finance industries.” data-reactid=”37″>In the wake of the coronavirus, the Fed had already slashed interest rates to zero, announced over $1 trillion of liquidity support to money markets, and coordinated with central banks around the world to address a U.S. dollar shortage. But because of the harsh and accelerated impact of the virus to businesses of all sizes, many have called on the Fed to re-think the use of its toolkit, which has historically targeted the banking and finance industries.

For example, lawmakers have floated direct lending program to Main Street businesses and Boston Fed President Eric Rosengren has called on Congress to grant the central bank the authority to directly buy corporate bonds.” data-reactid=”38″>For example, lawmakers have floated direct lending program to Main Street businesses and Boston Fed President Eric Rosengren has called on Congress to grant the central bank the authority to directly buy corporate bonds.

The PMCCF, SMCCF, and previously announced Commercial Paper Funding Facility (CPFF) programs announced Monday are all backed by the U.S. Treasury in amounts of $10 billion each.

Although the measures are from a new playbook, the Fed also opened up the crisis-era Term Asset-Backed Securities Loan Facility (TALF) to offer loans secured by eligible asset-backed securities.

The PMCCF, SMCCF, TALF, and CPFF are all structured as special purpose vehicles.

The Fed’s decision was unanimous among the voting members of the Federal Open Market Committee. The next scheduled FOMC meeting is April 29.

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Air Canada to reduce workforce by 16,500 as it parks planes during COVID-19 – Financial Post

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Air Canada will send home 15,200 unionized employees and 1,300 managers due to the “unpredictable extent and duration” of the COVID-19 pandemic.

Canada’s largest airline announced Monday it will place the unionized members on off-duty status and furlough the managers as it reduces capacity by about 85 to 90 per cent from April through June. It intends for the cuts, which will come into effect on or about April 3, to be temporary.

“To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while,” Air Canada chief executive Calin Rovinescu said in a statement.

“I understand and regret the impact this will have upon our employees and their families.”

Rovinescu and chief financial officer Michael Rousseau will forgo 100 per cent of their salaries, while other senior executives will take a 25 to 50 per cent pay cut. Board members agreed to a 25 per cent pay cut. Other managers’ salaries will be reduced by 10 per cent.

On Monday, Prime Minister Justin Trudeau announced the government will subsidize 75 per cent of wages for companies that lose 30 per cent of their revenue during the shutdown. It’s not yet clear how Air Canada could benefit from this, but the airline said it will assess how the subsidy could affect its workforce reduction plans.

Trudeau also acknowledged the airline industry has been “extremely hard hit” by the pandemic and said the government will do more to help the industry, but did not reveal any details.

The prime minister and senior government officials have been working with Canada’s major passenger airlines as they seek help during the crisis. Ottawa has already agreed to provide Toronto-based Porter Airlines with $135 million in commercial financing, but has yet to reveal a comprehensive package for other airlines including Air Canada, WestJet Airlines Ltd., Transat A.T. and Sunwing.

To help deal with plummeting revenue, Air Canada is also looking to cut $500 million in costs and capital spending. It will draw down about $1 billion in operating lines of credit for additional liquidity and suspended its share buyback program on March 2.

Air Canada is working with Ottawa to repatriate Canadians abroad. It will continue to operate a select number of flights after April 1, pending further government restrictions, as well as operating cargo-only flights to ensure movement of goods, such as medical supplies.

Air Canada employed about 33,000 people at the end of 2019, according to financial statements.

Air Canada employs about 4,400 pilots. It’s not clear how many pilots will be affected by the decision, but last week the Air Canada Pilots Association reached a deal with the airline to reduce pilot pay, allow pilots to retire earlier and plan for a maximum of 600 redundancies in the coming months.

Pilots placed on furlough will continue to accrue seniority and service and will be recalled in order of seniority, the ACPA said in a statement.

The International Air Transport Association predicts airlines around the world will lose US$252 billion in revenue due to the COVID-19 pandemic.

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Coronavirus: Air Canada to lay off 16,500 workers amid COVID-19 pandemic – Global News

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Air Canada will temporarily lay off 16,500 employees starting this week as the airline struggles with fallout from the COVID-19 pandemic.

Effective this Friday, the layoffs of 15,200 unionized workers and 1,300 managers will last through April and May amid drastically reduced flight capacity from the Montreal-based airline.

“To furlough such a large proportion of our employees is an extremely painful decision but one we are required to take given our dramatically smaller operations for the next while,” chief executive Calin Rovinescu said in a statement.


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The carrier has halted most of its international and U.S. routes in response to the global shutdown.

[ Sign up for our Health IQ newsletter for the latest coronavirus updates ]

States from Sweden to China to the United States have rolled out aid packages for the airline sector over the past month as borders closed and travel demand plummeted amid the spread of the novel coronavirus.

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Air Canada said its cost reduction scheme aims to save least $500 million. It includes a pledge from both the CEO and chief financial officer Mike Rousseau to forego 100 per cent of their salaries, while the rest of the executive team will give up between 25 per cent and 50 per cent.

The company will draw down about $1 billion in lines of credit to provide additional liquidity for a carrier that has a $7.3 billion cash cushion to fall back on — more than the most profitable U.S. carrier, Delta Air Lines.






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Earlier this month Air Canada’s flight attendant union said 5,149 cabin crew would be temporarily laid off due to the COVID-19 outbreak. The newly announced layoffs do not include the earlier job reductions.

The pandemic has cost thousands of jobs in the airline sector. Transat AT Inc. has laid off at least 3,600 flight attendants while WestJet has seen 6,900 departures including early retirements, resignations and both voluntary and involuntary leaves.

WestJet said Monday it is cancelling all transatlantic and U.S. routes until May 4, extending its 30-day suspension by two more weeks.

Both Air Transat and Porter Airlines have halted all flights.

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© 2020 The Canadian Press

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TSX down amid oil rout while Wall Street inches up in early trading – Global News

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Canada’s main stock index was down in early trading on Monday as the price of oil slid to its lowest level since 2002. In the U.S.. however, stocks opened higher on Monday as President Donald Trump followed last week’s massive fiscal stimulus by extending his stay-at-home guidelines, leaving investors guessing at their economic impact.

READ MORE: Oil price plunges to 2002 lows amid global coronavirus shutdown

In Toronto, Canada’s benchmark S&P/TSX composite index was down 56.86 points at 12,630.88.

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In New York, the Dow Jones Industrial Average rose 41.44 points, or 0.19 per cent, at the open to 21,678.22.






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The S&P 500 opened higher by 17.51 points, or 0.69 per cent, at 2,558.98. The Nasdaq Composite gained 81.08 points, or 1.08 per cent, to 7,583.46 at the opening bell.

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On the currency market, the Canadian dollar traded for 70.57 cents US compared with an average of 71.14 cents US on Friday.

The May crude contract was down US$1.37 at US$20.14 per barrel and the May natural gas contract was down 2.3 cents at US$1.65 mmBTU.

The June gold contract was down US$10.80 at US$1,643.30 an ounce and the May copper contract was down 0.65 of a cent at US$2.17 a pound

— With files from the Canadian Press

© 2020 Reuters

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