Mar 31, 2020 - Economy & Business

Hotel industry warns of looming financial crisis

Dion Rabouin, author of Markets

Illustration: Sarah Grillo/Axios

Hotel industry lobbying groups have fired a warning shot, exhorting lawmakers to provide them with financing to avoid a series of debt defaults they say could set off a widespread financial crisis.

Why it matters: Without the bailout — which would be in addition to government funds from the $2 trillion CARES Act — the industry says its members could be the first in a wave of debt defaults that would hit everyone from real estate investors and pension funds to average homeowners.

What's happening: In a letter to the U.S. Treasury, the Fed and the SEC, the American Hotel and Lodging Association (AHLA) and Asian American Hotel Owners Association requested government assistance to avoid defaulting on at least $86 billion in loans over the next several months, the Business Journals' Craig Douglas reports (subscription).

Details: The loans coming due are held in the collateralized mortgage-backed securities (CMBS) market, which is similar to the residential MBS market that crashed, setting off a wave of defaults, foreclosures and bankruptcies in 2008.

  • Rather than the slow churn of buyers falling behind on their mortgages because of unexpected increases to their adjustable rates that happened then, hotels are on the brink of default because of an "unprecedented cash flow crisis."
  • "The impact to our industry is already more severe than anything we’ve seen before, including Sept. 11th and the Great Recession of 2008, combined," AHLA president and CEO Chip Rogers said in a statement earlier this month.

What they're saying: Moody’s Investors Service cut its outlook for corporate debt to negative on Monday, saying "the coronavirus outbreak continues to halt normal business activity worldwide, with no clear turning point yet."

  • Ratings analysts are expecting that "credit quality will deteriorate for rated corporate entities around the world, with defaults rising in the coming quarters."

The big picture: The corporate debt market is in a very precarious position as a result of years of high issuance and desert-thirsty investors hunting for yield.

  • The Fed expects to open a lending facility to buy bonds from issuers who run into trouble, but their programs only apply to investment-grade companies at the top of the credit ratings pyramid.
  • Many of the sectors most at risk of default issue bonds in the so-called high yield or junk bond space, which makes up almost 30% of issued debt.
  • Moody's has said it expects to see significant defaults in the market.

Go deeper: When $2.2 trillion is not enough

Go deeper

Family-commissioned autopsy says George Floyd's death was homicide

Police watch as demonstrators block a roadway while protesting the death of George Floyd in Miami. Photo: Joe Raedle/Getty Images

An independent autopsy commissioned by George Floyd's family found that his death at the hands of Minneapolis police officer Derek Chauvin was "homicide caused by asphyxia due to neck and back compression that led to a lack of blood flow to the brain," according to a statement from the family's attorney.

Why it matters: The autopsy contradict preliminary findings from the Hennepin County medical examiner, who found “no physical findings that support a diagnosis of traumatic asphyxiation or strangulation,” according to charging documents against Chauvin.

Updated 25 mins ago - Politics & Policy

Trump lashes out at governors, calls for National Guard to "dominate" streets

President Trump berated the nation’s governors in a video teleconference call Monday, calling many of them "weak" and demanding tougher crackdowns on the protests that erupted throughout the country following the killing of George Floyd, according to audio of the call.

The latest: White House press secretary Kayleigh McEnany said at a briefing Monday that Trump's call for law enforcement to "dominate" protesters referred to "dominating the streets" with a robust National Guard presence in order to maintain the peace.

2 hours ago - World

Kremlin says Trump discussed inviting Russia to G7 in call with Putin

President Trump and Russian President Vladimir Putin at their bilateral meeting at the G20 Osaka Summit 2019, in Osaka, Japan in 2019. Photo: Mikhail Svetlov/Getty Images

President Trump and Russian President Vladimir Putin spoke on Monday about Trump's plans to expand September's G7 meeting in Washington to include Russia, according to the Russian government's readout of the call.

The big picture: The phone call between the two leaders, which the Kremlin says was initiated by Trump, comes amid six consecutive days of mass unrest in the U.S. over police brutality and racial inequality. The White House confirmed the call took place and said a readout was forthcoming.