Just discovered that Schummer & friends stopped the US from filling the strategic oil reserve during the current low prices mainly due to the Saudi-Russian price war. That's ridiculous since the price of oil is currently $23 a barrel. Schummer was saying it was part of their attempt to create a Green Revolution. It hands the Sauis a nice gift as they have tried before without success to eliminate some of America's oil production in order to keep us dependent on them.
There are also restrictions on the companies receiving the aid from resisting union attempts to organize their employees.
Other sources back up the WSJ so I assume that is the language in the bill. I pesonally don't agree with the money going to the Arts, Kennedy Centre, etc. being part of this bill but the amounts are quite small as a total part of the bill so if that was what it took to get Schumer & company on board than so be it.
We'll see if the house goes along or whether Pelosi yeilds to pressure from the left and tries again to include unrelated items. Most of the Repubicans will vote for it as is so she doesn't need more then a third of the dems to support it to pass it as is. The big question is what will she do if a majority of the house dems demand attaching unrelated items again.
I also don't like someone making more through unemployment than they would working ful-time but Munchin's explanation that it would delay the payments in some states for up to 6 or more weeks makes sense. Since we're only talking about a few months it shouldn't be a big deal compared to something that would allow it on a long-term basis.
kgbw49 Per the Wall Street Journal, takers on the loans will be prohibited from stock buyback activity until one year after the loan is paid back.
Per the Wall Street Journal, takers on the loans will be prohibited from stock buyback activity until one year after the loan is paid back.
At least as originally proposed, the Sec of Treasury could waive that provision at his discretion.
Yes so this topic is rather interesting because there are several reasons for share buybacks by railroads........
Share buybacks by railroads would probably be a lot more rare if interest on the debt was not tax deductible (this is by far the biggest reason they happen). It is a no risk way to increase EPS especially in a a low interest rate environment. So if you folks find this worrisome or a bother then write your Congress person they are responsible for the incentive to do this (tax laws). This is why some companies do not pay any taxes, their debt load is so high and interest payments so high they can erase most of their income taxes assessed. Again Congress is to blame here not the Corporation for taking advantage of tax laws on the books.
Now buying back stock for a railroad to boost performance bonuses is a problem that needs to be handled by the Board of Directors of that specific railroad. However, this would not also be happening as frequently without the tax deduction on debt interest payments.
Last buying back stock as a strategy to increase debt and fend off potential takeover by a cash strong railroad, I think is a useful merger defense and I do not see anything wrong with that.
Ahh - but now that the big $2T+ stimulus bill is about to be passed - will any railroads be looking for any of that emergency money? And the strings that will come with it?
- PDN.
My recollection was that the interurbans without utility ties were went under quicker than the ones with tility ties. OTOH, the Scioto Valley was abandoned in 1930 by a healthy parent company.
The Insull empire crashed because the Insull in charge decided that loading up on debt financing was a good idea right after Samuel Insull spent a lot of effort getting rid of debt.
Erik_Mag MidlandMike Presedent Trump said he did not want to see corporations use the proposed stimulus for stock buy-backs. Nevertheless, the Republican Senate wrote the bill without such restrictions. The bill did restrict buy backs until the loans from the bill were paid off. On the subject of debt vs equity financing, one of the key take-aways for me from Hilton & Due's book on electric interurbans was tha debt financing was bad news for any cyclical or declining business. They hinted that at least of few of the interurbans may have survived a bit longer with a lower debt load. A more modern take on the evils of debt financing is what happened to Linens & Things?
MidlandMike Presedent Trump said he did not want to see corporations use the proposed stimulus for stock buy-backs. Nevertheless, the Republican Senate wrote the bill without such restrictions.
Presedent Trump said he did not want to see corporations use the proposed stimulus for stock buy-backs. Nevertheless, the Republican Senate wrote the bill without such restrictions.
The bill did restrict buy backs until the loans from the bill were paid off.
On the subject of debt vs equity financing, one of the key take-aways for me from Hilton & Due's book on electric interurbans was tha debt financing was bad news for any cyclical or declining business. They hinted that at least of few of the interurbans may have survived a bit longer with a lower debt load.
A more modern take on the evils of debt financing is what happened to Linens & Things?
I was glad when I heard the bill was amended to have some oversight of the corporate bail-out.
On the interurban debt, was there a tie-in with the utilities that often owned them?
It's that old game, like good cop, bad cop.
Presedent Trump said he did not want to see corporations use the proposed stimulus for stock buy-backs. Nevertheless, the Republican Senate wrote the bill without such restrictions. The Democrats balked, but Pres Trump now says they should have passed the bill in the original form. Nothing ever seems to change.
A large chunk of the huge 2017 tax cut was funneled to corporations. The cut was sold by claiming those funds would be reinvested in improving efficiency and building new plant, as well as repatriation of profits kept overseas. For the most part that did not happen. Instead they often engaged in stock buy-backs. So it is understandable that giving corporations more money - $500 million - should not be permitted to be used in that manner again.
Juniata ManWell; looking at the two eastern carriers NS is about 55% down from their six month high and CSX about 60%. And the debt both incurred hasn't gone away so; there is your answer. . . .
Turned out pretty well for the hedge fund investors and any other shareholders who were along for the ride, though. But the next shareholders may have a rough ride, based on the above. But by now they should know this risk they're getting into (or staying into if they had shares along the way).
He made some good points, and at least some jurisdictions are following through with shutdowns...but.. most aren't, and that's simply going to prolong the agony. He's right in that most companies can withstand a 30 day shutdown but almost none could withstand an 18 month shutdown.
He seemed a little bit nervous.. but aren't we all.
Well; looking at the two eastern carriers NS is about 55% down from their six month high and CSX about 60%. And the debt both incurred hasn't gone away so; there is your answer.
If I've taken any perverse humor from this pandemic it was seeing "Mr. Hedge Fund" Bill Ackman show his hysterical butt last week.
The rise in the Dow Jones, far out pacing any real improvement in the economy as it affects real people and wage earners, has been predominately fueled by stock buy backs - no matter the source of the funds.
Hedge Funders, in their modus operandi have been all about companies increasing their debt and buying back stock to 'increase shareholder value'. They don't really care how the companies they have seized control of can handle the debt, so long as the can sell blocks of the shares they own/control at high prices, companies buying back their shares create a false market.
Never too old to have a happy childhood!
Over the last 10 years or so, many companies have been boosting share price by issuing long term debt and buying back shares of stock so the fewer remaining outstanding shares have a higher share price for remaining stockholders and stock option holders to be able to cash out at a higher price than they otherwise would have. This has euphemistically been called "investing in the company" (they actually say it with a straight face), but the net result is companies saddled with permanent long term debt and financial difficulties in any economic slow down.
Some of the Class 1 railroads have almost doubled their long term debt "investing in the company" this way, but have no real capital improvements to show for all the borrowed funds.
When a company touts that it has returned more than 100% of profits to shareholders in a given year, it really just means they are shifting future profits to the current year and current shareholders, and future shareholders will get less profits as inflated debt payments reduce future net income.
As part of the COVID-19 support package, one potential part of the law is to restrict using borrowed funds to buy back stock. Stock buybacks from retained earnings is one thing - they are making the decision based on what is currently available for current shareholders. Stock buybacks fueled by saddling the company with enormous long term debt is basically using future stockholders' profits and leaving them with less.
It is not just the railroad industry that has used this financial procedure - other industries have also used this technique to juice current shareholder prices by shifting what would have been future profits in to the current year.
Of course, with the recent downturn, the debt that was used to boost share prices through buybacks is still on the books, but "poof" - the share price is now back down where it was five and six and seven years ago.
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