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Is Argentina’s poverty rate 41%, 35%, or 8%? The answer is yes
Fairly recently, another well-respected poverty measurer, the Catholic University of Argentina’s Observatory for Social Debt (UCA - ODSA in Spanish) made waves by publishing an excerpt of their next report (coming out in March, you can see the whole thing here) which asserts the country’s poverty rate is actually 40.1%, a truly historic (and disheartening) number. If you go to compare with another reliable provider of poverty statistics, the World Bank, and measure according to each of its three leading poverty lines (1.90 dollars a day, 3.20 dollars a day, and 5.50 dollars a day) Argentina overperforms both UCA and INDEC: 0.5%, 0.7%, and 7.7%. The World Bank’s data is very accessible, so you can check their work with very simple math: their poverty lines are about $4500, $7000, and $10000 respectively, so they are much lower than the official figure - hence the figure. UCA hasn’t been particularly forthcoming about their sources or methodology.
So since INDEC’s data isn’t coming out until March (partly for the painfully obvious reason that they measure every semester and the second half of 2019 isn’t over yet), we will need to answer a fairly simple question: which of these three poverty rates is the correct one - and keep in mind the difference is around 16 million people, who may or may not be poor. To properly answer this question, we must first look at the highly contentious history of Argentina’s poverty statistics.
Some generalizationsThe wide consensus (at least to my knowledge) is that there’s three ways to measure poverty: by consumption, by income, and by unmet basic needs (NBI in Spanish)
Measuring NBI poverty is extremely simple: you ask people if they have access to basic amenities (toilets, running water, education) and the basic quality of their life (building materials, overcrowding), and then calculate how many of them don’t have their basic needs met. Since this is difficult and time consuming, INDEC generally only asks during the National Census, and in the last census the figure (analysis from the Treasury Department) was around 17.7%. Obviously this is useful data to measure long term problems, but using poverty statistics nearly a decade after collecting them is clearly inadequate.
Consumption would be the clearest, best indicator for poverty: do people consume enough to have a decent standard of living?. Since most people don't have detailed, itemised lists of their monthly consumption habits (and many won’t share that information regardless), you can do a rough estimate of how much they need to consume to qualify as not poor (as has been detailed in the first paragraph) and then use income as a proxy for consumption.
Argentina does this by building a basket for nutritional requirements (The Basic Food Basket or CBA): they calculate how many nutrients people need to survive, how they satisfy their nutritional requirements (for example, Argentinian people adore red meats); adjust for income level, education, area of residence, etc; and then you measure indigence by asking if they make more or less than the value of the CBA.
Poverty is trickier, because there are many spending items that are extremely hard to take into account, especially when families move around the life cycle (parents of young children and the elderly don’t have the same spending patterns). But you can, by doing lots of observations, approximate this number (the Total Basic Basket or CBT) since people tend to spend fixed fractions of their income on food; that number is called Engel’s Coefficient, and by multiplying the CBA by the inverse of Engel’s Coefficient (for example, Argentina’s EC is about 40%, so the inverse is 2.5) and you should have the value fo CBT.
A brief history of povertyArgentina, having a fraught history marked by coups, authoritarianism, and instability, doesn’t have a long tradition of keeping accurate national statistics. The national poverty rate was debuted in 1988, where it showed 22.5% of the population was in poverty; by the end of the next year, the number jumped to 47.3% due to a hyperinflationary crisis. This rate, according to this INDEC publication, was based on studies from the National Survey of Homes (EPH in Spanish), where experts determined a poverty line based on the consumption preferences of the average Argentinian. The EPH results were published twice a year, and only covered people in the Buenos Aires metro area, where about 40% of Argentinians live.
In the 90’s and in 2001, the EPH was tinkered so it could better reflect some changes in preferences; a big do-over came in 2003, where a humber of things were changed: the contents of both baskets (to get on with the times), the geographic coverage (to include some other urban centers), and frequency (from twice a year to quarterly, although poverty data is still biannual) - most of these changes affected the employment section of EPH, though.
Everything ran smoothly until 2007, under the tenure of Presidents Néstor and Cristina Kirchner; that year, Secretary of the Treasury Roberto Lavagna (who was widely supportive of INDEC) resigned and was replaced by Felisa Miceli, a much weaker figure who left a lot of day-to-day operations to Secretary of Commerce Guillermo Moreno. After the consumer price index (IPC) was consistently higher than expected, Moreno began pressuring several experts into releasing the names of companies who were raising their prices, in breach of several price control agreements. INDEC refused, since it was illegal, and what followed was a long, messy intervention, where renowned experts were replaced by Moreno’s cronies and several high-ranking officials resigned or where pushed out. After the intervention, IPC was consistently underestimated, so since the CBA and CBT are indexed to inflation, they were much lower than expected, until they completely contradicted reality and common sense: in 2013, Argentina had a lower poverty rate than Germany. The poverty and indigence indicators were discontinued in 2014 under the orders of then-Secretary of the Treasury Axel Kicillof, who publicly claimed poverty “was a deeply stigmatising figure”. INDEC’s numbers, from 2007 to 2016, are deeply flawed and unreliable; it was during this time that UCA’s number became so relevant, since it was the most reliable estimate for poverty.
In 2015, President Mauricio Macri (an opponent of the Kirchners) came to power, and among his key achievements was restoring INDEC’s professionalism and reputation by appointing qualified experts to key positions. The EPH was retooled yet again in 2016, to include even more urban centers, a more comprehensive CBA, and some other less relevant modifications.
The main takeaway from this sections is that, since the 2003 and 2016 EPHs have different baskets and measure different things, they cannot be compared accurately. But nobody need worry - a 2018 paper by Leopoldo Tornarolli, a researcher at the University of La Plata, tried to estimate the poverty rate in the 2003-2017 period by using EPH data, additional data, and some clever math. Here’s a chart summarising the results, and also comparing to UCA’s 2010-2015 estimates (the only ones available in its historic series, coincidentally - or maybe not) - you can see UCA’s poverty and indigence series here as well.
So, as you can see, the results are highly problematic.Going back to our initial question: is the poverty rate 7.7%, 35.4%, or 40.8%?
Why is there a difference?Obviously, we are going to assume that INDEC’s poverty rate is correct, so poverty in the first semester of 2016 was actually 35.4% if measured by their definition.
Firstly, let’s look at the World Bank - a venerable institution if there is one. Their poverty lines are, as mentioned, woefully inadequate, since poverty is clearly not 7.7% in the current context. This doesn’t mean their data is false, or that their measurements are incorrect: simply that their definition of poverty is not useful in the current context. The precise value of their income figures, for one, are wildly dependant on the exchange rate, which jumped from the low 40’s in the first quarter to 45 in the second and 63 in August, after Macri was unexpectedly trounced by Fernández in the primaries; it now stands at 80, based on a 30% tax on most purchases of and with US dollars.
So, UCA’s turn has come: is their data trustworthy?. Looking at their latest figures, it’s hard to say. They mention on the nearly 125 slide summary that they retooled their poverty estimates, so it’s not useful to look at those outside the historic series. There’s nothing wrong with this approach, since, in stark contrast to previous years (look at 2018’s, for example) they do not include their historic series. This is slightly more suspicious, but still understandable - they may want to prevent misreadings (but yet, why publish an incendiary figure like 41% poverty with 0 context). Also worth pointing out: the graph is a reconstruction of INDEC’s poverty series using a secret methodology (much like Tornarolli’s work), with the red line showing their own estimates, which are roughly equal to INDEC’s.
The biggest thing worth pointing out is that UCA doesn’t calculate income poverty, or NBI poverty - their poverty rate is based on a multidimensional approach that includes both. This is both a sound, valid choice, and the biggest reason why they must not be compared to INDEC: it is literally comparing measurements of apples and oranges (this has not stopped pundits, and the President himself, from claiming poverty is now 41%).
There’s been further developments in the UCA saga: via a tweet, the University has admitted that their estimate of poverty, using INDEC data and econometrics wizardry, hovers between 32 and 34%, which they attribute to “differences in measurement and sampling”. People did not enjoy this development: INDEC’s well-respected Director, Jorge Todesca (a Macri appointee who is now retiring) called this step “political, and with an authoritarian bent”. Even more damningly, the respected econometrician Martín Rozada published his own estimates based on other INDEC data, which also neared 33%. UCA’s conduct is suspicious at best, and partisan at worst; the weird, unexplained decisions they’ve made must be cleared up, since it’s eroded their credibility in just a couple of weeks.
What about other countries?It is fairly common for countries to claim to have “the lowest poverty rate in the region”; I actually came across the World Bank numbers after a Uruguayan person posted them, boasting that their home had only 2.9% poverty (and countless Argentinians pointing out the 27-point difference between the figures).
Sociologist Daniel Schteingart had this exact same question, according to this article he wrote for a left-leaning magazine so he ran the numbers using 2016 data and found some interesting facts (unfortunately his data isn’t available and I couldn’t find it independently). Very correctly, he points out Argentina uses a much more rigorous standard than, for example, the World Bank (looking at Tornarolli, the official poverty rate is much lower than the revised one even when INDEC was still credible, because the poverty line was more lenient). The most interesting part is this chart, showing Argentina’s poverty rate in 2016 using various other poverty lines (the chart is not the original, which is both in Spanish and in an awful resolution). Another interesting question is how high could the poverty rate of other countries be if they used our poverty line: extremely high for less developed countries, laughably low for developed ones.
ConclusionMeasuring poverty is both hard and important: most people care about their fellow citizens, and having bad results in this front ( as Macri undoubtedly did) is reason enough to vote a government out. But you can’t dredge up any results you like and call it a day - the intervention of INDEC during the Kirchner era is still considered one of their biggest mistakes. You can have a nuanced argument about how to measure poverty - but faking or distorting figures, not to mention just not measuring them, shows a complete unwillingness to actually fix the problem besides short-term considerations. You can disagree with others on the how, but just refusing to acknowledge reality is proof enough that you can’t solve any problem more complex than first grade math.
$LYV Free (Or Die!): Fuzzy's Live Nation Breakdown
It's me, Fuzzy. Sorry 4 The Wait. Notice anything different? I agree - this does look good on me (seriously though, it's just so I can beat the auto-mod). Shoutout to the real mods for setting this up - long $WSB.
It's been a crazy week in the debt markets which means it's been a crazy week for me, so I've been a little slow in getting this up. But now it's aperitivo hour at Casa de Fuzzy and I've cleared my inbox, so as promised way back in my $PLAY breakdown, today we're going to be looking at $LYV's debt package. I'm excited about this one. Long-time readers know that Fuzzy loves music so we should be able to work a few choice cuts and some groan-worthy puns into the mix here along with your regularly scheduled breakdown.
Before we do though - let's check the scoreboard on our previous posts. $SIX. $SEAS. $PLAY. In the words of the immortal Dion Waiters -
"MEN LIE WOMEN LIE [DEBT] DNT".**( u/pokimane, don't worry, girl - obviously this doesn't apply to you).
No matter what the equity price says, the true health of most companies can be divined by what's going on with their debt, especially in these crazy times. Here are some of the (new/surprising) things that I've been seeing most frequently over the last week:
- A lot of companies in the market are experimenting with 'freezing' EBITDA or whatever their equivalent metric is at 12/31/2019 levels to get the benefit of the good fiscal environment last year to ease them through 2020.
- Covenant relief waivers are everywhere and most lenders are asking for steep consent fees to grant them and minimum liquidity covenants to make sure no one goes bananas with their cash.
- Interest rates on new debt are approaching usurious levels because of the risk factors involved with new money.
- Virtually *every* non-IG company currently in the market is asking for a dedicated debt carveout for whatever form the Main St. loan program winds up taking. This signals that availability is going to be widespread and that (a bit like the Fed phantom bailouts we've been talking about in the comments and in my $F post) the true target is not small business but mid-to-large cap publicly traded companies (again, signals suggest that this will be distributed predominantly in the retail and hospitality space). From what I've hearing these loans are going to be (i) unsecured (ii) at incredibly low rates and (iii) partially (or even entirely) forgivable.
- $LYV's 10-K.
- $LYV's Credit Agreement (conformed through Amendment No. 6). Now, before any of you nerds or JV traders in the back get smart with me, I know that Amendment No. 7 is the one they've just passed, so there is a more current version, but that hasn't been filed yet. Lucky for you guys, though, I managed to get my hands on a copy. My post reflects the doc conformed through Amendment No. 7 so you're just going to have to take my word for it on some of this stuff. When it gets filed publicly I'll update the post with a new link if you want to fact check me.
- $LYV's press release describing what they're doing with Amendment No. 7.
- Some music. If like Fuzzy you love jazz, funk and/or crate digging do yourself a favor and spend some of your FD money on some Stone's Throw shit. Thank me later.
- A drink. If you want to do it Fuzzy-style I like an espresso to wake me up and something stronger - bitter and Italian - to wash it down around this time of the day, but whatever floats your boat will do just fine. Although your mom and I get along like a house on fire, I'm not your real dad, slugger, and I can't tell you what to do.
Final notes for first-timers or slow learners:
- If you have specific questions, feel free to ask in the comments - I'll respond to anything sincere and/or funny.
- Don't ask me what to buy - long-time readers know I don't give advice for free and I'll just roast you and make you look like a big dummy.
- Most upvoted ticker gets the post after $LULU which will drop on Friday.
1. $LYV-Ing on a Prayer: Target Review
Remember that you can't review these documents in the abstract; you need to look at them in the context of the company's overall financial picture. That means understanding what makes the company tick. So let's do that. $LYV's business has three main arms: (i) production of live events (ii) management of talent and (iii) sales of tickets. They have a pretty solid claim to being the biggest player in each of these markets - especially following the acquisition of Ticketmaster in 2016, which gave them a massive ecommerce platform to go with their solid actual product offerings. They describe this structure as a flywheel which is a bullshit concept cribbed from a shitty book called Good to Great that a lot of c-suite wannabes and West Coast business school grads swear (OK, maybe not Stanford) by but I'll just call it what it is which is a well diversified corporate structure with some sensible synergies between the different limbs of the business.
Side note: I hate business jargon or corporate-speak. Whenever you see someone obscuring simple concepts behind complex or overly metaphorical language it's the ultimate tell that that person either (i) wants to hide how easy their job really is from the world at large or (ii) doesn't actually understand what the fuck they're talking about. This is absolutely fucking endemic in the legal/finance industries and it's part of the reason I do these posts. As I tell my idiot juniors, if you can't explain it in two sentences - max - you don't get it, so don't fake it with fancy words.
Anyway. Last year's financials (my COMMENTS IN CAPS). The more important stuff is in the next section (Feb 2020 numbers) and considering COVID but for the purposes of this section let's just go through it.
FY 2019 NUMBERS
- Revenue: $11.5 Billion (up 7% YOY) GOOD
- Operating Income: Up 19% to $325 Million (up 19% YOY) GOOD
- Adjusted Operating Income: $943 Million (up 14% YOY) GOOD - ALTHOUGH TAKE WITH A GRAIN OF SALT FOR THE SAME REASONS WE DISCUSSED IN OUR EBITDA BREAKDOWN
- "Event-Related Deferred Revenue": $1.2 Billion as of December 31 (up 10% YOY) SALES FOR FUTURE EVENTS - THIS IS ALWAYS A GOOD INDICATOR
- 38 Million concert tickets sold for 2020 Shows (up 10% YOY) COOL
- Confirmed shows up 30% YOY OK
- 70% of Budgeted Sponsorship Net Revenue Committed for 2020 THIS IS REALLY GOOD BECAUSE IT SHOWS THAT THEIR SPONSORSHIP REVENUE IS CLIMBING. TO HAVE REACHED THIS FIGURE IN FEB IS A SIGN OF HEALTH
So, we're going to need to look at how they might deal with this in the context of their debt package. Remember - debt isn't bad. Every company runs on debt. But debt does eventually need to get paid back - there's no such thing as a free lunch (except maybe when Papa Trump is buying) - and not being able to pay it back can mean nasty things. $LYV have massively reduced revenue coming in for the foreseeable future (not zero, as they still have the agency side of the business going). They also don't have huge overheads or rent costs like the other businesses we've looked at, so that's good. But they will need some cash liquidity to keep going and so we need to think about what they can incur along with what they'll need to pay back.
2. $LYV Debt Structure Breakdown
$LYV's current debt package looks like this:
- Delayed Draw Term A Loan: $400,000,000 term loan facility due October 17, 2024 available to be drawn in up to 10 borrowings within 24 months of the Amendment No. 6 Effective Date; subject to pro forma maintenance covenant compliance for any single borrowing >$100 million
- Term B-4 Loan: $950,000,000 term loan facility due October 17, 2026
- Revolver: $500,000,000 revolver due October 17, 2024 2020-1
- Incremental Revolver: $120,000,000 revolver due October 17, 2024
- 4.75% Senior Notes ($950m)
- 4.875% Senior Notes ($575m)
- 5.625% Senior Notes ($575m)
- 2.5% Convertible Senior Notes ($550m)
- Term Loan (TL). Think of these like a great one night stand. Let me explain. A TL is like a one night stand in that the bank gives it all away up front - no second date required. You just pay amort which is normally 1%. But, 7 years down the line, you have to pay the entire amount back, plus interest. So I guess it's more like a one night stand where you have a great time, don't speak to her again, and 9 months later she's calling you telling you that you've got a brand new smooth brained little rugrat and you better pony up now.
- Delayed Draw Term Loan (DDTL). Like if you agreed to have the same one night stand we talked about in the TL section, but that it could happen on demand. You don't quite feel like it now, but in 12 months maybe you get lonely and after a few too many Frescas you make that risky call, she comes over and hey presto, you're in business. One difference - for the entire time she's hanging out there on the hook waiting around for your call, you have to pay a fee (sometimes called an unused commitment fee) that's a percentage of the overall commitment. The reason the bank needs a fee is that if they're setting this money aside just for you at some indefinite point in the future, they need compensation for not being able to put it to work for someone else in the meantime.
- Revolver. Corporate credit card. Borrow as much or as little as you need and pay it back at your convenience. Once you've repaid part of it, you can borrow it again. Generally used for liquidity and operating expenses.
- Incremental Revolver. We talked about incremental debt in our $SEAS post but basically this means that you have the capacity to add additional debt into your existing credit agreement (rather than going out and getting a brand new credit agreement from someone else). You can get incremental term debt too - sometimes even incremental DDTL debt for the truly deviant.
So. Here's where it gets interesting. $LYV actually has a pretty conservative and bank friendly credit agreement. You hopefully know how this works by now - let's rocket down to the negative covenants to learn the rules they've gotta play by to keep the lenders happy.
Unlike many borrowers in today's market, $LYV's credit agreement actually has a maintenance covenant on both the revolver and on the term loan (peep Section 8.10; CTRL+ "Financial Covenant"). This means that there are certain ratios they need to stay in compliance with in order to (i) keep the banks happy / not have to repay money / be in default and (ii) incur certain additional debt. In this case, it's "Consolidated Net Leverage Ratio" - CTRL+F to find out that this means that the debt to EBITDA ratio needs to be at a certain level.
Obviously, the EBITDA here is going to take a huge hit moving forward, so this covenant is toast for the next 12 months. So what $LYV have had them do (and this is in the next Amendment, so don't stress that you can't see it yet) is freeze the EBITDA for 2020 at the 2019 levels to make sure they won't be in breach. Cool idea, huh? In return, the banks asked for a couple of things:
- During this period, certain limitations on debt buybacks (when they repurchase debt from the lenders) / restricted payments (paying for shit or making dividends) / investments AND
- A minimum liquidity covenant of $500 million. This (essentially) means that they need to keep $500 million in free cash on hand for the period of the EBITDA freeze period. They get to include $150m of that "Event Deferred Revenue" in here, plus whatever's not drawn under the revolver, so really it's $350 minus the $120m new incremental revolver so it's $220m cash on hand in total.
I'm not going to walk through all the baskets but let's look at the key ones. Everything other than the incremental stuff is in Section 8.06 "Indebtedness". The great thing about these Credit Agreements is that once you teach yourself to read it once, they are all easy to work through because the important shit is generally in the same place every time.
- Incremental debt - Let's go to Section 2.06(f)(i)(x). This is how much shit they can incur as incremental debt before they get any extra credit - $985 million bucks. This gets built up by an unlimited amount provided they comply with a 3.75x secured debt leverage ratio which also gets the benefit of their EBITDA freeze I discussed above. To get really technical there is a drafting error in the new amendment which means they could technically tap this without complying with the new liquidity covenant (some junior is going to get pasted for this a few years down the track if this gets abused). Guess the banks should have hired Fuzzy. $LYV board members, if you're reading this, give me a call.
- Ratio debt - Check out section 8.06(f). This fucking word jumble - if you pick out the only bit that matters which is the bit that refers to "compliance with Section 8.10" - says that they can incur unlimited debt if they're in ratio compliance. Remember that ol' EBITDA freeze? Ding ding ding again. They can tap this bad boy for as much as they need as long as they're in covenant compliance, which isn't an issue for the next little while at least.
- General debt - Money they can use for whatever they want. These guys actually have two of these baskets which is pretty cool - have a look at 8.06(j) and 8.06(bb). First one is for the greater of $500m and 7.5% of their total asset value and the second is for $460m subject again to covenant compliance (with the kicker that this needs to be unsecured debt only). I imagine they will tap the second basket for the Main St. loans we talked about on top but the first one is great and can be combined with the other baskets above.
- Foreign subs - Money that can only be borrowed by non-US entities. 8.06(h) - $500m which is a lot for this kind of basket but I guess makes sense if they are structurally spread out. There's also a dedicated $75m basket just for an Aussie sub so I guess they have a lot of interest in kangaroo boxing or whatever the fuck it is those people do down there.
That's all for me today Fuzz fam. $LULU on Friday. Hit me with the next ticker in the comments.