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Untying the Knots: Simplifying Corporate Actions

30 June 2022 Madhu Ramu

Understanding the impact of corporate actions is necessary when contemplating the right investment strategy. This impact is driven by timely awareness, accuracy, and attention to detail. In this blog, S&P's Global Corporate Actions will discuss some of the most dominant corporate actions announced each month and the roles they take in the marketplace.

The Economy vs. the People

Just as the world begins to recover from the pandemic, we are faced with inflation, disrupted supply chains, and a looming recession that is impacting businesses, investors, and almost every other human globally.

Feeling the heat across the globe


China's zero Covid-19 tolerance approach is impacting supply chains and "may trigger 'massive losses' for the tech industry, " impacting China's economy and tech costs across the globe [1].

North America

In an effort to combat record-high inflation, The Fed has issued record-high interest rate increases. In June, the Fed raised the federal funds rate by three-quarters of a percentage point, with anticipated increases in July and September, at the least. With unprecedented highs across the board, few parties seem certain that The Fed is taking the best approach, but time will tell, and we can cross our fingers in the meantime [2].

The silver lining for house-hunters out there: While your interest rate may not feel "prime", demand has weakened, leaving less competition. You might even pay under the asking price [3]!


The prolonged Russia-Ukraine war has led to the disruption of many supply chains, most notably natural gas, which has hiked the fuel prices we all feel. Whether by decree or by sanction, Russia has drastically reduced natural gas exports to Europe, North America, and countries across the globe [4].

Anyone invested in cryptocurrency? As with the rest of the market, it's not looking good. With the collapse of even Stablecoin, an already confusing crypto market now carries a few extra question marks. This massive dip in crypto value (recent $17 Billion) has spurred a new urgency from policymakers to regulate the cryptocurrency market [5].

Corporate Action in Tandem

As always, S&P's Global Corporate Actions Team is in tune with current market conditions, triple-checking every canceled Dividend, Merger, or unusual Issuer behavior, to relay the most up-to-date and accurate corporate action details to our customers.

Predictably, a major trend to note is the impact of economic conditions on SPAC firms and their investors. In our February edition of "Untying the Knots", we talked about expanding SPACs into a new market, while existing SPACs face mounting pressure to find and close deals before they are forced to liquidate. With the current market volatility, investors are increasingly wary of investing in risky SPAC deals. We aren't surprised to see a rise in abandoned SPAC Mergers in 2022 - according to CNBC, their SPAC Post Deal Index has seen a 50% decrease in successful SPAC deals this year [6]!

Several failed deals cite economic and market conditions as the cause, including:

We remain very interested to see how, and if, the SPAC market rebounds. We'll keep you posted!

Section 1446(f) & 1042-S Withholding Tax: What's the Latest?

In May 2019, the U.S. Internal Revenue Service (IRS) imposed a new tax code requiring brokers to withhold amounts realized from sales of publicly traded partnerships by non-U.S. persons. Under Section 1446(f), it states that if a foreign partner has gained on the sale or exchange of a partnership interest, the purchaser/transferee of the partnership interest must withhold 10% of the amount realized on that sale or exchange unless the transaction qualifies for a full or partial exception. Thus, the withholding generally is not based on income flowing through the partnership to the foreign partner [7].

That said, income that is subject to the NRA withholding tax regime as connected to the partnership's U.S. trade or business is instead tied to Form 1042-S. This regime requires 30% withholding on a payment of U.S. source income to a foreign person.

Now, in order to allow for an orderly implementation of the withholding and reporting requirements for partnerships under section 1446(f)(4) and Form 1042-S, the Treasury Department and the IRS amended the applicability of its provisions so that the new tax code will apply to transfers that occur on or after January 1, 2023 [8].

Declared in August of 2021, the industry welcomed the extension as it allowed sufficient time to plan the best possible solution for implementing the necessary changes. The initial Untying the Knots post discussing the same can be found in our August 2021 edition.

2022 LATEST:

When S&P's Global Corporate Actions Team heard of the delay from 2022 to 2023 back in August 2021, the team had a choice to make. Either:

a) push the new Tax Event type creation codes by another year and launch the service then; or

b) implement the new events and codes regardless of industry delay… in case something unexpected happens (which we all know happens frequently).

Needless to say, the team chose Option B. And good thing we did.

As recently announced by the U.S. Depository, the DTCC has commenced with creating and publishing the new Tax Event tied to 1042-S Classifications. These classifications will detail distributions that have multiple components for IRS Form 1042-S tax withholding purpose prior to the distribution's Payable Date, enabling non-US investors the awareness of receiving reduced rates of withholding tax on the payment, rather than having higher rates of tax withheld and having to wait until after year-end to receive tax refunds or having to file for reclaims directly with the IRS.

Therefore, effective July 1, 2022, clients can expect the following corporate actions tied to Form 1042-S:

Cash Dividend/DVCA + Tax Event (1042-S)/OTHR(+ Tax Event (1446(f)/TNDP), when applicable)

Event TypeCA UI Event Type/Sub TypeISO CAEVType of IncomeIncome Type Code
Cash DividendCDDVCA22F::ITYP/IRSX/0099
Other (corresponding event)TX/1042SOTHR22F::TNDP/SMPG/US04
Tax Event (corresponding event)TX/1446FTNDP22F::TNDP/SMPG/US03

Revlon: 'Be Unforgettable' or… Be Forgotten?

Cosmetics giant Revlon, Inc. (NYSE: REV), a once-common household name and revered beauty brand, has found itself fighting for relevancy and revival in the year 2022. After narrowly escaping bankruptcy in late 2020 through a debt restructuring program, Revlon has inevitably succumbed to the pressures of its environment in these latest months. On June 15, 2022, Revlon Inc. and 50 affiliated debtors filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy code, as the firm sits under the weight of its USD 3.3 billion-dollar debt.

So, what happened?

While a number of factors have eventually led to the firm's bankruptcy filing, the most apparent is the element we have seen many times before in the marketplace's latter years: the ole' brick-and-mortar retail struggle. Profusely evident in beauty, apparel, and furniture, Revlon now joins the path previously attempted by other retail-brand giants like Neiman Marcus, Sears, and Loves Furniture. So, on the one hand, we have Revlon battling against the new wave of influencer brands such as Kylie Cosmetics and Rhianna's Fenty Beauty. At the same time, on the other, we see the Company's liquidity dwindling due to the global challenges surrounding supply chain disruption, rising inflation, and hefty debt obligations. One might say… a recipe for disaster.

The latter struggle can be seen through Revlon's inability to fill one-third of its customer product demands as it struggles to find an ample and consistent supply source of raw materials. For example, it currently takes eight to twelve weeks to ship components from China to the U.S., costing four times 2019 (pre-covid) prices.

So, is it over for Revlon?

One of the first thoughts triggered by the word "bankruptcy" is…' uh-oh.' And while that can very likely be the situation, use cases like Hertz or Revlon come into play and flip popular assumptions upside down. So rather than 'un-oh', you now have… 'amazing!' To be explicit, how does Revlon's stock price surge by 600% since its Chapter 11 Bankruptcy filing to the marketplace [9]?

It's all about the buyout, baby. In the case of Revlon, we mean the prospect of a buyout or acquisition… whereby the rumors have already begun to swirl [10]. History shows that buyout offers tied to bankruptcies have almost always come at a premium to the listed price, resulting in a win for investors who held on through adversity. This is the idea or hope that investors bank on.

Now alongside the rumors of a potential buyout offer pumping the REV stock price, there's another component many financial analysts claim to be swelling the price at an exponential rate. That is a short squeeze. While the elements of a short-squeeze can get a bit granular, a 'long-story-short' version is when there is a sharp rise in the price of a stock which forces traders who previously shorted (bet against it) to close out their positions. Thus, the strong buying pressure "squeezes" the short-sellers out of the market [11].

What is interesting to note here are the types of catalysts at play here. Both activators have nothing to do with the Company's fundamentals or reasonable outlook driving the price. One is a gamble based on history, while the other is driven by immediate personal gain. This is where and why Corporate Actions become highly critical in investing. The Issuer-driven events support the true basis of a stock price, which is why S&P Global's Corporate Actions team will continue to closely monitor such developments tied to Revlon's equity and fixed income securities. That includes the upcoming August 1 interest payment on the Company's 6.25% unsecured notes due 2024… more to come.

Industrie De Nora's IPO: Defying a Broad Listings Slump

Going public was one of the hottest trends in 2021 for companies, with IPOs happening at a record pace amid the ongoing COVID-19 pandemic. Many of the companies who had held off doing so during 2020 finally seized the moment, the bustling market delivering the strongest first quarter for European IPOs since 2000. Scandinavia even saw its first Special Purpose Acquisition Company (SPAC) IPO [12]!

Fast forward to 2022, a slew of factors such as market volatility, rising inflation, and fears of a recession, all compounded by the war in Ukraine, brought the listing boom to an abrupt halt [13].

Putting the brakes on planned initial public offerings (IPO)

Within a week of the Russian invasion of Ukraine, there were no IPOs in the U.K. or Europe and only fourteen worldwide. Since then, more than 300 companies have been waiting on the sidelines until the market stabilizes [14].

One of the first companies to make headlines was the U.K. division of Burger King, which had planned a GBP 600 million flotation on the London Stock Exchange (LSE). More recently, on June 23, the Italian energy group Eni postponed plans to list its retail and renewables business on Euronext Milan [15].

Other notable listings on pause include Efima Oy, the Finnish cloud services company, and its planned listing back in March on Nasdaq First North Growth Market; the listing of Cardiva Medical Inc., a healthcare instruments firm, on the New York Stock Exchange; the IPO of FlexEnergy Green Solutions Inc. on Nasdaq's U.S. primary market, and the follow-on offering of Scana ASA in Oslo.

Against All Odds

While some large companies have tested the IPO waters with little success, Industrie De Nora (IPO-DENR.MI) decided to confidently push ahead with its IPO on June 28 despite adverse conditions. Before the IPO, CEO Paolo Dellacha said, "We are not scared about the current market turbulence; we've got an industrial plan to execute, so we want to go down the finish line [16]." And so they did! The firm overcame market turbulence with its books oversubscribed in less than two hours, according to one of the bookrunners.

Thus, De Nora became the first Company to debut on Italy's primary market since Russia's invasion of Ukraine derailed new listings, albeit with its IPO shares priced at EUR 13.50 per share, the bottom of a range stretching up to EUR 16.50. As part of its plan of action, Italy's green energy firm counted on two cornerstone investors -- seen as strategic partners for the development of the group -- to secure 40% of the offer, defying the volatility that has inhibited several initial public offerings in Europe this year. The firm raised EUR 474 million (USD 501 million) in the IPO, valuing the Company at EUR 2.7 billion (USD 2.8 billion) [17].

There was a strong demand from institutional investors, where the Company received orders for 3.5 times the offer at the IPO price. Additionally, the selling shareholders have agreed not to sell any more shares for 180 days; the Company for 365 days.

De Nora plans to use the proceeds to grow its existing business and fund any acquisitions of compatible businesses, a bookrunner said [18].

Trading in the shares started on the Milan stock exchange on June 30, following Europe's first major IPO since the Ukraine invasion.Though only time will tell, if other companies strategize accordingly and follow suit, there may be a renewed hope for the IPO market on the horizon.

Interested in more? Please find:

Global Corporate Actions' April Postings

Global Corporate Actions' March Postings

Global Corporate Actions' February Postings

Global Corporate Actions' January Postings

Global Corporate Action's November Postings

Global Corporate Action's October Postings

Global Corporate Action's September Postings

Global Corporate Action's August Postings

Global Corporate Action's July Postings

Global Corporate Action's June Postings

Posted 30 June 2022 by Madhu Ramu, Managing Director, Corporate Actions, S&P Global Commodity Insights

IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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