CURRENT STATE OF THE SYNDICATED LOAN MARKET - LSTA
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CURRENT STATE OF THE SYNDICATED LOAN
MARKET
Ted Basta, Executive Vice President – Market Analytics & Investor Strategy, LSTA
Maia Sloss Carson, Senior Counsel – Credit Capital Markets, Wells Fargo
Christian Fundo, Vice President & Assistant General Counsel, JP Morgan
Judith Fishlow Minter, Managing Director, RBC Capital Markets
Shafiq Perry, Vice President & Senior Legal Counsel, HSBC Securities (USA), Inc.
Tess Virmani, Senior Vice President & Associate General Counsel, LSTA
ABA Business Law Spring Meeting, Vancouver - March 28, 2019
PRESENTATION OVERVIEW
• A look at the loan market over the last 12 months
• Covenant packages:
• Baskets
• Collateral leakage
• Additional debt
• Mandatory prepayments
• Headline, credit and systemic risk
• The evolving role of the administrative agent
• LIBOR phase-out
• Spaces to watch…
• Closing thoughts
2
AUDIENCE POLLING – THANK YOU FOR YOUR PARTICIPATION!
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3
AUDIENCE POLLING QUESTION NO.1
“THE WARM-UP”
How many times have you attended this CLE presentation:
A. None. This is my first!
B. A couple of times – I catch it when I can.
C. 5 or more times – I am a veteran!
D. More or less every year it has been presented. (I think the
moderator has changed…)
42018 PANEL TAKEAWAYS
• Tax Cuts and Jobs Act – what effect would the reduction in corporate tax
rate and anticipated deemed dividend rules have on the market?
• The GAO’s determination that the Leveraged Lending Guidance was a
“rule” - would Congress take action on LLG and what might that mean?
• Technical imbalances continued to allow borrowers to get ever greater
flexibility in credit agreements
• Continued prevalence of direct lending
• The (then) new issue - LIBOR phase-out
52018-19 MARKET OVERVIEW
AIDED BY A MORE DOVISH FED, INVESTOR SENTIMENT TURNED
POSITIVE AGAIN IN 2019
S&P 500 Index 10YR Treas (%) 3-MO LIBOR (%)
3,000 3.5
2,750
2,500 3.0
2,250
Jan-17
Apr-17
Apr-18
Jan-18
Jan-19
Jul-17
Oct-17
Jul-18
Oct-18
2.5
2.0
Shanghai Composite Index
3,750
3,250 1.5
2,750
2,250 1.0
Oct-17
Jul-18
Jan-17
Apr-17
Jan-18
Apr-18
Oct-18
Jan-19
Jul-17
Jan-17
Apr-17
Jan-18
Apr-18
Oct-18
Jan-19
Jul-17
Oct-17
Jul-18
Source: Bloomberg 7S&P/LSTA LEVERAGED LOAN INDEX (LLI) RETURNS TOTALED 0.44%
IN 2018; OUTPERFORMING ALL OTHER ASSET CLASSES
10%
4Q18 2018
5%
0.4%
Total Return
0%
0.0%
-2.2% -2.3%
-5%
-4.4%
-10%
-15%
Lev. Loans (LLI) 10YR Treas HG Bonds HY Bond S&P500
Source: S&P Global, LCD 8US CAPITAL MARKETS ARE RALLYING IN 2019 FOLLOWING A BRUTAL
DECEMBER; LOANS HAVE RETURNED 4.2% YTD
15% 5%
Dec-18 YTD-Feb-19 LTM Feb 2018: Return Volatility
10% 4%
LTM Feb 2019: Return Volatility
Total Return
5% 4.2% 3%
0% 2%
-5% -2.5% 1%
-10% 0%
HG Bonds
HY Bond
S&P500
Lev. Loans
10YR Treas
HY Bond
S&P500
Lev. Loans
HG Bonds
10YR Treas
Source: S&P Global, LCD 9PRICES (AND RETURNS) FELL TO MULTI-YEAR LOWS IN DECEMBER 2018
AVG Trade Price Median Trade Price S&P/LSTA LLI Monthly Return
101 3%
100
99 2%
98 1%
97
96 0%
95
-1%
94 -1.0%
-1.3%
93 -2%
92 -2.5%
91 -3%
Dec-17
Dec-14
Dec-15
Dec-16
Dec-18
Dec-18
Dec-14
Dec-15
Dec-16
Dec-17
Source: LSTA Trade Data Study & S&P/LSTA Lev. Loan Index 10LOAN MUTUAL FUND FLOWS TOTALED A RECORD $15B IN DECEMBER
2018
Loan Fund Flows ($ Bils.) Loan Fund Flows as % of AUM (L-axis)
Loan Fund Flows as % of Outstanding (R-axis)
$10 10% 1.0%
$5 5% 0.5%
$- 0% 0.0%
$(5) -5% -0.5%
$(10) -10% -1.0%
$(15) -15% -1.5%
Source: Refinitiv 11S&P/LSTA LEV. LOAN INDEX OUTSTANDINGS INCREASED 20% OVER THE PAST 12
MONTHS TO A RECORD $1.2T AS CLO ISSUANCE TURNED IN A RECORD YEAR
CLO Issuance ($B) Loan Outstandings ($B) Loan Funds CLOs
$150
$125 $1,400
$100 $1,200
$75
$1,000
$50
2014 2015 2016 2017 2018 $800
$586
Loan Mutual Fund Flows ($B) 50% of LLI
$15 $600
$5 $400
$147
12% of LLI
$(5) 2014 2015 2016 2017 2018 $200
$(15) $-
Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19
$(25)
Source: Refinitiv 12LENDING VOLUMES TAPERED OFF AT YE2018 AS UPWARD PRICE FLEX
ACTIVITY ENSUED
Institutional Lending Price Flex Activity New Issue Spread Level
New Money Refinancing Flex Up Flex Down
$120B 30 L+500
$100B 20
L+450
10
$80B
- L+400
$60B
(10) L+350
$40B
(20)
$20B L+300
(30)
$0B
(40) L+250
May-18
Sep-18
Nov-18
Jan-18
Jul-18
Jan-19
Mar-18
May-18
Jul-18
Sep-18
Nov-18
Jan-18
Mar-18
Jan-19
May-18
Sep-18
Nov-18
Jan-18
Jul-18
Jan-19
Mar-18
Source: Refinitiv 13AUDIENCE POLLING QUESTION NO.2
2019 MARKET PREDICTIONS
By year end, leveraged loan market outstandings will:
A. Grow another considerable 20% to exceed $1.4 trillion
B. Contract by more than 15% to under $1 trillion
C. Remain flat at about $1.2 trillion
14COVENANT PACKAGES
BASKETS MAY BE THE MOST HEAVILY NEGOTIATED ASPECT
OF A CREDIT AGREEMENT
• Negative covenants are formulated to embody sweeping prohibitions on
certain categories of borrower behavior. The expansive drafting approach
provides the most lender protection. However, exceptions are needed or too
much would be swept up into the broad negative covenant – baskets provide
this relief.
• Dollar basket/hard cap – a cap of a fixed dollar amount
• Grower basket/soft cap - a cap based on a percentage, e.g., EBITDA or some other
variable
• Builder basket – a basket that is sized by percentage of cumulative consolidated net
income or the borrower’s cumulative excess cash flow that is retained by the
borrower (it literally builds in size as the borrower’s cumulative CNI or retained
excess cash increases over time).
16BASKETS: THE TREND HAS BEEN MORE…AND MORE
(FLEXIBLE)
• Generally, borrowers are asking for both more and larger baskets
• Typically, credit agreements include growers that are tied either to
Consolidated Total Assets or, most often, to Consolidated EBITDA
• Note: EBITDA adjustments increase these baskets too
• Ratio baskets are also generally looser in terms of how much the borrower
needs to delever in order to access them
• Again, consider EBITDA adjustments!
• How do you measure the flexibility?
• One common approach is to add up the dollar and ratio baskets to see the
cumulative total flexibility allowed in the credit agreement as turns of EBITDA
17EBITDA IS THE METRIC WHEN IT COMES TO
FINANCIAL COVENANTS
EBITDA: Adjustments for synergies
2017 2018 Q418
% deals with uncapped EBITDA adjustments
(synergies & cost savings)
36% 49% 42%
Time period for EBITDA adjustments
(months) 18.63 21.21 20.94
Source: Covenant Review, A Fitch Solutions Service 18“J.CREW” AND “CHEWY”: THE WORDS ON EVERYONE’S
LIPS
• Collateral leakage is the area of biggest focus for lenders.
• Treatment of classes of subsidiaries is important: e.g. non-guarantor restricted
subsidiaries, non-wholly owned guarantors, and foreign subsidiaries.
• Market has seen a significant rise in borrowers’ ability to invest on an
unlimited basis in non-guarantor restricted subsidiaries.
• Investment baskets, Restricted Payments baskets, and other permitted asset
transfers, in combination, can be used to transfer value out of the credit
group.
19INCREMENTAL FACILITY PROVISIONS MAY BE THE
SECOND MOST HEAVILY NEGOTIATED ITEM
• Borrower and lenders negotiate:
• Size – how big the incremental facility can be:
• Free and clear basket
• Ratio test
• MFN – the terms of the new debt and what controls / parameters the existing
lenders can put on it
• Amount by which the yield on the incremental debt can exceed the existing
debt
• Maturity date of the incremental debt cannot be earlier than the existing
debt
• No amortization of incremental debt
• Other conditions that borrower must meet?
20INCREMENTAL DEBT CAPACITY THROUGH FREE AND CLEAR BASKETS
MAY BE HARD CAPPED (SET AMOUNT) OR SOFT CAPPED (% OF EBITDA)
Average freebie as a % of
% of deals with a freebie
EBITDA
98% 98%
100% 95% 100%
85% 80%
80% 78%
80%
60% 60%
40% 40%
20% 20%
0% 0%
2017 2018 Q418 2017 2018 Q418
Source: Covenant Review, A Fitch Solutions Service 21BORROWERS CAN BORROW INCREMENTAL DEBT IN EXCESS
OF FREE & CLEAR BASKET IF LEVERAGE RATIO IS BELOW A
CERTAIN LEVEL
Average net first lien leverage ratio
level
6.00
4.13 4.28
4.06
4.00
2.00
0.00
2017 2018 Q418
Source: Covenant Review, A Fitch Solutions Service 22MFN RATES INCREASED WHILE MFN SUNSET PERIODS
DECREASED IN 2018
Average sunset period in
Average MFN Rate (bps)
months
100 20
75 15
13.23
11.91 12
55.27 55.73
51.95
50 10
25 5
0 0
2017 2018 Q418 2017 2018 Q418
Source: Covenant Review, A Fitch Solutions Service 23BORROWERS ARE FOCUSED ON MANDATORY
PREPAYMENTS
• Leveraged-based step-downs
• Longer reinvestment periods
• In some cases, certain asset sales proceeds can be used
to increase the capacity under the builder or available
amount basket
• In some cases, borrowers are requesting changes in the
application of prepayments
24COVENANT-LITE DOMINATES TODAY’S MARKET
Most Institutional Term Loans
are Now Cov-lite • “Covenant-lite” simply means that the
90%
institutional tranche does not have maintenance
covenants; they still have incurrence covenants
80%
and they usually are pari passu with a revolving
70% loan that has maintenance or springing
60% maintenance covenants.
50%
40% • There are two ways to think about covenant-
30% lite:
20% • They reduce lenders’ control and repricing
capability
10%
• They provide borrowers breathing room to
0%
2007 2018 fix companies if something goes wrong
Source: S&P Global LCD 25HEADLINE, CREDIT AND SYSTEMIC RISK
AUDIENCE POLLING QUESTION NO.3
PROJECTED RECOVERIES
Recoveries in the next downturn will:
A. Remain at historical levels of about 78%
B. Deteriorate somewhat
C. Deteriorate a lot – run for the hills!
D. Downturn? This business cycle expansion still has legs!
27THE SECONDARY LOAN MARKET GREW $191 BILLION (20%)
OVER THE LAST TWELVE MONTHS - TO A RECORD $1.2 TRILLION
S&P/LSTA LLI Outstanding ($ Billions) Dec-16 Dec-17 Dec-18
$1,200 30%
$1,100 25%
20%
$1,000
15%
$900
10%
$800 5%
0%
$700
Jan-16 Jan-17 Jan-18
Source: S&P/LSTA Leveraged Loan Index 28THE LEVERAGED LOAN MARKET IS ONLY A SMALL PIECE OF THE
BROADER FIXED INCOME MARKETS
Like Many Markets, Loans Leveraged Loans < 5% of Fixed Income
Have Grown During 10-Year Recovery Markets
3,000 30000
Loan/Bond Outsandings ($BIls)
Inst Loans Municipal
2,500 25000 HY Bond IG Bond 9%
BBB Bonds 3% 18%
2,000 DJIA 20000 LevLoans
4%
1,500 15000
Asset- Treasury
1,000 10000 Backed 34%
4%
500 5000 Money
Markets Mortgage
2% Federal Related
- 0 Agency 22%
1999
2001
2003
2004
2006
2007
2009
2011
2012
2014
2015
2017
Securities
4%
Source: SIFMA, Bloomberg, LSTA, Barclays, Yahoo Finance Source: S&P/LCD 29LOAN MARKET LIQUIDITY IS STRONG IN TODAY’S SECONDARY MARKET
AND DEMONSTRATES VAST IMPROVEMENT DURING TIMES OF HIGH
VOLATILITY
Trading Volume Avg. Size of the S&P/LSTA LLI Annual Loan Turnover Ratio (%)
$1250B 100%
76%
$1000B 70% 75%
$839
$720
$750B 50%
$500B 25%
$250B 0%
12/14 (Ann.)
12/15 (Ann.)
12/18 (Ann.)
2014
2015
2016
2017
2018
Source: LSTA Trade Data Study 30LEVERAGE (DEBT/EBITDA) MULTIPLES HAVE TRENDED LOWER
FOR PUBLIC FILERS IN THE S&P/LSTA LEVERAGED LOAN INDEX
Weighted Average Leverage Median
7.00x
6.00x
5.00x
4.00x
3.00x
4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18
Source: LCD, an offering of S&P Global Market Intelligence 31INTEREST COVERAGE MULTIPLES HAVE HIT HISTORICAL HIGHS
DURING THE LAST THREE YEARS OF THE CREDIT CYCLE
Weighted Average Interest Coverage Median
5.0x
4.5x
4.0x
3.5x
3.0x
2.5x
2.0x
4Q07 4Q08 4Q09 4Q10 4Q11 4Q12 4Q13 4Q14 4Q15 4Q16 4Q17 4Q18
Source: LCD, an offering of S&P Global Market Intelligence
32THE DEFAULT RATE FELL BELOW 1.5% IN JANUARY 2019 AND
IS PROJECTED TO HIT JUST 2% BY YEAR-END
Projected Downgrade/Upgrade Ratio (Rolling 12-Mo.)
LTM Default Rate by issuer count Rolling 3 Mo.
3.0% 3% 3.0
2.5%
2% 2.5
2.0%
1.5% 2.0
1.0%
1.5
0.5%
0.0% 1.0
Jan-17 Jan-18 Jan-19 Jan-20 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19
Source: LCD, S&P Global Market Intelligence. 33FITCH EXPECTS THE BENIGN DEFAULT ENVIRONMENT TO CONTINUE
IN 2019, AND THE POTENTIAL FOR THE LOWEST $DEFAULT RATE
(1.5%) SINCE 2011
2017 2018 2019 Forecast
20%
18%
16%
14%
12%
10%
8% 7.0%
6% 5.0%
4% 4.0%
1.0% 1.5%
2% 0.5% 0.5%
0%
Retail
Overall
Telecom
Broadcast
Energy
Services
Technolo
. & Media
& Misc.
gy (13%)
(5%)
(3%)
(12%)
(6%)
(5%)
() = Sector Weightings
Source: Fitch U.S. Leveraged Loan Default Index. 34OVER THE PAST 30 YEARS, LOAN RECOVERY RATES
AVERAGED 78%
Average Discounted Recovery Rates (last 30 yrs)
100%
78%
75%
50% 45%
25%
0%
Source: LCD, an offering of S&P Global Market Intelligence 35THE EVOLVING ROLE OF ADMINISTRATIVE AGENT
LIBOR PHASE-OUT
SURVEYING LIBOR REPLACEMENT
LANGUAGE IN CREDIT AGREEMENTS
• Loan market participants have developed an LIBOR AMENDMENT LANGUAGE
efficient amendment processes to select a IN 2018 LOAN DOCUMENTS
replacement benchmark in case of LIBOR cessation
• Typically, the borrower and agent select a new rate
• In many cases, the required lenders have an
opportunity to vote via negative consent
• However, less than 1% of deals explicitly
contemplated a credit spread adjustment
(although most arguably allow for such a change)
No Consent*
*This group also includes examples in which no lender consent is required for a
Required Lenders - Negative Consent
“broadly accepted” successor rate, but a negative consent right is given if no such
“broadly accepted” rate exists, and the agent and borrower must identify a Required Lenders - Affirmative Consent
successor on their own.
Source: Xtract, September 38THE ARRC CONSULTATION FOR US$ SYNDICATED LOANS
• What are the ARRC’s two proposals? • What are the four components of LIBOR fallback
language?
o An “Amendment” approach that is similar to
the fallback language that has been introduced o Trigger – What event precipitates a transition from LIBOR to
in syndicated loan agreements over the past 15 the new reference rate?
months. o Mandatory Triggers
o A “Hardwired” approach that anticipates the o ISDA Triggers
transition from LIBOR and sets all the terms for o Pre-cessation Triggers
that transition at the origination of the credit
o Opt-in Triggers - Could reduce the inventory of loans that
agreement (thus avoiding the need for an
would have to be transitioned upon LIBOR cessation, thus
amendment in most cases). Closely aligned with reducing systemic risk
the proposed fallback language for floating rate
notes (and other cash products). o Replacement Reference Rate – What is the new reference
rate for the loan?
o Spread Adjustment – Because LIBOR and the replacement
rate (likely SOFR) are different rates, there may need to be a
spread adjustment to make them more comparable. What is
the mechanism to determine that rate?
o Amendment Process – Some scenarios require
amendments
39THERE ARE PROS AND CONS TO EACH APPROACH
Amendment Approach Hardwired Approach
Terms are not predetermined so may Avoids amendments (in most cases)
require many loans to be amended in
short amount of time
Does not rely on terms that do not Predetermined terms means giving up
currently exist (Term SOFR, flexibility
Compounded SOFR)
Opportunity for winners and losers Less susceptible to gamesmanship (e.g.
no fallback to Prime based solely off of a
lender vote)
Similar to what the loan market has Inclusion will be a bigger change to
already developed / is familiar with current practice
Leverages loans’ unique amendment More closely aligned with other cash
flexibility products
40AUDIENCE POLLING QUESTION NO.4
SOFR PREDICTIONS
To date, there have been no reported SOFR syndicated loans. When
will we see a syndicated loan linked to SOFR?
A. The market is ready – watch this space!
B. The market will be ready in 2020
C. Very likely once SOFR-derived rates (e.g. compounded
average of SOFR) are further developed
D. Never, unless forward-looking term rates are available
41SPACES TO WATCH…
BREXIT CONSIDERATIONS FOR THE LOAN MARKET
Bail-in Contractual
recognition interpretation
provisions
Loss of financial Withholding
services passports tax on interest
Withholding tax on
Governing law, interest
jurisdiction and
enforcement of
judgments
43 43WHAT ARE THE QUALIFIED FINANCIAL CONTRACT (QFC)
STAY RULES?
• The Federal Reserve, FDIC and OCC adopted the QFC Covered Entities include:
Stay Rules in 2017 to improve the reliability and
resilience of GSIBs. • U.S. GSIBs and their subsidiaries
worldwide and
• The QFC Stay Rules require Covered Entities to include
contractual language in certain of their qualified • U.S. subsidiaries, U.S. branches and
financial contacts (QFCs) to: U.S. agencies of foreign GSIBs.
• mitigate the risk of destabilizing closeouts of • For these purposes, a “subsidiary”
QFCs that could be an impediment to the orderly generally means a company that is
resolution of a GSIB and
owned or controlled directly or
• recognize the powers of the FDIC under the indirectly by a GSIB, using the Bank
Federal Deposit Insurance Act and Title II of the Holding Act definition of “control.”
Dodd-Frank Act (Special Resolution Regimes) to
transfer QFCs to a bridge institution and
temporarily stay their closeout.
44WHAT AGREEMENTS NEED TO COMPLY WITH THE
REQUIREMENTS OF THE QFC STAY RULES?
• Only contracts that qualify as “in-scope QFCs” under the Default Right – The QFC Stay Rules define a
QFC Stay Rules need to be conformed to the requirements “default right” broadly to include a right of a party
of the Rules. to liquidate, terminate, cancel, rescind, or
• Generally, an in-scope QFC is a contract accelerate an agreement or transactions
that both: thereunder, set off or net amounts owed, exercise
remedies in respect of collateral or other credit
• is a QFC and
support, demand payment or delivery, or
• explicitly either: suspend, delay, or defer payment or performance.
• provides one or more “default
rights” that may be exercised Transfer restriction – The term “transfer
against a Covered Entity or restriction” broadly refers to any provision that
• includes a “transfer restriction” prohibits a party from assigning its rights or
that restricts the transfer of the obligations to any other party without the other
contract or any interest or party’s consent or allows an assignment only to
obligation in or under, or any
property securing, the contract certain types of entities or subject to certain
from a Covered Entity. conditions.
45
45QFC STAY RULES – HOW ARE THEY RELEVANT FOR THE LOAN
MARKET?
• A QFC includes a “swap agreement,” • In such case, boilerplate • Such agreements may
which is defined to include not only an language will need to be contain provisions that
underlying swap agreement but also any included that recognizes the would render them "in-
guarantee, security arrangement or FDIC's powers under the scope" for purposes of the
other credit enhancement related to a Special Resolution Regimes QFC Stay Rules, such as
swap agreement. with respect to such QFCs terms that limit the ability of
• Syndicated leveraged loan documents and acknowledges that there hedge banks to transfer the
may include a guarantee or security are no cross-default rights benefit of the credit support
interest that supports the borrower's against a Covered Entity with or their status as secured
swap obligations to a hedge bank. respect to such QFCs. parties to an assignee.
These provisions are similar in some respects to the EU Bail-In language, which has become
accepted in the market. Both are mandated by regulatory requirements that aim to facilitate the
orderly resolution of large financial institutions.
46
46WHAT ELSE SHOULD YOU BE THINKING ABOUT?
• Division of Delaware LLCs
• In August 2018 the State of Delaware amended the Delaware Limited Liability
Company Act to allow any Delaware limited liability company to divide into
two or more limited liability companies pursuant to a plan of division.
• Credit agreements typically restrict mergers, asset sales and similar
transactions, but most do not currently explicitly contemplate divisions.
Concern comes out of (i) leakage in negative covenants, especially
Investments and (ii) the further assurances and additional collateral
provisions not picking up newly created “divided” companies
• Credit default swaps, net short debt and the loan market
• Recent examples: Windstream, UNFI complaint
472018 WAS “YEAR OF FIRSTS” FOR
SUSTAINABLE LOANS IN THE AMERICAS
• January 2019: Prologis, a
• April 2018: Iberdrola • June 2018: CMS Energy warehouses REIT,
Mexico closes $400M green closes $1.4B sustainability refinanced its $3.5B
term loan to refinance linked RCF in US; pricing equivalent global credit
three wind farms in Mexico reduced when borrower facility (and accordion
meets renewable energy facility to grow by another
generation targets $1B-equivalent) with
• April 2018: sPower closes sustainability linked RCF.
$175M green RCF in US to Pricing partially tied to
support solar, wind and achievement of certain
storage activities sustainable benchmarks.
• June 2018: AVANGRID closes $2.5B • March 2019: Xylem, a
sustainability linked RCF in US; water technology company,
pricing reduction based on closes $800 million
borrower’s continuous reduction sustainability linked RCF
• April 2018: Terra-Gen closes of emission intensity (sustainability revolver tied to overall
$244M green term loan in indicator independently verified) company sustainability
US to finance construction of performance/external ESG
windfarms in CA and TX rating
48THE LSTA IS COMMITTED TO FACILITATING THE GROWTH
OF SUSTAINABLE LENDING
49AUDIENCE POLLING QUESTION NO.5
PREDICTIONS FOR THE REMAINDER OF 2019
If we fast-forward to this time next year, what is the most likely event
to occur:
A. Supply increases and there’s a technical rebalancing
B. Lenders take a stand and refuse to buy loans
C. Benign credit cycle ends abruptly
D. Geopolitical shock occurs
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