TIE Increases

As we discussed in the textbook, in general, there is no absolute number that is best for a particular financial ratio. However, when the economy is bad or uncertain, it is better if leverage ratios are more conservative to help avoid financial distress. During the COVID lockdowns, this is exactly what happened to the times interest earned (TIE) ratio for most companies. The median TIE increased from 6.1X prior to the pandemic to 8.6X during the pandemic. This was true even for below investment grade companies, which showed an increase in the TIE from 2.8X to 4.1X. Given that the cost of borrowing is beginning to rise, this bodes well for companies.

SEC Sues Vale SA

In January 2019, the Brumadinho dam in Brazil collapsed, sending a mudflow that killed 270 people. The dam was built by Vale SA to hold tailings from a copper mine. Now, the SEC is suing Vale SA, stating that the company made false claims about the safety of the dam, obtained fraudulent stability certificates, and regularly misled investors through its ESG statements. The SEC does not require that companies file ESG statements, but the Climate and ESG Task Force of the SEC is tasked with identifying false or misleading claims. In other words, consistent with its other directives, the SEC is concerned about the truthfulness of statements and disclosures made by a company.

Rivian Lockup To Expire

Electric car company Rivian went public on November 9, 2021, which means its lockup, scheduled for 180 days after the IPO, is scheduled to expire next week. A lockup prohibits early investors and corporate insiders from trading the company's stock prior to the lockup expiration. In this case, Ford and Amazon are two early investors with large stakes in Rivian, but nether has indicated whether it will sell Rivian shares. A stock price can often drop significantly after the lockup as large shareholders attempt to sell shares. However, Rivian is down about 70 percent from its IPO price, so a price drop after the lockup may not happen. For example, Meta Platforms and Uber both saw price increases after the lockup. As the article states, the market is forward looking, so the potential price drop may already factored into the stock price.