CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at -$5.7 billion. New issuance for the week was $8.1 billion and year to date HY is at $164 billion.

(Oil & Gas Journal) US rig count drops for third time in 6 weeks

• The overall US rig count has recorded its largest decline since before the drilling rebound commenced in late May-early June of 2016.
• Baker Hughes’ tally of active rigs in the US dropped 4 units to 954. However, this week’s downward movement was primarily supplied by gas-directed rigs. The overall count is still up 550 units since the bottom of the drilling dive on the weeks ended May 20-27, 2016.
• US oil-directed rigs edged down a unit to 765, also their third drop of the past 6 weeks, during which time they’ve added just 7 units. They’re still up 449 units since May 27, 2016.
• Gas-directed rigs fell 3 units to 189, mostly stagnant since May but still up 108 units since last Aug. 26.
• US crude oil production, meanwhile, continues to rise according to preliminary estimates from the US Energy Information Administration. In EIA’s more-accurate monthly report based on its EIA-914 survey of producers, the agency indicated that May production averaged 9.17 million b/d, up 60,000 b/d from April. Weekly preliminary data for the month, however, put average May output above 9.3 million b/d, indicating that, for a second straight month, more-accurate survey data lagged behind preliminary weekly data.

(Fierce Cable) Altice’s Charter bid could be as high as $185B

• Hungry European telecom conglomerate Altice could be prepping a bid as high as $185 billion for Charter Communications.
• According to Reuters, the No. 2 U.S. cable company is worth $180 billion including debt—but excluding any takeover premium.
• However, analysts have serious doubts as to whether Altice—which has a market cap of around $23 billion to go along with $22.6 billion in debt—has the balance sheet needed to entice Charter shareholders, notably the cable company’s biggest investor, Liberty Broadband and its chief, John Malone.
• “On the most positive view of synergies, we don’t think there is enough value for Malone and other Charter investors to accept a deal where they cede control, despite holding the majority of the pro forma equity, while taking on the risk associated with a deal,” said a New Street Research investor memo spearheaded by analyst Jonathan Chaplin.

(Business Wire) AES Reports Second Quarter 2017 Financial Results; Reaffirms 2017 Guidance and Long-Term Expectations

• AES reported financial results for the three months ended June 30, 2017. Compared with last year, the Company benefited from higher margins, primarily driven by higher availability at certain generation businesses, and lower Parent interest expense.
• Consolidated Net Cash Provided by Operating Activities for the second quarter of 2017 was $251 million, a decrease of $472 million compared to the second quarter of 2016. The decrease was primarily driven by the receipt of overdue receivables at Maritza in Bulgaria in 2016, and the impact from the recovery of high purchased power costs at Eletropaulo in Brazil in 2016. Second quarter 2017 Consolidated Free Cash Flow (a non-GAAP financial measure) decreased $448 million to $106 million compared to the second quarter of 2016, primarily due to the same drivers as Consolidated Net Cash Provided by Operating Activities.
• “In the last few months, we completed the acquisition of sPower, the largest independent solar developer and operator in U.S., brought on-line an additional 122 MW in the Dominican Republic by closing the cycle at DPP and closed on $2 billion in non-recourse financing for the 1.4 GW Southland CCGT and energy storage project in California,” said Andrés Gluski, AES President and Chief Executive Officer. “These are concrete steps towards achieving our growth objectives, based on long-term, U.S. Dollar-denominated contracts, with decreased carbon intensity. Overall, we are making good progress on our 5 GW of projects under construction, with the exception of our 531 MW Alto Maipo hydroelectric project in Chile, where we are disappointed with the project’s current status and continued cost overruns.”
• “Our second quarter results reflect our efforts to improve the efficiency of our portfolio through higher availability and our capital allocation decisions that resulted in lower Parent interest,” said Tom O’Flynn, AES Executive Vice President and Chief Financial Officer. “Based on our performance year-to-date, we are reaffirming our 2017 guidance and expectations through 2020.”

(Bloomberg) Junk Bonds Slump as Morgan Stanley Sees a Bigger Unwind Ahead

• A high-yield bond fund run by BlackRock Inc. slumped on Thursday to its lowest level since March, a day after Morgan Stanley warned a correction may already be underway. The cost of protecting speculative-grade bonds against default in the credit-default swap market climbed to its highest level since July 6. Investors demanded the most extra yield in almost a month to buy junk debt, according to a Bloomberg Barclays index fixed late Wednesday.
• Investors haven’t abandoned the junk market altogether — Tesla Inc. will probably pay lower-than-average yields on $1.5 billion of bonds it’s selling now. But that kind of enthusiasm for speculative-grade securities may get increasingly rare, Morgan Stanley analysts said.