CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows decelerated on the week, but were still positive at $2.3bln. This brings the YTD total to +$241.961bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $20.725bln, and YTD total corporate bond issuance was $1.06t. Investment grade corporate bond issuance thus far in 2017 is down 5% y/y when compared to 2016.

(Bloomberg, El Mostrador) Albemarle Said to Be Interested in Potash’s SQM Stake: Mostrador

• Lithium-producer Albemarle is among the companies interested in acquiring Potash Corp.’s 32% stake in Soc. Quimica y Minera de Chile, says El Mostrador, citing unidentified sources with knowledge of the situation.
  • There’s also interest from Chinese, European and South Korean companies, news website says
  • Albemarle and SQM are the only two lithium producers in Chile
  • Acquisition of a stake in a company that has an ongoing dispute with the Chilean state would complicate Albemarle’s lithium operations in the country, sources tell Mostrador
  • Process is in a preliminary phase and would start formally in October after Potash receives at least two bids; process would last about four months, Mostrador says
• The decision by the main shareholder of SQM to put on sale the 32% that controls in the nonmetallic mining leaves Corfo in a complicated situation. If successful, the purchase would leave the US giant with a dominant position in the lithium business in Chile, something that would be politically unviable for the government, sources close to the operation say. Lawyers who know the industry indicate that blocking the operation would be possible for the State of Chile, but it would not be an easy process or free of controversy.

(Bloomberg) FTC Approves Abbott’s Acquisition of Alere

• The FTC on Thursday approved pharmaceutical company Abbott Laboratories’ bid to purchase Alere , a manufacturer of rapid point-of-care diagnostic tests, on the condition that Abbott sells two point-of-care medical testing units.
• The deal, first proposed in February 2016, hit several snags on its route to approval over issues regarding the Alere’s accounting and sales practices. Abbott was able to reach a deal to buy Alere in April for around $5.3 billion, below its initial $5.8 billion offer.
  • The transaction establishes Abbott as the global leader in point of care testing – the fastest-growing segment of the $50 billion in vitro diagnostics market – and further strengthens the company’s diagnostics presence. The addition of this business aligns with Abbott’s long-standing strategy of shaping the company for growth and complements the leadership positions it has built across its other businesses, which include medical devices, nutritionals and established pharmaceuticals.

(Bloomberg) Chubb to Face Up to $1.3 Billion in Losses From Harvey, Irma

• Chubb Ltd. said losses from Hurricanes Harvey and Irma could total as much as $1.3 billion after taxes.
• Harvey, which hit Texas in August and caused flooding in Houston, will cost the insurer about $520 million, the company said Wednesday in astatement. Claims expenses from Irma, the storm that slammed southern Florida earlier this month, could be $640 million to $760 million. Those figures dwarf the $107 million in after-tax catastrophe losses the insurer took during the third quarter of 2016.
• “For Chubb, these large losses should be manageable within the context of its earnings, capital position and ratings,” David Havens, an analyst at Imperial Capital, said Wednesday in a note. “But this is a big number.”
• “It’s a little on the high side for storm losses,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said by phone. “They’re real losses and affect the book value, but most investors will normalize for these large events because they are very episodic.”

(Bloomberg) A $6.4 Billion Windfall Awaits Big U.S. Banks in Trump’s Tax Cut

• The six largest U.S. banks could see net income rise $6.4 billion, or 7 percent, if President Donald Trump and Republicans in Congress can push through their proposed corporate tax rate cut.
• Banks stand to benefit more than other industries because they typically have fewer deductions. The top six firms — JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley — paid an average of 26 percent in federal taxes last year, almost twice the average for nonfinancial companies, according to data compiled by Bloomberg. The Republican framework released Wednesday calls for lowering the corporate rate to 20 percent from 35 percent.
• The estimates for the tax savings are based on the firms paying a 20 percent effective U.S. federal rate, assuming current deductions are no longer allowed. While earlier versions of Republican tax proposals have talked about eliminating some deductions, the latest plan has scant information on such changes. If some deductions are kept, banks would end up with a lower effective tax rate and their savings would be even greater.

(WSJ) U.S. Seeks to Undo Parker Hannifin’s Clarcor Deal on Antitrust Grounds

• The Justice Department on Tuesday filed an antitrust lawsuit challenging Parker Hannifin Corp.’s $4.3 billion acquisition of Clarcor Inc., alleging the deal created an unlawful monopoly.
• The department, in a legal challenge filed in a Delaware federal court, argued that Parker Hannifin’s acquisition, completed in February, had eliminated the company’s only competitor in the market for products that filter fuel for airplanes. Aircraft fuel must be filtered to remove particles that could cause engine failure.
• The case marks the first merger challenge brought by the Justice Department under the Trump administration. The lawsuit asks a federal judge to order Parker Hannifin to sell off either its own aviation fuel filtration business or Clarcor’s to restore the previous competition in the market.
• “Parker Hannifin’s acquisition of its only U.S. rival for these types of aviation fuel filtration products has effectively created a monopoly in these critical safety products, depriving their customers of the benefits of competition,” said Andrew Finch, the acting head of the Justice Department’s Antitrust Division.
• The lawsuit alleged the company and Clarcor competed vigorously before the merger, resulting in better prices and more innovation for customers. Now, Parker Hannifin has “the power to raise prices without fear of losing a significant amount of sales,” the lawsuit said.
• The department also alleged Parker Hannifin didn’t provide significant documents or data to the Justice Department while it was investigating the transaction.
• The lawsuit comes at a time of transition for antitrust enforcement, as Republican officials begin to take over from Democrats who served during the Obama administration.
• Antitrust enforcement often isn’t considered a partisan exercise, but Republicans have tended to take a more free-market approach. Whether the Trump administration will continue on that path is unclear. , given that President Donald Trump has at times embraced a populist sentiment that can be suspicious of big businesses growing more powerful.
• Mr. Trump’s nominee to lead the department’s antitrust enforcement efforts, Makan Delrahim, hasn’t yet been confirmed by the Senate, but political deputies selected by Mr. Delrahim are already in place and conducting Justice Department business.