High Yield Weekly 02/02/2018

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$2.0 billion and year to date flows stand at -$2.3 billion. New issuance for the week was $5.6 billion and year to date HY is at $24.3 billion, which is up 30% over the same period last year.

(Bloomberg) High Yield Market Highlights

• Junk yields were on the ascent amid lackluster stocks and a continuing climb in Treasury yields as the 10Y jumped 3% at close yesterday, the biggest since September; 10Y closed at a multi-year high of 2.789%.
• Junk investors were cautious amid volatility in Treasuries and pulled cash from retail funds
• While prudence and caution prevailed, there was no risk aversion with the primary market pricing $1.85b yesterday
• CCCs outperformed the Energy sector and the high yield index in January amid a flood of issuance
• Investor resilience was reflected again yesterday in the continuing demand for new issues with JBS USA, a single-B credit, getting orders of ~$3b, and pricing at the tight end of talk; boosted the size of the offering to $900m from $700m
• Earlier in the week Shelf Drilling priced at the tight end of talk with orders more than $2b. Scientific Games had orders of more than $3b and increased the size of the offering to $900m from $500m . Western Digital priced its $2.3b offering earlier in the week, at the middle of price talk, with orders more than $4b
• While there was some nervousness and caution caused by volatile Treasuries, the high yield continued to be backed by an overall supportive environment:
  1. The default rate should move lower in 2018 amid a growing economy and improving credit conditions in the commodity sector, Moody’s John Puchalla, wrote in note yesterday
  2. Moody’s Liquidity Stress Indicator was a new low of 2.4% mid-January, suggesting junk issuers were backed by steady economic growth and buoyant credit markets
  3. Corporate earnings have been robust and economic growth was synchronized across the globe

(Bloomberg) Wynn Outlook to Negative Following CEO Investigation

• S&P believes recent misconduct allegations against Wynn Resorts’ founder and CEO, which the company’s board of directors and at least one gaming regulator are investigating, could impair the company’s brand and ability to maintain or renew its gaming licenses.
• S&P changed the rating outlook on Wynn debt to negative from stable
• S&P did also affirm the current ratings of BB-

(Reuters) Hospital operator HCA reports strong quarter

• HCA Healthcare Inc., the largest U.S. for-profit hospital operator, on Tuesday reported better-than-expected quarterly earnings and revenue, helped by higher patient admissions.
• HCA’s same-facility equivalent admissions, which include patients who stay in the hospital overnight and those who are treated on an outpatient basis, rose 2.3 percent in the fourth quarter.
• Hospital operators have been plagued by weak patient admissions in the past few quarters, but HCA has been buying hospitals from rivals in the face of the decline.
• Flu continues to be widespread across the United States and the season is on track to be one of the most severe since 2014/2015, U.S. health officials said last week.
• The company, which operates 179 hospitals and 120 freestanding surgery centers, reported revenue of $11.56 billion, above analysts’ estimates of $11.17 billion.
• HCA, which also initiated a quarterly dividend, forecast 2018 EBITDA (earnings before interest, taxes, depreciation and amortization) of $8.45 billion-$8.75 billion. That was above consensus estimates of $8.4 billion, according to Evercore ISI.

(Reuters) Teva Pharma to raise $5 billion in debt securities

• Teva Pharmaceutical Industries said on Tuesday it planned to raise $5 billion of debt securities as it pushes ahead with a global overhaul aimed at cutting costs and managing its massive debt burden.
• “The net proceeds from the sale of securities … will be used for general corporate purposes, which may include additions to working capital, investments in or extensions of credit to our subsidiaries and the repayment of indebtedness,” Teva said in a filing with the U.S. Securities and Exchange Commission.
• Teva, the world’s biggest generic drugmaker, announced in late 2017 a restructuring that would combine its generic and specialty medicine businesses, cut more than a quarter of its workforce and close many of its factories.
• The plan set a target to reduce costs by $3 billion by the end of 2019, from about $16.1 billion in 2017.