Month: August 2018

31 Aug 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

As summer winds down, it was another quiet week in the credit markets, and spreads are set to finish the week a touch wider on global trade concerns.

According to Wells Fargo, IG fund flows for the week of August 23-August 29 were +$965 million. IG flows are now +$91.421 billion YTD.

Per Bloomberg, there was just $2.5 billion of new issuance printed during the week. Bloomberg’s tally of YTD total issuance stands north of $774bn.

(Bloomberg) When Diversification Doesn’t Spread Your Risks

  • If you want to diversify your risks, invest with a bunch of different managers, right?
  • Well, not always. When investment managers create diversity within their funds, chances are they will look similar to other managers also aiming for diversity. And that means they could all succumb to the same ills. This is a widespread issue, but it is highly relevant right now in risky credit markets.
  • A simple illustration is index-tracking equity funds. There is almost zero benefit to investing in several managers that all track the S&P 500: You are just buying the same stocks via different channels.
  • A more complex example is how banking developed over the years before the 2008 crisis. Banks grew large and they diversified across borders and business lines, which was partly to avoid their past mistakes of taking too much risk in one place, such as Texan real estate. But big global banks ended up with many of the same exposures, and so all hit the same problems at the same time.
  • This diversification philosophy also drove securitization, the business of turning a big book of mortgages, for example, into a set of investible bonds. But you know the story: Each deal was diversified and risks were spread around, but too many mortgages were too similar and everybody lost.
  • This idea is alive and well in today’s market for risky leveraged loans, where securitization creates so-called collateralized loan obligations, which buy 60% of loans.
  • Despite the recent boom in the issuance of both loans and CLOs, markets remain concentrated. So CLO portfolios are often similar and the biggest loans are very commonly held, according to data from Fitch Ratings. In the U.S., debt from computer maker Dell International is owned by 86% of CLOs, for example. On average, U.S. CLO managers have roughly one-third of all borrowers in common, while in Europe about half of borrowers are common.
  • There is a simple lesson here for CLO investors: Never assume that investing with multiple managers diversifies your risk, as there is a fair chance you are buying many of the same underlying loans.
  • But there is a potential pitfall here that everyone should note. Today’s loan market has a much greater concentration of deals with low ratings, single-B and below, which are more prone to downgrades and defaults. More low-quality loans everywhere likely means more widespread losses when a downturn comes—no matter what kind of diversification you think you have.


(Bloomberg) Moody’s upgrades Abbott Laboratories’ senior unsecured rating to Baa1, outlook remains positive          

  • Moody’s Investors Service (“Moody’s”) today upgraded Abbott Laboratories’ (“Abbott”) senior unsecured rating to Baa1 from Baa2. The company’s commercial paper rating was affirmed at Prime-2. The rating outlook remains positive.
  • “The upgrade reflects the company’s continued progress deleveraging since the 2017 acquisitions of St Jude Medical and Alere,” stated Scott Tuhy, a Senior Vice President at Moody’s. Moody’s expects that Abbott’s debt/EBITDA will approach 3 times by the end of 2018. Debt/EBITDA was approximately 3.4 times as of June 30, 2018. “The upgrade also reflects the progress the company has made integrating its acquisitions. In particular, Abbott’s Cardiovascular and Neuromodulation businesses — the significant majority of which is legacy St Jude operations — has shown accelerating revenue growth and expanding operating margins since the merger,” added Tuhy.
  • The positive outlook reflects Moody’s expectations for further deleveraging into 2019 as the company reduces debt and improves earnings. Upward pressure is tempered by the company’s recent track record of increasing debt to fund acquisitions.





31 Aug 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.4 billion and year to date flows stand at -$33.5 billion. New issuance for the week was $0.0 billion and year to date HY is at $131.2 billion, which is -24% over the same period last year. 

(Bloomberg) High Yield Market Highlights

  • U.S. high-yield bond activity was muted this week, with no pricings or launches to speak of in the market. Issuance so far this year is the lowest YTD total since 2010
  • YTD total return is 2.05%
  • Yields gained across ratings

(Reuters) Aluminum products maker Arconic in talks to sell itself

  • Aluminum products maker Arconic Inc is discussing acquisition offers for the entire company, even though it announced a sale process last month only for its building and construction systems unit, people familiar with the matter said.
  • The move comes after Arconic, which was spun out of Alcoa Corp in 2016, said in February it would carry out a “strategy and portfolio review,” to be completed by the end of 2018, but has provided little detail about what this entails.
  • Arconic is speaking with private equity firms that have shown interest in acquiring the company, including a consortium of Blackstone Group LP and Carlyle Group LP, another consortium of KKR & Co and Onex Corp, as well as Apollo Global Management LLC, the sources said.  

(Chicago Business Journal) After scotched $3.9B merger, Sinclair-Tribune in dueling lawsuits

  • After the proposed $3.9 billion acquisition of Tribune Media Company by Sinclair Broadcast Group Inc. went south earlier this month, the two media giants have filed dueling lawsuits.
  • On Aug. 9, Chicago-based Tribune Media sued Maryland-based Sinclair for $1 billion for breach of contract and misconduct “to hold Sinclair accountable” after the $3.9 billion deal fell apart.
  • It fell apart mainly because in July FCC Chairman Ajit Pai expressed “serious concerns” about the Sinclair-Tribune Media deal and ordered a hearing on the deal in front of an administrative law judge that essentially killed the deal.
  • Sinclair fired back at Tribune Media, filing a countersuit in the Delaware Court of Chancery, claiming that the Chicago media company “is seeking to capitalize on an unfavorable and unexpected reaction from the Federal Communications Commission to capture a windfall for Tribune.”
  • In a statementChris Ripley, president and CEO, says Sinclair “fully complied with our obligations under the merger agreement and worked tirelessly to close the transaction.”  

(Modern Healthcare) California Assembly passes bill to cap dialysis reimbursement

  • In a major blow to dialysis giants DaVita Healthcare Partners and Fresenius Medical Care, the California Assembly late Wednesday passed a bill to crack down on third-party premium assistance for dialysis and cap providers’ reimbursement to Medicare rates if they don’t comply with the mandate.
  • The legislation now has a good chance of getting signed into law by Democratic Gov. Jerry Brown. It would serve as a landmark victory for insurers and unions in the long-brewing battle with the dialysis industry. The bill takes aim at the American Kidney Fund, a not-for-profit that subsidizes individual market premiums for dialysis patients who are covered by Medicare and Medicaid. DaVita and Fresenius are major contributors to the organization, and insurers accuse them of using Obamacare’s guaranteed issue provision to game the system and steer patients into plans that will bring in more profits.
  • The bill isn’t the only battle DaVita and Fresenius are fighting in California. There is also Proposition 8, a ballot measure pushed by one of the country’s largest hospital unions, Service Employees International Union–United Healthcare Workers West (SEIU). The measure would slash dialysis reimbursement to 115% of cost, and a healthcare coalition backed by DaVita and Fresenius said the measure could bleed losses for the dialysis corporations, hospitals and even state and federal coffers.
  • The union tried to secure similar ballot initiatives in Arizona and Ohio but failed. In California, dialysis and union groups have spent more than $40 million in the advertising fight over the initiative.
24 Aug 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Investment grade corporate spreads were essentially unchanged in what was a relatively quiet week for the credit markets.

According to Wells Fargo, IG fund flows for the week of August 16-August 22 were +$1.9 billion. IG flows are now +$90.456 billion YTD.

Per Bloomberg, $8.25 billion of new issuance printed during the week. This paltry figure for issuance was unsurprising, as the last two weeks of August are typical very quiet on the issuance front.  August as a whole, however, has been fairly active all things considered, with $75bln of issuance so far in the month.  Bloomberg’s tally of YTD total issuance stands at $771.934bn.


(Bloomberg) Utilities May Still Choose to Retire Coal, Not Upgrade Under EPA Plan

  • Upgrade or retire. The choice for coal-fired plants under the Trump EPA’s new power sector proposal isn’t that different from what they faced under the Obama-era carbon controls the plan would replace.
  • But even with the Environmental Protection Agency’s attempts this time around to pave the way for more coal plant upgrades, many state regulators and utilities still may look to invest more of their dollars in cleaner burning natural gas and renewable energy instead.
  • That is because the reduced upgrade costs coal-fired plants might see due to a proposed change in EPA air pollution permitting requirements may not outweigh the low cost of natural gas.
  • Still, even if just a relatively small number of older plants stay online as a result of the rule, the carbon dioxide and other pollution they put into the atmosphere would be damaging, critics of the plan say.
  • “In some states there will be inertia to extend the life of enough coal plants that it’s worth worrying about if you remember that this is supposed to be a response to climate change,” Joseph Goffman, former senior counsel in the EPA’s air office during the Obama administration, told Bloomberg Environment.
  • Low natural gas and falling renewable energy prices may pull utilities toward the direction of retiring aging coal. But a proposed change to the EPA’s new source review program, tucked in the broader Trump plans, could allow plants to add these technologies while bypassing new pollution control requirements.
  • Under new source review, companies must install controls when they expand or add new facilities that significantly increase emissions of air pollutants such as nitrogen oxides, particulate matter, and sulfur dioxide. The EPA is proposing to assess any emissions increase, historically measured on an annual basis, by also using an hourly rate—a change that could mean power plants could run longer and therefore emit more pollution without triggering requirements to control their emissions.
  • The change “has the potential to change the calculus for these coal plants close to retiring and on the fence,” Meredith Hankins, the Shapiro Fellow in Environmental Law and Policy at UCLA, told Bloomberg Environment. They’ve been “handed this opportunity to upgrade their equipment.”
  • In many cases, making a plant more efficient and allowing it to run longer could help a company’s bottom line, though it would depend on each plant’s situation, Michael Goo, regulatory counsel for the Institute of Clean Air Companies, which represents makers of pollution-control equipment, told Bloomberg Environment at the Baltimore conference.


(Bloomberg) American, United Jump as Airline Investors Bet Worst Behind Them    

  • American Airlines Group Inc. led a surge in U.S. airline stocks as investors bet that strong travel demand and lower fuel prices will help carriers extend a rebound following the industry’s first-half rout.
  • Jet fuel prices have settled below $2.20 a gallon in recent weeks after climbing as high as $2.28 in May. Scheduled talks between China and the U.S. hold out the prospect of easing trade tensions and therefore a better outlook for business trips. And airlines have vowed to slow expansion plans in an effort to raise prices by paring growth in the seat supply.
  • In an interview Monday, American’s president, Robert Isom, said the company is already seeing “great signs” of progress in its efforts to increase sales, cut costs and improve product offerings.
  • “We know we can do better and we’re doing everything we can to accelerate the initiatives we have out there,” Isom said. “We are seeing great signs that they are taking root.”


24 Aug 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.0 billion and year to date flows stand at -$34.0 billion.  New issuance for the week was $0.0 billion and year to date HY is at $131.2 billion, which is -24% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • The U.S. junk bond primary market seems closed for business for the rest of August, as is typical for this time of year since at least 2014. No no issues were priced this week for the third time in 2018. This has been the slowest August since at least 2015, with just $14.7b pricing.
  • Yields dropped for five straight sessions across ratings and spreads tightened amid light trading
  • CCCs continued to beat BBs and single-Bs, BB returns turned positive this week for the first time in seven months
  • CCCs were on top with a YTD return of 4.51%
  • Investment- grade bonds were down 1.55% YTD


(USA Today)  U.S. prison strike prompts solidarity rallies

  • A nationwide prison strike is ongoing, and while there’s no official count of the number of inmates who have acted thus far, solidarity rallies have popped up across the U.S. in an attempt to pressure the nation’s criminal justice system.
  • The goal of protesters is to put an end to what organizers refer to as “modern-day slavery,” a practice where inmates are paid slave wages for labor. Such is the case in California, where prisoners are assisting in efforts to fight wildfires and being paid as little as $2 per day.
  • “I think the outcome is likely to be greater public awareness about the difficult and inhumane conditions that many prisoners face across the country – an elevated public attention to the broad issues as well as some of the more specific concerns that prisoners themselves have raised,” said Toussaint Losier, assistant professor of Afro-American Studies at the University of Massachusetts and author of “Rethinking the American Prison Movement.”
  • While inmates inside detention centers peacefully protest, activists outside of the penal system are working to raise awareness by holding rallies in various city squares and outside correctional facilities.
  • The demands, a total of 10, were arranged by the inmate-based organization Jailhouse Lawyers Speak. The demands include the immediate improvement of prison policies, an increase in prisoner wages and rescinding laws that prevent imprisoned persons from having a chance at parole.
  • The inmates also are calling for more rehabilitation services and voting rights.
  • The final day of the strike – Sept. 9 – also carries symbolism. That’s the day in 1971 that the Attica Prison riots began in New York, eventually leaving more than 40 people dead when police stormed in to re-take the facility.


(Bloomberg)  Skittish In the Leveraged Loan Market

  • For much of the past year,loan investors have been pushovers. Now, they’re showing signs of pushing back.
  • Money managers have demanded better terms on a spate of deals this week, including a $1.475 billion loan for the buyout of chemicals company SI Group. Prices for the debt have fallen in August. And underwriters had to boost rates on 16% of the leveraged loan deals they were syndicating to lure investors, data compiled by Bloomberg show. That’s the worst since 2015, when oil prices were nosediving and credit markets broadly sold off as they braced for Fed tightening.
  • The market is still strong by many measures, but cracks may be developing in one of the best performing fixed-income markets in the U.S. this year. The pipeline of loans linked to acquisitions for syndication after the Sept. 3 Labor Day holiday is about twice the size of last year’s, with about $27 billion teed up as of last week — so supply is likely to be strong.
  • With the Federal Reserve hiking rates, money managers have piled into investments like loans, which pay higher interest as central banks tighten, and into collateralized loan obligations. That demand has lifted the size of the U.S. leveraged loan market to around $1.3 trillion — now larger than the high-yield bond market — and spurred some companies to take out loans instead of selling bonds.
  • But that trend may reverse as the Fed shows signs of being closer to the end of its rate hiking process


(CAM Note)  Suburban Propane’s rating outlook moved from negative to stable at S&P

  • The revised outlook was due in part to credit positive steps that Suburban has taken to reduce distributions, reduce leverage, increase flexibility, and stabilize margins.


(CNN)  Toll Brothers’ record shows the American housing boom has no end in sight

  • Unemployment keeps falling and home prices keep going up. It’s a great recipe for a strong housing market.
  • Nothing has been able to stop the housing boom — not even higher interest rates.
  • Luxury home builder Toll Brothers (TOL) said Tuesday that demand for its houses was strong across the country — the company signed a record number of contracts last quarter.
  • Toll Brothers reported quarterly financial results that easily topped forecasts and raised its outlook for the year, citing a backlog of new homes for the third quarter.
  • Higher rates do not seem to be an issue for prospective buyers, mainly because the job market remains strong and housing prices are rising.
  • The only weak spot was California, where demand cooled a bit.
17 Aug 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.4 billion and year to date flows stand at -$34.0 billion. New issuance for the week was $10.2 billion and year to date HY is at $131.2 billion, which is -22% over the same period last year. 

(Bloomberg) High Yield Market Highlights

  • The primary market looks set to hibernate for the rest of this month.
  • Starwood’s $300 million five-year senior notes offering has not finalized terms yet, may price today
  • Investors continued to vote for junk bonds with an inflow for the week ended August 15, the third consecutive positive week
  • Retail funds have seen inflows in five of the last six weeks
  • Yields fell, spreads were steady, stocks rebounded, VIX dropped, commodities recovered and oil rose slightly
  • CCCs beat single-Bs and BBs, with a YTD return of 4.16

(PR Newswire) Aircastle Corporate and Senior Unsecured Credit Ratings Upgraded to Baa3 by Moody’s

  • Aircastle announced that Moody’s Investors Service has raised the Company’s corporate family and senior unsecured credit ratings to Baa3 from Ba1 based on Aircastle’s improved performance prospects, reduced fleet risk, conservative capital position and effective liquidity management.
  • Mike Inglese, Aircastle’s Chief Executive Officer, stated, “Aircastle is now part of a select group of global aircraft leasing companies with investment grade credit ratings from all three major rating agencies.  We are very pleased that Moody’s, S&P and Fitch recognize the strength of Aircastle’s business platform and our unique position in the industry.”  Mr. Inglese continued, “As the leading investor in the secondary aircraft market, Aircastle is positioned to continue to grow in a disciplined and profitable manner.  We believe that three investment grade credit ratings will substantially broaden Aircastle’s liquidity base and funding access, and should enable us to efficiently raise competitively priced capital in the global markets to further drive profitable growth.”  

(Company Filing) Dish CFO resigns

  • Mr. Steven E. Swain notified DISH Network that he was resigning as Senior Vice President and Chief Financial Officer effective August 22, 2018.
  • The Boards of Directors designated Paul W. Orban as the principal financial officer.
  • Mr. Orban, age 50, has served as our Senior Vice President and Chief Accounting Officer since December 2015 and is responsible for all aspects of our accounting and tax departments including external financial reporting, technical accounting policy, income tax accounting and compliance and internal controls for DISH Network.  Mr. Orban served as our Senior Vice President and Corporate Controller from September 2006 to December 2015 and as our Vice President and Corporate Controller from September 2003 to September 2006.  Since joining DISH Network in 1996, Mr. Orban has held various positions of increasing responsibility in our accounting department.  Prior to DISH Network, Mr. Orban was an auditor with Arthur Andersen LLP.  Mr. Orban is a certified public accountant and has an undergraduate degree in Accounting from the University of Colorado.

(Investor’s Business Daily) Diamondback Energy Expands In Permian With Energen Buy

  • Shale producer Diamondback Energy agreed to buy Energen in an all-stock deal valued at $9.2 billion, setting up Diamondback to be the Permian Basin’s No. 3 producer.
  • Under the deal, which includes Energen’s net debt of $830 million, shareholders will receive 0.6442 shares of Diamondback common stock for each share of Energen common stock. This represents a price of $84.95 per share based on the closing price of Diamondback common stock on Monday. The transaction has been unanimously approved by the boards of directors of each company.
  • Earlier this month, Diamondback agreed to acquire all leasehold interests and related assets of Ajax Resources for $900 million in cash and 2.58 million shares of common stock.
  • Management said the Energen buy should close at the end of Q4 and will add to per-share earnings and per-share cash flow in 2019, supporting increases in capital returned to shareholders. But Diamondback will maintain its dividend and assess growth in capital returns in 2019. Earlier this year, the company initiated an annual cash dividend of 50 cents a share.
  • “This transaction represents a transformational moment for both Diamondback and Energen shareholders as they are set to benefit from owning the premier large-cap Permian independent with industry leading production growth, operating efficiency, margins and capital productivity supporting an increasing capital return program,” said Diamondback Energy CEO Travis Stice in a statement.  

(Bloomberg) Amazon Is Said to Be in Running to Buy Landmark Movie Chain

  • Inc. is in the running to acquire Landmark Theaters, a move that would vault the e-commerce giant into the brick-and-mortar cinema industry, according to people familiar with the situation.
  • The company is vying with other suitors to acquire the business from Wagner/Cuban Cos., which is backed by billionaire Mark Cuban and Todd Wagner, according to the people, who asked not to be identified because the discussions are private. The chain’s owners have been working with investment banker Stephens Inc. on a possible sale, the people said. No final decisions have been made, and talks could still fall apart.
  • Pushing into movie theaters would follow Amazon’s expansion into myriad other forms of media, including a film and TV studio and music service. With Landmark, it gets a chain focused on independent and foreign films with more than 50 theaters in 27 markets, including high-profile locations in New York, Philadelphia, Chicago, Los Angeles and San Francisco.
  • Landmark’s theaters are known for art-house fare, and some high-end locations include coffee bars or lounges, setting them apart from the typical movie experience.
  • “This is probably a move to get broader distribution of film content,” said Leo Kulp, an analyst with RBC Capital Markets LLC. “Netflix had been discussed as a potential buyer of Landmark for a similar reason.”
17 Aug 2018

CAM Investment Grade Weekly Insights

Investment grade corporate spreads drifted wider mid-week before firming on Thursday and into Friday morning. As we go to print, spreads for the corporate index are now unchanged for the week.

According to Wells Fargo, IG fund flows for the week of August 9-August 15 were +$910 million. IG flows are now +$88.544 billion YTD.

Per Bloomberg, $29.950 billion of new issuance printed during the week. Relatively speaking, this was a robust week for issuance considering that it is mid-August, a time that is typically associated with lower levels of supply.  In fact, the consensus issuance figure for August was $60bln and that has already been surpassed with $66.2bln in new issuance month to date.  Bloomberg’s tally of YTD total issuance stands at $763.684bn.

Despite a relative deluge of supply, dealer inventories remain very low, near their lowest levels since 2013.


(PR Newswire) Aircastle Corporate and Senior Unsecured Credit Ratings Upgraded to Baa3 by Moody’s

  • Company now one of only two industry players with investment grade ratings from the three major credit rating agencies
  • Mike Inglese, Aircastle’s Chief Executive Officer, stated, “Aircastle is now part of a select group of global aircraft leasing companies with investment grade credit ratings from all three major rating agencies.  We are very pleased that Moody’s, S&P and Fitch recognize the strength of Aircastle’s business platform and our unique position in the industry.”  Mr. Inglese continued, “As the leading investor in the secondary aircraft market, Aircastle is positioned to continue to grow in a disciplined and profitable manner.  We believe that three investment grade credit ratings will substantially broaden Aircastle’s liquidity base and funding access, and should enable us to efficiently raise competitively priced capital in the global markets to further drive profitable growth.”

(Bloomberg) Bayer Vows Stronger Roundup Defense as It Absorbs Monsanto           

  • The German drug and chemical giant said it will formally absorb the U.S. company after selling some crop-science businesses to competitor BASF SE to resolve regulatory concerns. Because U.S. authorities insisted that the businesses operate separately until that sale was complete, Bayer said it previously had been barred from steering Monsanto’s legal strategy.
  • That will now change as the stakes mount in the U.S. battle over Roundup. Bayer is facing $289 million in damages after Monsanto lost the first court case stemming from claims that the weed killer causes cancer. Even if a judge overturns or reduces the award, the trial will probably be the first of many: More than 5,000 U.S. residents have joined similar suits.
  • “Bayer did not have access to detailed internal information at Monsanto,” the Leverkusen, Germany-based company said in a statement. “Today, however, Bayer also gains the ability to become actively involved in defense efforts.”
  • The move to integrate the companies came as Bayer shares continued their slide in the wake of the court ruling, falling as much as 6.6 percent on Thursday. The company has lost about 16 billion euros ($18 billion) in market value this week, since the jury’s award in the Roundup case.
  • Bayer said on Thursday it’s considering its options for further legal action regarding the California listing, saying it “requires judicial intervention and correction.”
  • Bayer is also facing lawsuits in the U.S. over dicamba, another herbicide in Monsanto’s portfolio. The German company said it will also take an active role in any claims for damages over dicamba.

(The Canadian Press) Constellation Brands spending $5 billion to boost stake in Canopy Growth

  • Constellation Brands has signed a deal to invest $5 billion in Canopy Growth Corp. to increase its stake in the marijuana company to 38 per cent and make it its exclusive global cannabis partner.
  • The owner of Corona beer described the deal as the biggest investment yet in the burgeoning marijuana industry.
  • “Over the past year, we’ve come to better understand the cannabis market, the tremendous growth opportunity it presents, and Canopy’s market-leading capabilities in this space,” Constellation Brands chief executive Rob Sands said in a statement.
  • “We look forward to supporting Canopy as they extend their recognized global leadership position in the medical and recreational cannabis space.”
  • Makers of alcoholic beverages, searching for new sources of growth as their traditional business slows in many developed markets, are looking to cannabis as Canada and some U.S. states ease regulations. Molson Coors Brewing Co. has started a joint venture with Hydropothecary Corp. to develop non-alcoholic, cannabis-infused beverages for the Canadian market. Heineken NV’s Lagunitas craft-brewing label has launched a brand specializing in non-alcoholic drinks infused with THC, the active ingredient in marijuana.
10 Aug 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.6 billion and year to date flows stand at -$34.3 billion.  New issuance for the week was $6.5 billion and year to date HY is at $121.0 billion, which is -24% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • The U.S. junk bond issuance onslaught continued yesterday, with five more deals for $4.6 billion priced and strong oversubscription. This week was, the second busiest year-to-date, and most active since March.
  • Global risk appetite took a hit this morning on Turkey contagion worries
  • Demand for high-yield bonds in the primary market was most evident in the pricing of BMC Software, a CCC- credit funding an LBO by KKR
  • Orders exceeded $4.5b for the $1.475b issue which priced at 9.75%, the wide end of talk after tightening from initial whispers of 10%
  • HCA Inc drove-by with a $2b 2-tranche offering on orders of about $7.5b, more than 3.5x the size of the offering; priced at tight end of talk
  • Marriott Vacations had orders of ~$3.8b, 5x the size of the offering, priced through talk
  • Earlier in the week, Springleaf Finance and Wellcare Health were oversubscribed multiple times
  • Junk bond yields are under some pressure as new supply hit, oil dropped for the second straight session and stocks retreated amid continuing trade tensions with China
  • CCCs stay on top as they beat BBs and single-Bs, with YTD return of 4.64%
  • IG bonds are down 2.36% YTD
  • Goldman expects big boost to junk bond issuance from a rebound in acquisition activity by high yield-rated buyers


(CAM Note)  Moody’s upgrades debt of Penske Automotive Group


  • The Moody’s upgrade was based on Penske’s continually improving credit profile. Additionally, Moody’s appreciates the diversity of Penske which helps insulate the Company from headwinds.


(CAM Note)  S&P downgrades debt of AMC Entertainment


  • The S&P downgrade was based on their assessment that discretionary cash flow could turn negative for 2018. Therefore, leverage is likely to remain elevated.  However, S&P did note that AMC has adequate sources of liquidity to fund operations.


(Los Angeles Times)  Tribune Media terminates sale to Sinclair Broadcast Group, seeks $1 billion in damages

  • Sinclair Broadcast Group’s proposed $3.9-billion deal to acquire Tribune Media is dead.
  • Tribune announced Thursday that it is terminating the merger agreement first announced in May 2017. The companies had the option to kill the sale if it had not closed by Aug. 8.
  • Tribune also said it filed a breach-of-contract lawsuit against Sinclair in Delaware Chancery Court, alleging it failed to make its best effort at getting regulatory approval of the sale. Tribune is seeking $1 billion in damages.
  • “In light of the FCC’s unanimous decision … our merger cannot be completed within an acceptable timeframe, if ever,” Tribune Media Chief Executive Peter Kern said in a statement. “This uncertainty and delay would be detrimental to our company and our shareholders. Accordingly, we have exercised our right to terminate the merger agreement, and, by way of our lawsuit, intend to hold Sinclair accountable.”
  • The merger has been on hold since the Federal Communications Commission voted July 19 to have the proposal reviewed by an administrative court, a process that has a history of killing such deals.
  • Sinclair’s plan to buy Tribune’s 42 TV had been expected to benefit from President Trump’s appointment of FCC Chairman Ajit Pai, who is considered a strong proponent of deregulation of the broadcast industry.
  • But Pai raised concerns about how Sinclair planned to divest some Tribune stations in order to meet the national cap on TV-station ownership. Under Sinclair’s plan, Tribune stations in Chicago, Dallas and Houston would have been sold to entities that had business ties to Sinclair for prices under market value. Sinclair also would have retained control of the stations even after the divestiture.


(Bloomberg)  Private-Prison REITs Expand Empires Thanks to Tax Advantages

  • A big part of the success stems from Trump’s plan to spend nearly $2.8 billion next year expanding immigrant detention capacity by 30 percent from 2017. More than 70 percent of undocumented immigrants were held in private prisons last year, according to nonprofit group In the Public Interest.
  • Use of the tax code plays a role, too. CoreCivic and GEO, the biggest U.S. prison companies, are classified as real estate investment trusts. That means almost all their profits from property-related operations are tax free as long as they’re distributed to shareholders through dividends.
  • The tax rules incentivize CoreCivic and GEO to build and lease detention facilities rather than only manage them. They’re doing just that.
  • Boca Raton, Florida-based GEO owned or leased 102 prisons in the U.S. last year, up from 65 in 2013, when it became a REIT.
  • CoreCivic, based in Nashville, Tennessee, reduced managed-only contracts to seven last year from 16 in 2013, the year it also became a REIT. Facilities it owns and manages or leases grew to 82 from 53.
  • “For the past five years, we’ve been very thoughtful about rebidding on CoreCivic Safety’s managed-only contracts when they are up for expiration,” CoreCivic spokeswoman Amanda Gilchrist said in an email. “The margins in the managed-only business are very low, and we are dependent on the government partner to maintain the real estate asset, including maintaining all critical security and life safety systems.”
  • Both companies also have business lines whose revenue is taxable.


(CAM Note)  Both GEO and CoreCivic reported 2nd quarter results that exceeded analysts’ estimates and raised guidance for the year.

07 Aug 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Corporate spreads remained firm this week. The OAS of the corporate index is 1 basis point tighter on the week as we go to print Friday morning.

According to Wells Fargo, IG fund flows for the week of July 26-August 1 were +$2.5 billion. IG flows are now +$79.8 billion YTD.

Per Bloomberg, $7.8 billion of new issuance printed during the week with no deals pending on Friday morning. Bloomberg’s tally of YTD total issuance stands at $699.784bn.

The 10yr Treasury closed above 3% on Wednesday but then retraced several basis points on Thursday. As of Friday morning, 10yrs are unchanged relative to the prior weeks close.

(Bloomberg) Internet Killed the Video Star. Charter Finds the Silver Lining.

  • Charter Communications Inc. offered up more evidence Tuesday that cable companies may yet be able to weather the fallout from the dreaded cord-cutter.
  • Charter reported second-quarter growth in internet subscribers and sales that beat analysts’ expectations. While the U.S.’s second-largest cable company lost 73,000 video subscribers, it was less than expected and the addition of 218,000 new internet customers helped soften the blow. That sent shares up as much as 7.1 percent Tuesday.
  • As cable-TV subscribers disappear in droves, Charter and bigger rival Comcast Corp. are increasingly focusing on growing their internet businesses, selling faster speeds as well as wireless service. Last week, Comcast said it added 260,000 broadband subscribers — its best second quarter in a decade.
  • For cable companies, selling TV service comes with several costs built in, including payouts to channel owners for the rights to carry their networks in a package. Selling high-speed internet, on the other hand, has less overhead after the costs associated with building the network.
  • In the quarter, Charter’s video losses came entirely from basic-cable customers, who bring in less revenue than fatter bundles with more channels.


(Bloomberg) High-Grade Landscape Improves as July Volume Falls to 5-Year Low  


  • The slowest July by primary volume in the last half-decade helped buoy a high-grade credit market that was sorely in need of a pick-me-up. While volume was a a statistical blip, the broader impact on the market was wide reaching.
    • A combination of new issue fatigue, issuers entering self-imposed earnings blackout periods and cyclical summer slowdown translated into disappointing July volume for non-EM, non-SSA, IG totaling just $57.48b vs $122.48b in 2017, a decrease of 53% YoY


    • However, stronger technicals, shrinking dealer balance sheets and positive earnings announcements re-established a robust investment-grade credit market
    • For issuers who proceeded with funding plans, primary metrics illustrate the strengthening backdrop
      • Borrowers paid a meager 2.3bps to bring new deals this month vs the ~5bps new issue concession observed this year
      • Spread compression from IPT to pricing averaged 15.7bps vs 14bps YTD.
      • Orderbook oversubscription rates came in at 2.9 times deal size in-line with the 2.8 YTD average
    • Execution metrics were even stronger during the last two weeks of July
      • Average NICs were flat, orderbooks 3.9 times covered and deal spreads tightened 18bps across execution
    • In the end, funding conditions in July improved to levels not seen since early February when credit spreads, at the tightest level in over a decade, coincided with an ultra-low Treasury yield environment. The reanimation was a lifeline to a struggling credit market that had started the month with spreads widening to YTD highs and issuance costs rising to double-digit concessions on a deluge of supply in late June


(Bloomberg) Credit-Card Backlash Mounts as Kroger Weighs Expanding Visa Ban

  • Kroger Co. is considering expanding a ban on Visa Inc. credit cards imposed by one of its subsidiaries, in the latest signal that retailers are preparing a fresh battle over the $90 billion they pay in swipe fees every year.
  • Shares of payment companies including Visa, American Express Co. andMastercard Inc. dropped on Monday. Merchants have long looked for ways to cut such charges, including by lobbying lawmakers for lower rates and through technology upgrades that avoid traditional card payments entirely.
  • The largest U.S. supermarket chain, Kroger said its Foods Co. Supermarkets unit in California will stop accepting Visa cards at 21 stores and five fuel centers next month. Kroger spokesman Chris Hjelm said in an interview that the parent company might follow the lead.
  • “It’s pretty clear we need to move down this path, and if we have to expand that beyond Foods Co., we’re prepared to take that step,” Hjelm said. When the amount retailers pay in card fees “gets out of alignment, as we believe it is now, we don’t believe we have a choice but to use whatever mechanism possible to get it back in alignment.”
  • Kroger’s announcement followed Walmart Inc.’s decision last week to abandon Synchrony Financial after the two couldn’t agree to economic terms. And Inc.’s foray into financial services has also been seen as a way the retailer could save $250 million.


07 Aug 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at -$34.9 billion.  New issuance for the week was $1.7 billion and year to date HY is at $114.5 billion, which is -25% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • Issuance-starved investors scrambled for Intelsat, the first Ca-rated sale of 2018, placing more than $4 billion in orders for what started as a $1 billion deal.
  • Offering upsized to $1.25b highlighting demand for credit rated lower than triple-C as investors move deeper down the risk spectrum for yield
  • FS Energy and PGT Innovations also oversubscribed by 3x-4x, priced at tight end of talk, as investors made a beeline to rare new issues after a long drought
  • Yesterday was the busiest issuance session in more than three weeks
  • S. corporate high-yield funds returned to inflow
  • CCCs continued to beat other fixed income assets with 4.53% YTD returns
  • Investment-grade bonds down 2.62% YTD
  • Strong technicals, steady economic growth, healthy corporate earnings and low default rate is backdrop for high yield
  • Default rate projected to decline to 1.5% by April 2019 from current 3.7%, according to Moody’s


(Company Release)  Seagate Technology Announces CFO Resignation

  • David H. Morton, Jr., executive vice president and chief financial officer at Seagate, will leave the company for a senior finance executive role at another company. Morton has agreed to assist in the orderly transition of his CFO responsibilities and will leave the company on August 3, 2018. His departure is not based on any disagreement with the company’s accounting principles, practices or financial statement disclosures.
  • Dave Mosley, president and chief executive officer said, “On behalf of the board of directors and executive team at Seagate, I would like to thank Dave for his contributions over his 20+ year tenure at the company. As chief financial officer, Dave championed company-wide efforts to create shareholder value through optimizing our financial model, strengthening the company’s balance sheet and driving strategic investments. We wish Dave the best in his future endeavors.”
  • Dave Morton said, “It has been a tremendous career experience working at Seagate and I am proud of the successful transitions we have accomplished in the business over the last few years. Seagate is well positioned with a strong operational and financial foundation to continue to achieve its strategic goals and create shareholder value.”
  • Seagate will be initiating a search for a successor CFO and has named Kathryn R. Scolnick interim CFO. Kathryn has been a senior finance executive at Seagate for six years leading the company’s investor relations and treasury operations.


(CAM Note)  Morton will fill the Chief Accounting Officer role at Tesla


(Bloomberg)  NY Regulator Rescinds Charter Merger Approval 

  • The New York State Public Service Commission revoked its approval of the 2016 merger between Charter Communications and Time Warner Cable because Charter did not provide the public benefits promised on which the approval was conditioned
  • Commission directed its counsel to bring enforcement action against the company
  • Commission directed Charter to pay $1 million to New York Treasury for missing the June milestone for expanding its service network, bringing the total amount of payments to $3 million
  • Charter is also ordered to file a plan with the Commission within 60 days to ensure an orderly transition to a successor provider, or providers
  • The Commission says the company repeatedly failed to meet deadlines and attempted to “skirt obligations to serve rural communities”
  • Charter says in a statement that Spectrum has extended the reach of broadband network to more than 86,000 New York homes and businesses since merger
  • Charter Communications has a “very strong legal case” in New York State and will litigate if needed against New York regulators, according to comments by management on its 2Q earnings call.


(Business Wire)  Arconic Reports Second Quarter 2018 Results

  • Arconic Inc. reported second quarter 2018 results, for which the Company reported revenues of $3.6 billion, up 10% year over year. Organic revenue was up 5% year over year, driven by higher volumes in the commercial transportation, automotive, aerospace engines, defense, and building and construction markets. This was partially offset by unfavorable aerospace wide-body production mix, and the negative impact of $38 million related to the settlements of certain customer claims.
  • Second quarter 2018 operating income was $324 million, up 1% year over year. Operating income excluding special items was $381 million, down 2% year over year, reflecting the impact of a $23 million charge related to a physical inventory adjustment in one facility, unfavorable aerospace wide-body production mix, and continued challenges in the Rings and Disks operations, mostly offset by higher volumes and net cost savings.
  • Arconic Chief Executive Officer Chip Blankenship said, “In the second quarter, Arconic delivered strong organic revenue growth and doubled adjusted free cash flow. We announced contract awards at the Farnborough International Airshow, providing groundwork for exciting growth with valued customers. We have initiated the sale process of our Building and Construction Systems business as the first outcome of our ongoing strategy review. Our team is delivering operational improvements where we need it the most. While there is plenty of work yet to be done, we are driving progress and generating positive momentum.”
  • Arconic ended the second quarter 2018 with cash on hand of $1.5 billion. Cash provided from operations was $176 million; cash used for financing activities totaled $35 million; and cash provided from investing activities was $117 million. Adjusted Free Cash Flow for the quarter was $289 million.