Month: September 2018

21 Sep 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Corporate credit spreads are generically 3 bps tighter on the week and the 10-yr Treasury is 8 bps higher than last weeks close. At 3.08%, the 10-yr is close to retesting year-to-date highs of 3.11%.

According to Wells Fargo, IG fund flows decelerated during the week of September 13-September 19 and were +$1.0 billion. IG fund flows are now +$96.361 billion YTD.

According to Bloomberg, issuance on the week topped $29bln which brings the September new issuance tally to $110.2bln and the YTD tally to $883.134bn.

(WSJ) Comcast, Fox to Settle $35 Billion Takeover Battle for Sky in Weekend Auction

  • Comcast Corp. and 21st Century Fox Inc. will settle their takeover battle for Sky PLC in a weekend auction run by British regulators, setting up a dramatic climax to a 21-month sale process that has pitted some of the world’s biggest media giants against each other.
  • The U.K. Takeover Panel, which polices deal making in the country, laid out Thursday rules for the auction. It is a process the regulator hasn’t run many times previously—and never before with such a large company as the prize. London-listed Sky has a market value of some $35 billion.
  • Auctions of big, publicly traded companies are extremely rare elsewhere, too. In 1988, private-equity giant KKR & Co. won a tumultuous auction for tobacco and food giant RJR Nabisco. It beat out a group led by the company’s management in a $25 billion deal, ending a takeover battle immortalized in the book and film “Barbarians at the Gate.”
  • The Sky auction pits Rupert Murdoch’s 21st Century Fox, which already owns 39% of Sky, against Comcast. Walt Disney Co. has separately agreed to buy a big chunk of Fox, including its Sky stake, for $71 billion.
  • That puts Disney Chief Executive Bob Iger and Mr. Murdoch on the same team, bidding against Comcast CEO Brian Roberts. Because Fox already owns a big stake in Sky, the Disney-Fox team has an interest in driving up the bidding, even if it doesn’t ultimately win. That would make the stake more valuable should it decide to sell it to Comcast.
  • Mr. Murdoch has long sought to consolidate his holding in London-based Sky. Disney and Comcast see Sky as a way to expand internationally. The broadcaster also sells wireless, TV and internet services throughout Europe, and it is a media company that produces its own news, entertainment and sports programming.
  • The auction will run through the day Saturday, and consist of a maximum three rounds of bidding. The winner will be announced shortly after the auction ends Saturday evening. If there is a third and final round, it will be conducted with sealed bids—secret, final offers made to the regulator.
  • Fox first offered in December 2016 to buy the rest of Sky it didn’t already own for £10.75 ($14.22) a share. After Fox’s merger proposal hit regulatory and political delays, Comcast made a surprise offer last February, for £12.50 a share.
  • Comcast made the most recent offer in July, for £14.75 ($19.49) a share, valuing Sky at $34 billion. That is above Fox’s current bid, also made in July, of £14 a share.

(Bloomberg) Sempra Energy to Sell U.S. Solar Assets to Consolidated Edison


  • Sempra Energy today announced that it has entered into an agreement to sell its U.S. non-utility operating solar assets, solar and battery storage development projects and one wind facility to Consolidated Edison, Inc. for $1.54 billion in cash, subject to adjustments for working capital and pre-closing cash contributions.
  • “This sale represents an important step forward in the portfolio-optimization plan we announced in June to support market growth opportunities,” said Joseph A. Householder, president and chief operating officer of Sempra Energy. “We plan to work closely with Consolidated Edison to ensure a smooth transition.”


(Bloomberg) Fitch Upgrades Merck’s Rating to ‘A+’; Outlook Stable


  • Fitch Ratings-Chicago-20 September 2018: Fitch Ratings has upgraded Merck & Co., Inc.’s (Merck) Long-Term Issuer Default Rating (IDR) to ‘A+’ from ‘A’. The Rating Outlook is Stable. The ratings apply to roughly $23.5 billion of debt outstanding at Jun. 30, 2018. A complete list of Fitch’s rating actions follow at the end of this press release.
    • Leverage Consistent with ‘A+’ Rating: Merck has reduced its leverage (total debt/EBITDA) since year-end 2015 through a combination of EBITDA growth and debt reduction. Merck’s leverage was 1.4x at June 30, 2018, compared to 1.8 at Dec. 31, 2015. The company reduced debt by roughly $2.9 billion and increased EBITDA by approximately $2.1 billion during the same period. Improving operations, particularly with the performance of Keytruda (cancer), has helped drive EBITDA growth.
    • New Products/ Growth Opportunities: Products approved during the last three years should help to drive intermediate- to long-term, top-line growth for Merck. In addition, Keytruda (cancer) continues to expand, supported by an ongoing stream of clinical data. However, it will continue to face competition from Bristol-Myers and Pfizer/Bayer, which have similar-acting drugs. Merck is also evaluating Keytruda’s safety and efficacy in other cancers and in combination with other cancer therapies. Recent approvals to treat diabetes, cancer and infectious diseases should help to augment long-term growth and diversify sources of revenue.
    • Expanding Late-Stage Pipeline: Fitch expects Merck to continue to build its late-stage pipeline with new therapies to treat cancers, infectious diseases and cardiovascular disorders. While the majority of these projects are internally developed, Merck also partners with innovator firms to take advantage of technological advancements that were discovered externally. Given the breadth and pace of new drug discovery and development, Fitch believes that it is advantageous for firms to look externally as well as internally to optimally build their pipelines.
    • Patent Exposure Manageable: Merck is facing generic and biosimilar competition to Zetia, Vytorin and Remicade. However, Fitch views the risk as manageable with roughly 9% of firm sales at risk. Remicade, which accounts for about 2.1% of total firm sales, is a biologic that will likely continue to experience less rapid sales losses to biosimilar competition, compared to traditional small-molecule pharmaceuticals when a generic enters the market. Interestingly, Merck recently launched its own biosimilar version of Remicade in the U.S. Vytorin and Zetia are small molecules and account for roughly 5.2% of total revenues. Sales erosion for these two drugs has been rapid.
    • Solid Free Cash Flow Expected: Fitch forecasts that Merck will generate $4.0 billion – $4.2 billion in free cash flow (FCF) during 2018. Gradually increasing margins driven by an improving sales mix and decent cost control should augment moderate near-term, top-line growth. Fitch expects FCF to incrementally increase during the multi-year forecast period due to moderately improving margins and stronger top-line growth
    • Targeted Acquisition Likely: Fitch looks for Merck to pursue mainly targeted acquisitions in the intermediate term. The company has improved its operational and financial prospects through successfully gaining regulatory approvals on late-stage pipeline projects and has continued to back fill its pipeline with new and advancing projects. An improved growth and profitability profile decreases the need for the company to execute large strategic business combinations in order to fill pipeline gaps or offset sales losses from patent expiries.
    • Payers Increasingly Demanding Value: While drug pricing is always near the top of contentious issues in healthcare, it has become increasingly so during the past three years. Some of the scrutiny has been self-inflicted by a few firms pursuing significant price increases on long-established drugs. Other concerns surround the high price points of recently approved innovative drugs. Regardless, pharmaceutical manufacturers will increasingly need to demonstrate the value of their therapies to payers, patients and providers with strong clinical outcomes driven by increased safety and efficacy. This dynamic will place further pressure on the research and development efforts of innovative biopharmaceutical firms.

(Bloomberg) Lilly’s Elanco Rises After $1.5 Billion Animal-Health IPO 


  • Pricing the deal higher than expected is a good sign in what will be a test of investor appetite for large, standalone animal-health businesses. The first one to be taken public by a pharmaceutical giant has rewarded investors with a tripling in stock price. Elanco faces the challenge of showing that it can follow suit five years after rival Pfizer Inc. listed its animal-health business, Zoetis Inc.
  • LLY expects to completely sell down its stake in Elanco in 2019 (CAM Comment)



(SEC Filing 8k) Abbot Deleveraging


  • Abbott Ireland Financing DAC, a wholly-owned subsidiary of Abbott Laboratories (“Abbott”), intends to offer senior unsecured notes in an offering exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”), subject to market and other conditions. Abbott will fully and irrevocably guarantee the notes on a senior unsecured basis. Abbott intends to use the net proceeds from the offering of the notes to refinance all or portions of Abbott’s outstanding 2.00% Notes due 2020, 4.125% Notes due 2020, 3.25% Notes due 2023, 3.4% Notes due 2023, and 3.75% Notes due 2026, and for fees, expenses, and other costs associated therewith.
  • Abbott’s forthcoming EUR issuance is expected Monday and proceeds will be used to reduce USD debt. We expect this to be a leverage neutral transaction, but would not be surprised to see ABT reduce more USD debt than the proceeds (CAM Comment)
  • On the last earnings call (7/18/18), CEO Miles White commented “And you say at some point, well, how far would you take debt down? How far would you pay down debt? What are you going to do when you hit the point where you think that that’s enough? And I’m going to give a couple of answers to that. A lot of people seem to get comfortable somewhere between $15 billion and $20 billion. I remember with $15 billion worth of debt is still a hell of a lot of debt.” and further emphasized, “So I think our platter right now says we can afford to just be opportunistic. I don’t have big M&A on the radar screen or big transactions on the radar screen I’d say from a capital or cash allocation standpoint. I’m going to keep paying down debt, because I think that’s a prudent path for now.” (CAM comment)
  • ABT had just over $20bn of debt after repaying just over $7bn in the first six months of this year as of the end of last quarter ended June 30, 2018. (CAM Comment)







21 Sep 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.3 billion and year to date flows stand at -$35.0 billion. New issuance for the week was $6.4 billion and year to date HY is at $142.6 billion, which is -26% over the same period last year. 

 (Bloomberg) High Yield Market Highlights

  • Supply shortage is the continuing theme for U.S. junk bonds, aggravated by more cash flowing into dedicated funds.
  • AkzoNobel priced at the tight end of price talk yesterday as investors shrugged off aggressive issuer-friendly covenants
  • Orders exceeded $2.5b for the $600m offering
  • Covenants allow flexibility to convert asset sale proceeds into restricted payments; permit dividend distribution to sponsor without deleveraging
  • Oversubscription on new issues have become common as investors scramble for yield
  • This week, orders for Refinitiv’s $2.8b USD tranche exceeded $10b
  • Diamondback Energy’s drive-by offering got orders above $2b for a $500m offering, which was increased to $750m
  • IGT and Clearway Energy had 3x-4x the size of the offering and priced at tight end of talk
  • YTD supply is $142b, down 26% from same time last year, lowest since 2009
  • Junk bond spreads, yields little changed across ratings
  • CCCs beat BBs and single-Bs and remained the best performing asset, with YTD returns of 5.59%, a new YTD high
  • IG down 2.62% YTD
  • High yield supported by low default rate, strong corporate earnings, steady U.S. growth
  • Moody’s expects default rate to fall to 2.6% by year-end and 2.2% in August 2019

(Bloomberg) Supply Dearth Elevates Junk Bonds to Top Fixed Income Performer

  • Buy U.S. junk bonds — they’re not selling enough of them.
  • Investors who followed that logic this year are enjoying the best returns anywhere in fixed-income, as high-yield issuance runs much slower than in 2017.
  • September, traditionally a busy month for supply, has been the slowest since 2011
  • Volume is down after years of refinancing and a lack of LBO activity
  • Some financing is being done in the loan market instead of bonds
  • The shortage has pushed investors to reach for yield and give less regard to risk

(Reuters) Cheniere signs 15-year LNG deal with oil trading giant Vitol

  • U.S.-based Cheniere Energy Inc said that it has signed a 15-year agreement to supply liquefied natural gas (LNG) to the world’s largest oil trader Vitol Group that has been steadily ramping up its presence in that market.
  • The move by Vitol is part of a long-term objective shared by many major commodity traders to increase their traded gas volumes as emerging markets seek cleaner fuels for power generation.
  • China in particular has soaked up what many analysts expected to be a significant LNG glut this year as it replaces some of its coal furnaces with gas-fuelled ones.
  • Part of the drive for traders is that the LNG market is becoming increasingly liquid with more spot deals, presenting arbitrage opportunities and supply imbalances that traders thrive off.
  • Cheniere said it will sell 700,000 tonnes of LNG per year to Vitol, starting in 2018 with a purchase price pegged to the Henry Hub monthly average, plus a fee.

(Health Imaging) TriMedx to buy Aramark healthcare division, including imaging tech services, for $300M

  • TriMedx announced plans to buy the healthcare technologies division of Aramark Corporation for $300 million. The two companies have signed a definitive agreement and expect the transaction to be completed by the end of the year.
  • Aramark’s Healthcare Technologies business, which it acquired in 2001, maintains and services imaging equipment and provides management programs for clinical equipment. TriMedx specializes in clinical asset management and clinical engineering services.
  • “We are excited to bring our technology and service model to a greater number of healthcare providers, delivering a comprehensive and differentiated clinical asset management program in an ever-changing environment,” said Henry Hummel, CEO of TriMedx, in a company statement. “We look forward to Aramark HCT’s talented associates joining the TRIMEDX team to support our strategic operating model focused on partnering with healthcare providers to drive measurable and persistent value.”
  • Aramark executives announced plans to use the proceeds of the sale to pay down debt and buy back $50 million in shares.
  • “Today’s action is another demonstration of the clear and focused strategy we are following that has substantially elevated our operating performance and is driving Aramark’s success,” said Eric J. Foss, chairman, president and CEO, in a prepared statement. “The divestiture of our Healthcare Technologies business will further focus our portfolio around our core food, facilities and uniforms businesses. I want to thank and congratulate our HCT team members for their contributions to Aramark and wish them continued success.”

(Business Wire) AMC Entertainment Closes on $600 Million Strategic Investment from Silver Lake

  • AMC issues $600 million Senior Unsecured Convertible Notes due 2024 to Silver Lake bearing interest at 2.95% and convertible into AMC Class A common stock at $20.50 per share, before giving effect to the special dividend noted below; with ongoing cash interest expense of the Notes to be more than offset by the cash dividend savings no longer being paid on the AMC shares repurchased from Wanda.
  • On September 28, 2018, AMC will pay a special dividend of $1.55 per share to all AMC Class A and Class B common shareholders of record as of September 25, 2018. The special dividend will not be paid to Wanda on the shares repurchased by AMC.
  • Silver Lake, a private equity firm with over $40 billion of invested or committed capital, and a global leader in technology investing, receives one seat on the AMC Board and a two-year right of first refusal on certain future transfers of AMC shares by Wanda.
  • With support from Silver Lake in identifying candidates, AMC will add a new independent Director to its Board who will have significant technology experience and knowledge.
  • Wanda and Silver Lake are both wholly committed to continuing AMC’s current growth strategies under the leadership of AMC CEO and President Adam Aron and AMC’s senior management team.
14 Sep 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 -$34.6 billion.  New issuance for the week was $2.7 billion and year to date HY is at $136.1 billion, which is -23% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • The junk-bond index spread fell to just by 13 basis points wide of the post-crisis low as equities neared record highs and volatility declined for a fourth consecutive session.
  • Bloomberg Barclays US Corporate High Yield Bond Index spread fell to 324bps, from 336bps 1 week earlier
  • Post-crisis low was 311bps on Jan. 26
  • Lipper reported an outflow from U.S. high yield funds for week ended September 12, the second consecutive week of outflow
  • Supply slowed, with just $6b pricing MTD, another $6b waiting to price, led by Thomson Reuters
  • MTD volume of $6b was a drop of more than 66% over comparable last year
  • YTD volume stood at $136b, 23% drop year-over-year
  • Supply-starved investors made beeline to Refinitiv/Thomson Reuters with orders of ~$6b for the 1st lien USD tranche, $4b for the USD senior unsecured tranche amid expectations that it would price tighter than initial price talk of 7% area and 9% area, respectively
  • Risk appetite evident in demand for Carvana, a CCC-credit, which had orders more than 3x the size of the offering
  • This followed Pacific Drilling adding a PIK tranche, first since May
  • CCCs continued to outperform BBs and single-Bs with YTD return of 5.17%
  • Investment-grade bonds are down 2.23% YTD
  • Junk bonds supported by low default rate, strong earnings, steady U.S. growth
  • Moody’s expects default rate to fall to 2.6% by year-end and 2.2% in August 2019


(Bloomberg)  United Rentals Expands Footprint With $2.1 Billion Purchase

  • United Rentals Inc. agreed to buy competitor BlueLine Rental for $2.1 billion to bolster its industrial- equipment reach across North America.
  • The cash purchase will add about 46,000 rental assets to the buyer’s fleet in areas such as the U.S. coasts and Ontario, the companies said in a statement. The deal with private- equity firm Platinum Equity, which was approved by United Rentals’ board, is expected to close in the fourth quarter.
  • United Rentals, already the country’s largest equipment- rental company by market share, has been looking to augment its growth across North America with targeted acquisitions. Since the beginning of last year, it has purchased Miami-based Neff Corp. for $1.3 billion, Chicago’s NES Rentals Holdings II for $965 million and BakerCorp International Holdings Inc., based in Seal Beach, California, for $715 million.
  • The latest deal will add 114 BlueLine locations to United Rentals’ stable across 25 U.S. states, Canada and Puerto Rico.
  • The transaction, which isn’t conditioned on financing and will be funded with newly issued debt and bank borrowing, will immediately increase United Rentals’ earnings, the company said.
  • “The deal makes strategic sense for United Rentals, but will keep a brake on its credit profile and bond-performance potential in the near term,” Joel Levington, a credit analyst for Bloomberg Intelligence, said in a note.
  • United Rentals plans to pause its $1.25 billion share repurchase program when the deal closes to allow the company to integrate the acquisition and “assess other potential uses of capital.”


(Business Wire)  HCA Healthcare Chairman and CEO Milton Johnson to Retire 

  • Sam Hazen, the company’s president and chief operating officer, will succeed R. Milton Johnson as CEO on January 1, 2019; he has also been appointed a member of the board of directors
  • Johnson will retire as CEO, effective December 31, 2018; he will continue as chairman of the board of directors through the company’s 2019 annual shareholders’ meeting on April 26, 2019
  • At the company’s 2019 annual shareholders’ meeting, Johnson will retire from the board of directors; on that same date, the board of directors plans to appoint Thomas F. Frist III, a current board member, to be chairman of the board of directors.
  • Hazen has been with the company for almost 36 years. Prior to his present position as president/COO, he served as the company’s chief operating officer, president-operations, Western Group president and Western Group CFO.


(Reuters)  Dalian Wanda trims AMC stake 

  • Chinese billionaire Wang Jianlin’s real estate-to-media conglomerate Dalian Wanda Group is exploring a deal to cut its stake in AMC Entertainment Holdings, the world’s largest cinema operator.
  • The move is the latest sign of how Wanda, like many of its Chinese peers, is under pressure from the country’s regulators to reduce overseas holdings after embarking on a major acquisition spree in the United States and Europe.
  • Wanda is exploring a deal in which AMC would borrow hundreds of millions of dollars through a convertible bond, and then use that money to buy back some of Wanda’s 60 percent stake, sources said yesterday. Wanda controls AMC through its ownership of Class B shares, and aims to retain control after any deal, the sources added.
  • Private equity firms, including Silver Lake Partners and Apollo Global Management, are in talks with AMC about making the debt investment, the sources said. They could obtain board representation at AMC as part of any deal, the sources added.


(Bloomberg)  Hershey to Acquire Pirate Brands From B&G Foods 

  • Hershey agreed to acquire Pirate Brands, including the Pirate’s Booty, Smart Puffs and Original Tings brands, from B&G Foods for $420 million.
  • Hershey expects the acquisition to add to its financial targets
  • Transaction will be financed with cash on hand and short-term borrowings
  • Deal expected to close in the fourth quarter of 2018
14 Sep 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The corporate credit market has had a positive tone this week and the majority of individual credits are at least 3-4 basis points tighter since the week began, while some higher beta credits are close to 10 basis points tighter. Ten year Treasuries are higher on the week and flirting with 3% as we go to print on Friday morning.

According to Wells Fargo, IG fund flows strengthened during the week of September 6-September 12 were +$2.7 billion. Short duration funds continue to garner the lion share of assets.  IG fund flows are now +$95.882 billion YTD.

Issuance on the week topped $27bln which brings the September new issuance tally to $81bln and the YTD tally to $853.934bn (source: Bloomberg).

(WSJ) 5G Needs a Lot More Cell Towers. Some Residents Aren’t Happy.

  • Residents of Denver’s Riviera apartments were surprised earlier this year when a roughly 30-foot-tall green pole appeared a few feet in front of their building entrance. The pole, installed by Verizon Communications Inc. and laden with cellular antennas, was designed to improve cellphone service in the area, but the residents complained about the placement.
  • Months later, it was gone. But that was just a small taste of what’s to come across the country: Millions of Americans will soon encounter similar poles or notice antennas sprouting on existing structures, like utility poles, street lamps and traffic lights, all over their neighborhoods. All four national cellphone companies are pushing to build out their networks with a profusion of small, local cells to keep their data-hungry customers satisfied and lay the groundwork for fifth-generation, or 5G, service.
  • Those plans face pushback in many places, and not just from residents. Officials in some cities say they don’t have enough staff to process applications for dozens or even hundreds of new installations. In some smaller towns, officials say they lack the expertise to review the new technology, though they’re working fast to get up to speed.
  • More than 100,000 small cells are already wired up across the U.S., according to industry research firm S&P Global . Cellphone companies plan to boost their capacity with several hundred thousand more cells to improve existing service and prepare for 5G service, which they see as a potential competitor for cable and fiber optics, among other things.
  • Some of the local resistance is rooted in how small cells work. Companies can usually find space on private property for large cell towers with a range of several miles. Small cells reach only a few hundred feet, so carriers need many more sites, usually on public land, for the system to work.
  • Cellphone companies don’t have much choice if they want to keep up with their customers’ appetite for data, says Jonathan Adelstein, chief executive of the Wireless Infrastructure Association, whose members include wireless carriers. “People wonder why they might be having a dropped call or slow video,” Mr. Adelstein says. “Then they have a vocal minority that are ruining it for everybody” by opposing the expansion of cellular networks.

(Bloomberg Intelligence) Despite Florence, Progressive’s 2H Looks Solid: Earnings Outlook


    • Progressive is on track to post robust EPS growth in 3Q after delivering strong results in both July and August. While September’s catastrophe costs could rise from a year ago due to Hurricane Florence and any other events before quarter-end, this would likely be substantially offset by the more than $200 million drop in the company’s August catastrophe losses vs. August 2017. Progressive has just 1% share of homeowners business in the Carolinas, which should help ease the impact from Florence.
  • Progressive’s results continued to benefit from expanding underlying underwriting margins in August, coming in at 9.7% vs. 8.8% a year earlier. Year-to-date, this metric is up 160 bps to 11.8%. Written-premium growth remained robust at 17%, down modestly vs. July’s 21%, but up vs. 16% in August 2017.



(Bloomberg) JPMorgan Predicts the Next Financial Crisis Will Strike in 2020


  • A decade after the collapse of Lehman Brothers sparked a plunge in markets and a raft of emergency measures, strategists at the bank have created a model aimed at gauging the timing and severity of the next financial crisis. And they reckon investors should pencil it in for 2020.
  • The good news is, the next one will probably generate a somewhat less painful hit than past episodes, according to their analysis. The bad news? Diminished financial market liquidity since the 2008 implosion is a “wildcard” that’s tough to game out.
  • The JPMorgan model calculates outcomes based on the length of the economic expansion, the potential duration of the next recession, the degree of leverage, asset-price valuations and the level of deregulation and financial innovation before the crisis. Assuming an average-length recession, the model came up with the following peak-to-trough performance estimates for different asset classes in the next crisis, according to the note.
    • A U.S. stock slide of about 20 percent.
    • A jump in U.S. corporate-bond yield premiums of about 1.15 percentage points.
    • A 35 percent tumble in energy prices and 29 percent slump in base metals.
    • A 2.79 percentage point widening in spreads on emerging-nation government debt.
    • A 48 percent slide in emerging-market stocks, and a 14.4 percent drop in emerging currencies.



07 Sep 2018

CAM High Yield Weekly Insights

CAM High Yield Market Note



Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.7 billion and year to date flows stand at -$34.7 billion. New issuance for the week was $2.2 billion and year to date HY is at $133.4 billion, which is -23% over the same period last year. 


(Bloomberg) High Yield Market Highlights


  • Junk bonds remained impervious to drifting stocks, rising VIX and falling oil prices as the supply-starved primary priced three drive-by bond offerings yesterday, suggesting healthy appetite for risk.
  • Junk investors shrugged off outflows from retail funds
  • Lipper reported outflows for week ended September 5, the first negative in five weeks
  • Dollar books on Thomson Reuters, rated CCC, are already oversubscribed 4-5 times, amid expectation that it will price tighter than initial price talk
  • Investors ignored high leverage, focused on cash flow, subscriber base
  • Earlier in the week, Intelsat, rated triple-C, got orders of more than $4b for a $2b offering
  • Supply is expected to pick up momentum
  • September is typically busiest or second busiest month
  • Supporting high yield are earnings, low default rate
  • CCCs beat BBs and single-Bs with YTD return of 4.60%
  • Investment-grade bonds were down 2.1% YTD


  • (PR Newswire)   U.S. Concrete Strengthens Aggregates Operations with Strategic Acquisition in Texas
  • US Concrete a leading national supplier of ready-mixed concrete and aggregates, today announced that it has expanded its aggregates business in Texas with the acquisition of Leon River Aggregate Materials, LLC (“Leon River”), a sand and gravel producer based in Proctor, Texas. The acquisition adds over 400 acres of land with reserves to the Company’s operations and a state-of-the-art processing plant to achieve the highest efficiencies.
  • Furthermore, U.S. Concrete also announced that it has completed the divestiture of its Dallas/Fort Worth area lime operations to Lhoist North America, which includes two fixed plants, lime tankers and raw material tankers.
  • “We are excited to strengthen our aggregates operations in West Texas and to use the processing facility to produce high-quality materials that will be used in many of the market’s ongoing and planned construction projects,” said William J. Sandbrook, Chairman, President and CEO of U.S. Concrete. “The lime divestiture gives us the ability to further our strategic focus of optimizing our portfolio of assets and allocating money directly to growing our aggregates business while concurrently improving our balance sheet by reducing debt.”  


  • (Digitimes) Samsung, SK Hynix reportedly to defer expansion plans
  • Samsung Electronics and SK Hynix both intend to defer their capacity expansion plans, as a slowdown in customer demand will be dragging down DRAM and NAND flash memory prices through the first half of 2019, according to industry sources.
  • The global NAND flash market has remained in oversupply in the third quarter of 2018 despite the period being the traditional peak season, the sources said. Suppliers’ continued ramp-ups of 64- and 72-layer 3D NAND flash output coupled with the limited demand growth due to the saturated notebook and smartphone markets are being identified as the factors bringing down the memory prices.
  • Meanwhile, the industry supply chain is flooded with substandard NAND flash chips, which have made a further negative impact on the memory prices, the sources noted. NAND flash contract prices are likely to fall by a larger-than-expected 10-15% sequentially in the third quarter and another 15% in the fourth, the sources said.
  • Industry leader Samsung, which used to supply 3D NAND chips for its own SSDs and other products, has started shipping the memory externally in the third quarter of 2018, according to the sources. Samsung is also slowing down the pace of expanding its 3D NAND chip output, with new production capacity unlikely to go online until the first half of 2019, the sources said.
  • Samsung has also put on hold its plans to build additional new production capacity for DRAM chips at its fabs in Hwaseong and Pyeongtaek, the sources continued. The chip vendor previously planned to build an additional 30,000 wafers monthly for DRAM memory starting the third quarter of 2018, the sources said.


(Barron’s) Western Digital, Seagate Slump on Gloomy Evercore Forecast


  • Shares of Western Digital (WDC) and Seagate Technology (STX) were battered Tuesday after a report from Evercore ISI warned of declining profit margins for both makers of hard drives and flash memory storage devices.
  • Seagate’s stock was down 8.6% to $48.92; Western Digital dropped 6.2% to $59.33.
  • Evercore downgraded its rating to “underperform” for Seagate while lowering its price target to $45 from $55. It wasn’t much better for Western Digital, whose stock was lowered to “in line.” The price target was sliced to $75 from $100.
  • “With topline likely flattish at best, GMs [gross profit margins] heading lower, and worse than expected NAND [flash memory] pricing driving increased potential for cannibalization of HDDs [hard disk drives], we see risk to the downside for Seagate after an excellent run,” Evercore analyst C.J. Muse warned in a note to clients Tuesday. “With NAND pricing expected to decline more aggressively through 1H19 … we simply find it hard to see [Western Digital] shares working into year-end.”
  • Muse expects average selling prices for NAND flash memory to dip by a “low double digit” percentage in the first half of 2019, as they did from late 2014 through early 2015.


  • (Bloomberg) Seagate Downgraded to Underperform at Evercore ISI
  • Evercore ISI analyst C.J. Muse downgraded the recommendation on Seagate Technology to underperform from in-line.
  • PT lowered to $45 from $55, implies 16% decrease from last close.
  • Analysts raised their consensus one-year target price for the stock by 6.1 percent in the past three months.
  • Investors who followed Muse’s recommendation received a 0 percent return in the past year, compared with a 79 percent return on the shares. 
07 Sep 2018

CAM Investment Grade Weekly Insights


CAM Investment Grade Weekly

There was plenty of activity in the credit markets this week as the primary market was active right out of the gate on Monday. Contagion fears related to emerging markets weighed on spreads mid-week, particularly high beta, but by the time Friday afternoon rolled around, the spreads of most individual credits were unchanged to modestly tighter.

According to Wells Fargo, IG fund flows for the week of August 30-September 5 were +$1.7 billion. IG flows are now +$93.164 billion YTD.

This was the busiest week of 2018 for investment grade issuance as over $53bln in new bonds were brought to market. Bloomberg’s tally of YTD total issuance stands at more than $826bln.

(Bloomberg) Verizon’s Internet Head Is in Talks to Leave, Dow Jones Reports

  • Tim Armstrong, the head of Verizon Communications Inc.’s media and advertising unit, is in discussions to depart as soon as next month, Dow Jones reported, citing unidentified people familiar with the matter.
    • Key Takeaways
        • Armstrong joined in 2015 when Verizon bought AOL and helped steer the acquisition of Yahoo two years later. His departure would be a setback to Verizon’s efforts to build a digital advertising giant.
        • There were recent discussions about spinning off Oath, but Verizon decided against it, Dow Jones reported.

    • Verizon new CEO Hans Vestberg, who took over last month and previously ran Ericsson, is seen as having more of a focus on network technology than on media.

(Bloomberg) U.S. Two-Year Yield Rises to Decade High After Jobs Data: Chart


The yield on two-year Treasuries rose as much as 6 basis points Friday to 2.69 percent, the highest level since July 2008, after the U.S. jobs report for August showed an unexpected uptick in average hourly earnings growth. The better-than-anticipated data are helping to cement expectations for a Federal Reserve rate hike this month, while the odds of an additional increase by year end have also received a boost.

(Bloomberg) Cigna Sells $20 Billion in This Year’s Second-Biggest Bond Sale

  • Cigna Corp. sold $20 billion of bonds to fund its takeover of Express Scripts Holding Co., making for the U.S. corporate-bond market’s second-biggest of the year.
  • The health insurer issued senior unsecured bonds in 10 parts, according to a person with knowledge of the matter. The longest portion of the offering, a $3 billion security maturing in 2048, yields 1.87 percentage points above Treasuries, after initially discussing around 2.05 percentage points, said the person, who asked not to be identified because talks with potential investors are private.
  • The sale is leading what’s been a busy start to September, with some strategists already raising their monthly issuance estimates. Investors, anticipating that a bulging pipeline of M&A deals would bring a wave of debt sales after the summer lull, have been selling debt the past few weeks to make room for new securities, said Travis King, head of investment-grade credit at Voya Investment Management in Atlanta.
  • “It’s the kind of deal where everyone is going to feel that they need to own this,” King said before the deal priced. “It’s one of those classic mega deals that gets everyone’s attention.”
  • The expected boost in new-issue supply helped boost the amount of yield investors demand to hold corporates instead of government debt, Bloomberg Barclays index data show. Investment-grade bond spreads over Treasuries have widened by 6 basis points since the end of July to 115 basis points.