CAM HIGH YIELD WEEKLY INSIGHTS

CAM High Yield Market Note

12/14/2018

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.4 billion and year to date flows stand at -$51.5 billion. New issuance for the week was zero and year to date HY is at $162.5 billion, which is -40% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bond yields and spreads were flat to little changed across the risk spectrum, even as investors pulled more cash from funds.
• Reported outflows again this week, the fourth consecutive week of outflows
• This was the 7th outflow of over a billion dollars in the past 10 weeks
• Junk bond returns stayed positive, while CCCs turned negative yesterday
• Single-Bs were outperforming S&P 500, BBs and CCCs with 1.04% YTD return
• Record withdrawals from retail funds are offset by supply shortage, as YTD volume is lowest since 2009
• New issue market remained quiet and is expected to shut down by the end of next week ahead of the holidays
• This would be the first month of no issuance since November 2008
• Key drivers of U.S. junk bonds — default rate, GDP, corporate cash flow, earnings — are intact

(Washington Post) Investigation of generic ‘cartel’ expands to 300 drugs

• Executives at more than a dozen generic-drug companies had a form of shorthand to describe how they conducted business, insider lingo worked out over steak dinners, cocktail receptions and rounds of golf.
• The terminology reflected more than just the clubbiness of a powerful industry, according to authorities and several lawsuits. Officials from multiple states say these practices were central to illegal price-fixing schemes of massive proportion.
• The lawsuit and related cases picked up steam last month when a federal judge ruled that more than 1 million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.
• What started as an antitrust lawsuit brought by states over just two drugs in 2016 has exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said in an interview.
• While precise estimates of alleged overcharges have not been released, generic-industry sales were about $104 billion in 2017. Excessive billings of even a small fraction of annual sales over several years would equal billions of dollars in added costs to consumers, according to investigators.
• Generic manufacturers reject the accusations. They contend officials lack evidence of a conspiracy and have failed to prove anti-competitive behavior.
• Among the 16 companies accused are some of the biggest names in generic manufacturing: Mylan, Teva and Dr. Reddy’s.
• Investigators say voluminous documentation they have collected, much of it under seal and not available to the public, shows the industry to be riddled with price-fixing schemes. The plaintiffs now include 47 states. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.

(thestreet.com) Aramark Tumbles as Forecast Disappoints

• Shares of Aramark Corp. tumbled 12% Tuesday after the food, facilities management, and uniform services company provided an earnings forecast that disappointed Wall Street.
• For fiscal years 2019-2021, the company, which held an investor day on Tuesday, forecast 2% to 4% organic growth and double-digit adjusted earnings per share growth.
• On average over the last three years, Aramark has grown earnings per share by 31% each year. It achieved revenue growth of 8.1% over the last year.
• The company operates in three segments: U.S. food and support services, international food and support services, and uniform and career apparel. In January, Aramark announced that it had completed the acquisition of AmeriPride Services Inc. for about $1 billion  

• (streetinsider.com) United Rentals FY19 Revenue Guidance Tops Views, Resumes Share Repurchase Program 

• United Rentals, the world’s largest equipment rental company, held its biennial Investor Day in New York City on December 11, 2018, to provide an in-depth look at a range of key initiatives. The event, hosted by senior leadership for members of the investment community, focused on the company’s strategic vision, sustainable competitive advantages and emphasis on long-term value maximization.
• The company reaffirmed its 2018 financial guidance and announced full year financial guidance for 2019.
• Michael Kneeland, chief executive officer of United Rentals, said, “Our 2019 guidance reflects the healthy momentum we see going into year-end and our confidence that positive conditions will prevail in the coming year. Our five 2018 acquisitions have been successfully integrated, increasing the tailwinds in our gen-rent and specialty segments. We look forward to reporting our fourth quarter results on January 23.”
• Additionally, the company announced that it will resume its $1.25 billion share repurchase program this month. The program was initiated in July 2018, with approximately $210 million of shares purchased through September
• Additionally, the company announced that it will resume its $1.25 billion share repurchase program this month. The program was initiated in July 2018, with approximately $210 million of shares purchased through September 30, 2018. The Company subsequently paused the program on November 1, 2018 to focus on the integration of the BlueLine acquisition. The company intends to complete the program by the end of 2019.

(Bloomberg) T-Mobile-Sprint M&A On Track at FCC Despite Strong Dish Dissent

• T-Mobile’s Sprint M&A is on track at the FCC, even though latest filing by Dish boosts its already strong case against the deal. While the combination’s level of concentration raises serious red flags and makes approval a very close call, we’re skeptical that Dish can sway a Republican-led FCC focused on 5G.