Year: 2018

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

CAM High Yield Market Note

9/7/2018

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. 

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 statement, Chris 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.

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.

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

• Amazon.com 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.”