Author: CAM Bond Funds

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.4 billion and year to date flows stand at -$18.5 billion.  New issuance for the week was $6.0 billion and year to date HY is at $273 billion, which is up 23% over the same period last year.

(Bloomberg)  Corporate Credit Impacts of Proposed Tax Legistlation

• As Republicans target the passage of tax policy by year-end, high yield issuers may be net losers, while the benefits of accelerated depreciation are irregularly distributed. The potential for a cap on the deductibility of net interest expense will be felt more broadly.
• Capital-intensive industries, including materials and energy, and the highly levered communications sector potentially have the most to lose from tax-reform proposals limiting interest deductibility. Strong cash flow and lower average debt loads vs. revenues leave technology and consumer staples with limited exposure. Carry-forward provisions would benefit more cyclical sectors, allowing companies to apply interest expense not deducted in a low-earnings year to earnings over some future period.
• Issuers such as Sprint and Charter among communications issuers, and Halliburton and Chesapeake within energy, are among those that would lose some interest deductibility under the Senate proposal.
• The percentage of issuers with interest expenses exceeding 30% of operating income, however defined, climbs steadily as ratings fall. While a negligible number of issuers rated between AA and BBB would be unable to deduct the full amount of interest expenses, assuming the use of Ebitda, almost all triple-C issuers would be affected.
• Methodology differences between the House and Senate bills regarding interest deductibility could have wide-ranging effects for issuers. Both Congressional bodies entertain adjusted results, though the House plan to use a measure closer to Ebitda would mean about 25% of all companies would see some effect vs. about 40% under the Senate plan.

(New York Times)  Fed Raises Interest Rates as Focus Turns to 2018

• The Federal Reserve, in a widely expected decision, raised its benchmark rate by a quarter of a percentage point, to a range of 1.25 percent to 1.5 percent.
• The Fed also predicted stronger economic growth over the next three years. It forecast 2.5 percent growth in 2018, well above its previous forecast of 2.1 percent growth in 2018, published in September. Janet L. Yellen, the Fed chairwoman, said the faster growth forecasts reflected an assessment of the $1.5 trillion tax cut moving through Congress.
• Officials did not deviate from their 2018 outlook for interest rates or inflation and continued to signal three interest rate increases next year.

(Business Wire)  T-Mobile announces the acquisition of TV tech pioneer, Layer3 TV, Inc.

• T-Mobile US, Inc. president and CEO John Legere unveiled the next phase in the Un-carrier’s mobile video strategy, announcing plans to launch a disruptive new TV service in 2018. To fuel that, Legere also announced the Un-carrier has signed a definitive agreement to acquire TV technology innovator Layer3 TV, Inc. and will work with Layer3 TV’s leading technology and talent to create T-Mobile’s new TV service.
• “People love their TV, but they hate their TV providers. And worse, they have no real choice but to simply take it – the crappy customer service, clunky technology and outrageous bills loaded with fees! That’s where we come in. We’re gonna fix the pain points and bring real choice to consumers across the country,” said John Legere, president and CEO of T-Mobile. “It only makes sense for the Un-carrier to do to TV what we’re doing to wireless: change it for good! Personally, I can’t wait to start fighting for consumers here!”
• The Un-carrier will build TV for people who love TV but are tired of the multi-year service contracts, confusing sky-high bills, exploding bundles, clunky technologies, outdated UIs, closed systems and lousy customer service of today’s traditional TV providers. And people are tired of all the bull that comes bundled with Big Cable and Satellite TV – America’s #1 most-hated industry. In fact, 8 of the 10 brands with the lowest customer satisfaction scores in America are cable and TV providers1.
• “We’re in the midst of the Golden Age of TV, and yet people have never been more frustrated by the status quo created by Big Cable and Satellite TV,” said Mike Sievert, Chief Operating Officer of T-Mobile. “That’s because the world is changing – with mobile video, streaming services, cord cutting, original content and more — and yet, the old guard simply can’t – or won’t – evolve. It’s time for a disruptor to shake things up and give people real choice like only the Un-carrier can.”

(Bloomberg)  Freeport Returns to Copper Focus, Grasberg Next Hitch

• Resolving its Contract of Work dispute covering its Grasberg mine with the Indonesian government is the key to current operations and Freeport-McMoRan’s future prospects. Grasberg accounted for a third of Ebitda in 2016 and Grasberg Block Cave will be the world’s largest underground mine when developed. Freeport, rated B1/BB-, is on positive outlook from Moody’s, with its bonds trading in-line with Ba2 metals and mining peers.
• Fighting off low commodity prices, Freeport-McMoRan has restructured to return its focus to its leading copper business. Freeport reached its $10 billion net-debt target in 3Q through execution of its operating plans, aided by recovering copper prices. A contract dispute and production shortfalls at its Indonesian Grasberg mine have hampered Freeport’s progress and may affect long-term prospects. Once Grasberg is resolved, the company will evaluate capital allocation among growth projects and dividends.
• Freeport-McMoRan reported 3Q adjusted Ebitda of $1.6 billion as the price of copper increased by 35% vs. 3Q16. This was the company’s best quarter since 4Q14 and put Freeport on pace for its best year since 2014.
• Freeport-McMoRan’s 3Q cash from operations exceeded capital spending and shareholder rewards for the sixth straight quarter as outlays have been significantly reduced. Freeport devoted $314 million to capital expenditures in 3Q and plans to spend $1.5 billion in 2017, down vs. $1.8 billion at the start of the year. This would be the lowest on an annual basis since 2010. Assuming normal operations at Grasberg, Freeport expects 2017 cash from operations of $4.3 billion, based on a copper price of $3 a pound for 4Q.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.0 billion and year to date flows stand at -$17.0 billion.  New issuance for the week was $11.4 billion and year to date HY is at $267 billion, which is up 26% over the same period last year. 

(Bloomberg)  High Yield Corporates Stalled as Monthly Returns Again Flat

• High yield corporate bonds, much like their high grade counterparts, continue to move sideways in 4Q to a U.S. Congress undertaking tax reform for stimulus clues. Communications sector spreads moved wider for the year, while miners and other basic industries remain the best performers for 2017.
• High yield corporates continue to lack direction with the Bloomberg Barclays U.S. High Yield Index total returns almost flat for November and 4Q, much like the investment grade counterpart. Corporate bond gains stalled as interest rates rose under the Federal Reserve’s less accommodative bias, while credit spreads near their tightest in three years exhausted momentum to narrow further, awaiting cues from a Congress debating tax reform.
• High yield gained a solid 7.2% year-to-date in line with the five year average. CCC rated debt has led gains, with 10% in total returns as stronger commodity prices and refinancing-friendly interest rates have benefited distressed issuers.
• Corporate junk spreads retraced early November trends to end just 6 bps wider for the month as gauged by the Bloomberg Barclays U.S. High Yield index OAS to Treasuries. Communications, the most indebted sector at 20% of the index struggled again, averaging spreads that were 41 bps wider for the month. It’s now the only sector trading at wider spreads than at the start of 2017. At the other end, metals and mining issuers led basic industries sector spreads to 150 bps tighter for the year on rising commodity prices.
• Bonds of Frontier Communications, among the largest issuers in the sector, averaged almost 8% total return losses in November as the company continues to struggle with high debt loads following the acquisition of Verizon assets early last year. Frontier returns have fallen 13% year-to-date.

(Wall Street Journal)  Cineworld to Buy Regal in $3.6 Billion Movie Theater Deal

• British movie theater operator Cineworld Group PLC has agreed to buy American counterpart Regal Entertainment Group for $3.6 billion, creating the world’s second-largest cinema operator.
• Cineworld said the deal would give it a meaningful footprint in the U.S.—the biggest box office market—and create a company with more than 9,000 screens.
• It added that the combined group’s scale will help it mitigate any volatility in particular markets and match the global nature of rivals, including industry leader AMC Entertainment Holdings Inc.

(Business Wire)  DAVITA SELLS DAVITA MEDICAL GROUP TO OPTUM FOR ABOUT $4.9B CASH 

• Optum, a leading health services company, and DaVita Medical Group, one of the nation’s leading independent medical groups and a subsidiary of DaVita Inc. are combining. The agreement, entered into on December 5, 2017, calls for Optum to acquire DaVita Medical Group for approximately $4.9 billion in cash. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.
• DaVita Medical Group will join with Optum’s physician-led primary, specialty, in-home, urgent- and surgery-care delivery services business. The combination will improve care quality, cost and patient satisfaction through integrated ambulatory care delivery systems enabled by information technology and supportive clinical services. Optum’s data, analytics, technologies and clinical expertise will help DaVita Medical Group physicians deliver even higher quality care more effectively to the patients they serve. With medical groups in California, Colorado, Florida, Nevada, New Mexico and Washington, DaVita Medical Group will expand the market reach of Optum’s strategic care delivery portfolio, including Surgical Care Affiliates, MedExpress and HouseCalls. Patients will further benefit from the sharing of best practices across both organizations.
• “I am so proud of the DaVita Medical Group accomplishments, including our excellent clinical outcomes as reflected in our star ratings performance, our strong emphasis on growing physician leaders, our teammate engagement and advancing the care model,” said Kent Thiry, chairman and CEO of DaVita Inc.
• “Combining DaVita Medical Group and Optum advances our shared goal of supporting physicians in delivering exceptional patient care in innovative and efficient ways while working with more than 300 health care payers across Optum in ways that better meet the needs of their members,” said Larry C. Renfro, CEO of Optum.

(Reuters)  Toshiba, Western Digital aiming to settle chip dispute next week

• Toshiba Corp and Western Digital Corp have agreed in principle to settle a dispute over the Japanese firm’s plans to sell its $18 billion chip unit and aim to have a final agreement in place next week, sources familiar with the matter said.
• The board of the embattled Japanese conglomerate approved a framework for a settlement on Wednesday, one of the sources said.
• The potential for Western Digital – Toshiba’s partner in its main semiconductor plant and jilted suitor in the auction – to block a deal has been seen as the main obstacle to the planned sale of the unit to a Bain Capital-led consortium.
• The settlement under discussion calls for Western Digital to drop arbitration claims seeking to stop the sale in exchange for Toshiba allowing it to invest in a new production line for advanced flash memory chips that is slated to start next year, two sources said.

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.8 billion and year to date flows stand at -$9.2 billion. New issuance for the week was $1.0 billion and year to date HY is at $172 billion.

(Business Wire) Zayo Group Holdings, Inc. Reports Financial Results for the Fourth Fiscal Quarter Ended June 30, 2017

• $638.0 million of consolidated revenue, including $509.1 million from the Communications Infrastructure segments and $128.9 million from the Allstream segment
• Bookings of $7.5 million, gross installs of $7.3 million, churn of 1.2% and net installs of $1.4 million, all on a monthly recurring revenue (MRR) and monthly amortized revenue (MAR) basis, excluding the Allstream segment
• Adjusted unlevered free cash flow of $117.2 million
• The Company completed the acquisition of Castle Access, Inc.’s San Diego data centers. The two data centers, located at 12270 World Trade Drive and 9606 Aero Drive, total more than 100,000 square feet of space and 2 megawatts of critical, IT power, with additional power available. The acquisition was funded with cash on hand and was considered a stock purchase for tax purpose.

(NJB Magazine) B&G Foods to Acquire Back to Nature Foods Company

• B&G Foods, Inc. announced that it has entered into a definitive agreement to acquire Back to Nature Foods Company, LLC, from Brynwood Partners VI L.P., Mondelēz International and certain other entities and individuals for approximately $162.5 million in cash, subject to customary closing and post-closing working capital adjustments. B&G Foods expects the acquisition to close during the third quarter of 2017, subject to customary closing conditions, including the receipt of regulatory approvals.
• “We are very pleased to add Back to Nature® to the B&G Foods family of brands. Consistent with our acquisition strategy and our recent Green Giant®, spices & seasonings and Victoria® acquisitions, we are continuing to diversify our portfolio of brands and invest in brands and products that we believe are most relevant to today’s consumer,” stated Robert C. Cantwell, President and Chief Executive Officer of B&G Foods.
• B&G Foods expects the acquisition to be immediately accretive to its earnings per share and free cash flow and projects that following the completion of a six-month integration period, the acquired business will generate on an annualized basis net sales of approximately $80 million and adjusted EBITDA of approximately $17 million. Based upon the foregoing adjusted EBITDA guidance, the acquisition represents a purchase price multiple of approximately 9.6 times adjusted EBITDA (or 8.4 times adjusted EBITDA net of the present value of expected tax benefits).

(Reuters) United Rentals to buy equipment rental chain Neff for about $1.3 billion

• United Rentals Inc, the world’s largest construction equipment rental company, will buy Neff Corp for about $1.3 billion, the companies said, topping H&E Equipment Services Inc’s about $1.2 billion offer last month.
• “United Rentals is an industry leader in equipment rentals, and as a result of this transaction, our employees and customers will benefit from the combined company’s expanded geographic footprint and diversified offering,” Neff’s Chief Executive Graham Hood said.
• Neff is expected to generate $419 million of total revenue for the full year, the companies said.

(Reuters) Western Digital group to offer $17.4 billion for Toshiba chip unit

• A consortium that includes Western Digital is offering 1.9 trillion yen ($17.4 billion) for Toshiba Corp’s memory chip business, which the Japanese conglomerate is trying to sell to cover losses from its U.S. nuclear business, sources said on Thursday.
• Western Digital is set to offer 150 billion yen through convertible bonds and will not seek voting rights in the business, the sources who were familiar with the deal said.
• The consortium also includes U.S. private equity firm KKR & Co as well as the state-backed Innovation Network Corp of Japan and Development Bank of Japan, all of which will offer 300 billion yen each for the chip business, the sources said.
• Under the proposal, Toshiba’s lenders including Sumitomo Mitsui Banking Corp and Mizuho Bank would also extend around 700 billion yen in loans, they said.
• Other Japanese companies will also invest around 50 billion yen to ensure domestic firms hold a combined 60 percent stake, the sources said, adding that Toshiba itself would keep a 100 billion yen stake in the business.
• Sources have said that Toshiba wants to reach a deal by the end of the month and close the sale by the end of the fiscal year in March to ensure it does not report negative net worth, or liabilities exceeding assets, for a second year running. This could result in a delisting from the Tokyo Stock Exchange.
• Given regulatory approvals could take more than six months, the company has been hoping to reach a deal by the end of the month to ensure it can close the sale in time.

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $0.4 billion and year to date flows stand at -$5.6 billion. New issuance for the week was $6.8 billion and year to date HY is at $157 billion.

(MarketWatch) AMC hits record low as unrelentingly poor box office continues to take a toll

• AMC said on Tuesday that not only would the company swing to a loss in the quarter, but that it would be wider than analysts surveyed by FactSet were expecting.
• Analysts have, for the most part, stayed positive on the film exhibitor group, as box office revenues have suffered so far this year. While investors clearly don’t like the news, analysts believe that this too will pass.
• So far in the year, box office revenue is down 2% compared with the same point last year.
• “[Our] fundamental view is unchanged, but the stock is likely in the penalty box,” RBC analyst Leo Kulp wrote in a note to investors. “The news does not change our fundamental view given our already low expectations around the second quarter. With higher costs and a weaker third-quarter box office outlook now baked in as well as a positive outlook on the 2018 box office, we believe we could be near a bottoming out.”

(DSL Reports) Frontier Communications Loses Another 101,000 Frustrated DSL Users

• Frontier continues to lose DSL customers frustrated by the company’s high prices and slow broadband speeds. Frontier’s latest earnings report indicates that the company lost another 101,000 DSL customers last quarter, thanks in large part to users fleeing to cable or wireless services that offer dramatically faster connectivity. Customers in Florida, Texas and California are also still fleeing the ISP due to its bungled acquisition of Verizon’s unwanted DSL and FiOS customers in those states.
• Frontier CEO Dan McCarthy tried to put a positive spin on the company’s problems with the acquisition, its outdated speeds, and the ongoing defections.
• “We’re back in the market with new offers, slightly higher speeds, and we feel pretty good about that,” McCarthy said. “Those offers launch really this week, and we’re expecting to see continued voluntarily churn reduction, as well as an uptick in gross adds, and the combination of the two is where we see improvements in net as we get into this quarter.”
• But that statement tries to obfuscate that many Frontier customers are leaving because the company still refuses to upgrade older DSL lines at any real scale, leaving many users on 3-6 Mbps DSL that falls well below the base definition of 25 Mbps. Cable providers have been having a field day in these markets as DOCSIS 3.1 now allows them to offer gigabit speeds for relatively little investment.

(24/7 Wall St.) More Upside Seen for Cell Tower Giants Ahead of 5G Deployments

• If there is one part of the communications industry that many consumers tend to overlook, it is the cell and communications tower operators. At least until they lose their signal. SBA Communications Corp. reported mixed earnings that looked a bit softer than expected, but analysts by and large call for more upside in SBA and from its two top rivals.
• Jeffrey Stoops, president and CEO of SBA Communications, talked up the spending climate ahead of spectrum and 5G deployments in the quarters and years ahead.
  “With substantial spectrum and 5G deployments on the horizon in both the U.S. and internationally, we expect customer demand to remain solid for years to come. Against that demand, we intend to continue to execute well and we expect to continue to favor allocating capital to portfolio growth and stock repurchases. We continue to remain on track to achieve our long term goal of $10 or more of AFFO per share in 2020.”

(CNBC) Sprint swings to a profit, helped by cost cuts

• Sprint on Tuesday swung to a quarterly profit for the first time in three years and its chief executive said an announcement on merger talks should come in the “near future.”
• Sprint is in the middle of a turnaround plan and has sought to strengthen its balance sheet to compete in a saturated market for wireless service.
• While Sprint has cut costs, analysts say the company is highly leveraged. And although its customer base has expanded under Chief Executive Marcelo Claure, growth has been driven by heavy discounting.
• On the company’s post-earnings conference call, Claure said that while Sprint could sustain itself on its own, the synergies that could come with a transaction were significantly better than remaining a standalone entity.
• “We have plenty of options, and we’ve had discussions with a lot of different parties,” he said.
• He said he was surprised Charter said it was not interested in acquiring Sprint given Sprint was never offered for Charter to buy. Rather, he said, it was part of the “bigger play that has been reported.”
• “Everybody has shown a high level of interest in evaluating Sprint as a potential merger partner. We’re very encouraged by the results of our conversations,” Claure later told reporters.

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$0.3 billion and year to date flows stand at -$6.0 billion. New issuance for the week was $2.0 billion and year to date HY is at $151 billion.

(Bloomberg) Lean Inventory Fueling Home-Price Gains in 20 U.S. Cities

• Steady price gains in 20 U.S. cities in May indicate that a tight supply of properties paired with increased demand is boosting home values, according to figures from S&P CoreLogic Case-Shiller on Tuesday.
• A shortage of listings is still behind the rapid appreciation of home prices, particularly in high-demand areas such as Portland, Oregon, and Seattle, where values have surpassed pre-recession peaks. Housing demand is supported by a solid labor market, steadily rising wages and low mortgage rates. While lofty asking prices are making it difficult for some Americans to become homeowners for the first time, they’re encouraging owners of more expensive properties to put their houses up for sale, as trade-up demand remains solid.
• “Home prices continue to climb and outpace both inflation and wages,” David Blitzer, chairman of the S&P index committee, said in a statement. “The small supply of homes for sale, at only about four months’ worth, is one cause of rising prices. New home construction, higher than during the recession but still low, is another factor in rising prices.”

(Reuters) Saudi vows to cap crude exports next month

• Saudi Energy Minister Khalid al-Falih said his country would limit crude oil exports at 6.6 million barrels per day in August, almost 1 million bpd below levels a year ago.
• Russian Energy Minister Alexander Novak also told reporters that an additional 200,000 bpd could be removed from the market if compliance with a global deal to cut output was 100 percent.
• The Saudi and Russian energy ministers were in St. Petersburg for a gathering of the Organization of the Petroleum Exporting Countries and other producers. Ministers discussed their previous agreement to cut production 1.8 million bpd from January 2017 through March 2018.
• Falih said OPEC and non-OPEC partners were committed to cut output longer if necessary but would demand that non-compliant nations stick to the agreement.
• OPEC members Nigeria and Libya have been exempt from the output cuts, and market watchers remain concerned that production from the two countries is offsetting the impact of the global reduction.
• In the United States, rig counts were up to 764 in the latest week, from 371 rigs a year ago.
• The executive chairman of energy services company Halliburton said he expected a U.S. rig count above 1,000 by year end, but that about 800 to 900 rigs was more sustainable in the medium term.

(MarketWatch) HCA’s weak quarter speaks to a long-term trend: People are going to the doctor less

• Hospital operator HCA Healthcare Inc. reported a dismal quarter early Tuesday, complete with profit and revenue misses and a cut to its earnings-per-share outlook for the year.
• Hospital operators haven’t been having a particularly good time in recent months, especially given congressional Republicans’ effort to repeal the Affordable Care Act. The ACA, also called Obamacare, greatly benefited hospitals because more people became insured, especially through the law’s Medicaid expansion.
• But there’s another possible reason at play, too: fewer people going to the doctor, said Veda Partners analysts Spencer Perlman and Sumesh Sood.
• Health plans increasingly shift more costs to consumers through such things as high deductibles and cost-sharing, which has in turn changed how patients behave, they said.
• HCA earnings show that “we remain in a much lower healthcare utilization environment post-2008 and this is the new normal,” they said.
• Perlman and Sood also pointed to data published by the Healthcare Cost and Utilization Project in June, which “clearly indicates a continued decline in inpatient stays, surgical volumes and deteriorating payer mix.”

S&P awards Regal Entertainment unsecured debt an upgrade to B+

• Regal unsecured debt was upgraded one notch to B+ on the expectation of continued investment in the theater network and stable leverage over the next 12-18 months

(Fierce Cable) Charter’s 90K lost video subscribers in Q2 far better than forecasts

• Charter Communications delivered far better pay-TV customer metrics in the second quarter than predicted by investment analysts, with the No. 2 U.S. cable company dropping only 90,000 customers in the three-month period that is typically the weakest for pay-TV operators.
• Video subscriber losses at legacy Charter (down 10,000 vs. -7,000 in the second quarter of 2016) and Bright House Networks (down only 12,000 vs. -72,000 in Q2 2016) were offset by 68,000 lost former Time Warner Cable customers during the period.
• Most of the decline came from the loss of “limited basic relationships” at TWC, Charter CFO Christopher Winfrey told investment analysts.
• Revenue grew 3.9% to $10.4 billion on a pro forma basis, while second quarter EBITDA was up 8.6% to $3.8 billion.
• “Results were a nice surprise, with EBITDA ahead of estimates and subscriber trends well ahead,” said New Street Research analyst Jonathan Chaplin. “Video losses in the TWC markets were half what we and consensus expected. This bears out management’s comment that they had turned the corner on TWC integration and churn. This quarter should have been the low-water mark, and the results were good.”