Category: Insight

20 Jul 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.6 billion and year to date flows stand at -$35.1 billion. New issuance for the week was $2.7 billion and year to date HY is at $111.3 billion, which is -24% over the same period last year. 

 (Bloomberg) High Yield Market Highlights

  • Supply eludes the U.S. high-yield bond market, which is on track for the slowest July for new issuance since 2008. Two deals are expected to price today, and no new issues were added to the calendar.
  • July has traditionally been a light month for junk bond sales, with an average supply of $15.5b the last five years
  • Year-to-date supply is lowest since 2009
  • Supply is down 24% year-over- year
  • Junk bonds spread and yields were resilient yesterday amid faltering stocks and rising VIX
  • High yield spreads and yields were little changed
  • CCCs are at a 5-month low yield
  • High yield has been operating in a friendly environment backed by the supply shortage, steady economic growth with no imminent threat of recession, healthy corporate earnings, low default rate  


(The Economist) Netflix suffers a big wobble

  • Even the most celebrated firms have their hiccups. On July 16th Netflix, an online-streaming giant, presented disappointing news to investors: it had added just 5.2m new subscribers in the second quarter of 2018, well below its projected number of 6.2m. Shares plunged by 14%.
  • This most recent bout of volatility may say more about the firm’s soothsaying abilities than the strength of its underlying business. Although Netflix’s subscriber growth fell short of its own projections, it was still in line with that of past quarters. In percentage terms, Netflix registered a bigger miss against projected subscriber growth in the second quarter of 2016, when its shares fell by 13%.
  • When asked this week to explain the forecasting error, Netflix’s chief executive, Reed Hastings, responded that the company never worked out what happened in 2016 either, “other than that there is some lumpiness in the business”. It is possible that subscriber growth fell short of expectations because none of the shows Netflix released last quarter captivated audiences in the way that past hits such as “House of Cards” have. Data from Metacritic, a review-aggregator, show its users gave Netflix shows released in the past quarter an average score of just 6.4 out of 10, well below the online streamer’s historical average of 7.2.  


(The New York Times) As Momentum for Sinclair Deal Stalls, Tribune Considers Options

  • The Sinclair Broadcast Group’s plan to create a broadcasting behemoth that it hoped would rival Rupert Murdoch’s Fox News appears to be coming to an end.
  • Already the largest local television operator in the nation, Sinclair agreed last year to buy the rival TV group Tribune Media for $3.5 billion. The deal would have given the combined company control of broadcasters reaching seven in 10 households across the country, including in New York, Chicago and Los Angeles.
  • But in light of the Federal Communications Commission’s draft order this week questioning whether Sinclair was sufficiently transparent in how it represented the deal to regulators and whether a merger would be in the public interest, Tribune said in a statement Thursday that it was “evaluating its implications and assessing all of our options.”
  • The merger agreement allows either side to walk away from the deal if it does not close by Aug. 8. Sinclair declined to comment.
  • This week has brought a stunning shift in momentum for a deal that once seemed almost assured of being completed, thanks in no small part to policy changes proposed or enacted by the F.C.C. and advocated by Sinclair. The commission had also eased a cap on how many stations a broadcaster can own and relaxed a restriction on advertising revenue and other resources shared by television stations.
  • But on Monday, the agency’s chairman, Ajit Pai — who is the subject of an investigation by the office of the F.C.C.’s inspector general regarding his new policies — said he had “serious concerns” about the Sinclair-Tribune merger. Mr. Pai asked the agency’s four commissioners to hand off its review of the merger to an administrative law judge to determine the legality of Sinclair’s proposal.

(Aluminium Insider) Arconic Lands Long-Term Aluminium Sheet Supply Contract With Boeing

  • Value-added aluminium firm Arconic announced Monday a new, long-term contract with The Boeing Company to supply the aerospace firm with aluminium sheet and plate for the entirety of its offerings from Boeing Commercial Airplanes.
  • This latest contract is the biggest to date, and it builds upon a deal signed by Arconic’s predecessor-in-interest with Boeing four years ago. Arconic and its predecessors have a longstanding relationship to provide wing skins for the entirety of Boeing’s metallic-structured airplanes, and this week’s agreement adds structural plate to the slate, which is used on a wide swath of Boeing’s offerings, including the 787 and 777X.
  • Arconic plans to use materials produced by its Very Thick Plate Stretcher (VTPS), which is a program that began last year and is capable of stretching thicker aluminium plate than any competing process. Additionally, Arconic will begin offering aluminium plate treated by its new horizontal heat-treat furnace, which it expects to begin qualifications next year.
  • Per Arconic, the principal challenge faced by composite wing makers is maintaining structural strength as wing surfaces increase. Arconic says its processes have allowed aircraft manufacturers like Boeing to address this problem, which has, in turn, led to a significant uptick in demand for its composite aluminium sheet solutions.


(The Wall Street Journal) Arconic Draws Interest From Buyout Firms 

  • Aerospace-parts maker Arconic Inc. ARNC -2.59% is the subject of takeover interest from private-equity firms, according to people familiar with the matter.
  • The company has received expressions of interest from buyout firms including Apollo Global Management APO -1.93% LLC, the people said.
  • A takeover of Arconic would be a relatively big deal, especially for private equity. The New York company, which was known as Alcoabefore the aluminum maker broke itself up, currently has a market value of $8.3 billion, so with a typical premium it could go for north of $10 billion in a sale. Arconic also has $6.4 billion in debt.
  • No deal is imminent, and there is no guarantee there will be one.


(CAM Note) HCA debt was upgraded one notch by S&P

  • The upgrade reflects the company’s credit profile, cash flow growth, and free cash flow generation.

(CAM Note) Ingles debt was upgraded one notch by Moody’s

  • The upgrade reflects the company’s real estate base, stable gross margins, and same store sales numbers in the context of a competitive food retail landscape.
20 Jul 2018

CAM Investment Grade Weekly Insights

Corporate spreads are modestly tighter on the week.

According to Wells Fargo, IG fund flows for the week of July 12-July 18 were +$2.5 billion. IG flows are now +$76.072 billion YTD.

Per Bloomberg, $31.380 billion of new issuance priced through Friday morning. Banks led the way this week, as they issued $20bln+ in new supply coincident with earnings releases.  Bloomberg’s tally of YTD total issuance stands at $682.784bn.

Treasury rates did not change materially this week while curves have added a touch of steepness off the lows.

(Bloomberg) Here’s Exactly What PG&E Wants California to Do About Fires

  • Virtually everyone who’s been following the multibillion-dollar problem that California’s power companies are facing in the wake of last year’s devastating wildfire season knows that the biggest among them — PG&E Corp. — is lobbying the state hard to change its wildfire policies.
  • And California lawmakers seem receptive: Governor Jerry Brown formed a committee this month to consider changes to regulations that hold utilities liable for the costs of wildfires that their equipment ignite — even if they weren’t negligent. In a telephone interview Thursday, PG&E’s senior vice president of strategy and policy, Steve Malnight, laid out exactly what the company’s lobbying Sacramento for. Here’s the utility’s wish list:
    • A change in the way the state applies its so-called inverse condemnation law — the one that holds utilities strictly liable for fire damages regardless of negligence. PG&E thinks it should take into account whether a company acted in a “reasonable way.” Malnight said that’s how local flood control districts are treated today when the state considers flood damage liabilities. “We think that’s a fair standard,” he said.
    • A bill that would allow PG&E to issue bonds backed by customer bills that would help pay for costs tied to the deadly Wine Country wildfires last year. (California investigators have already determined that PG&E’s equipment caused several of the blazes.) The legislation wouldn’t shield the utility from costs associated with potential negligence, Malnight said. He estimated that a bond issuance would save PG&E’s customers about a third of the costs of covering damages compared with traditional financing means, such as issuing equity.
    • More “comprehensive solutions” to preventing future wildfires. Malnight said the company supports state regulations that go beyond liability rules and speak to the resiliency of infrastructure. He said the committee that Brown formed has already called for the need for broader solutions including forest management.
  • Malnight said PG&E has been building a “broad-based” coalition of investor-owned and publicly owned utilities and labor unions to push for reforms.


(Bloomberg) Microsoft Floats to Record Highs as Wall Street Cheers the Cloud        

  • Microsoft Corp.’s foray into cloud technologies is paying off after revenue for the fiscal fourth quarter bested the highest of analysts’ estimates.
  • Thanks to the growing adoption of Microsoft’s cloud offering, Wall Street is rewarding the Redmond, Washington-based software provider with buy reiterations and price target increases. Goldman Sachs, while boosting its price target to $125 from $114, said the company’s bring-your-own-licence program is “starting to bear fruit.”
  • Chief Executive Officer Satya Nadella has been overseeing steady growth in the company’s Azure and Office 365 cloud businesses. Surveys of customer chief information officers by both Morgan Stanley and Sanford C. Bernstein published in the past month show an increase in companies signing up for or planning to use Microsoft’s cloud products. Revenue from cloud-computing platform Azure rose 89 percent in the quarter, while sales of web-based Office 365 software to businesses climbed 38 percent. Microsoft also saw a bump from relative improvements in the corporate personal-computer market, which has been stagnant for years.


(Bloomberg) Comcast Drops Out of Bidding War for Fox to Focus on Sky

  • Comcast Corp. will no longer seek to compete with Walt Disney Co.’s for a swath of 21st Century Fox Inc.’s entertainment assets, choosing to focus instead on winning control of the British pay-TV service Sky Plc.
  • Following a bidding war with Disney, Comcast concluded that the price for the Fox assets was too high, according to a person familiar with the matter who asked not to be identified because the decision process was private. Another hurdle was the regulatory requirement to divest Fox’s regional sports networks as part of any deal, the person said.
  • Disney can now go ahead with its offer of $71.3 billion for Fox’s properties, which include a 39 percent stake in Sky. Comcast has offered about $34 billion for the U.K. pay-TV provider, including Fox’s stake, though it’s unclear if Disney will be willing to part with it.
    • Comcast bondholders may be relieved if the company abandons its debt-fueled pursuit of Fox’s entertainment assets and limits its M&A activities to the Sky deal. If Comcast were to successfully acquire both Fox and Sky, its debt load would likely increase to the $170 billion range, net leverage would rise to the mid-4x area and its ratings could fall two notches to mid-triple B. In anticipation of such a scenario, Comcast and Fox bonds have been among the worst performers within the communications sector so far this year. Conversely, their bond spreads could narrow if Comcast retains its A3/A- ratings and Fox bonds are assumed by Disney.
16 Jul 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.2 billion and year to date flows stand at -$33.0 billion.  New issuance for the week was $1.8 billion and year to date HY is at $108.5 billion, which is -25% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • The spread on the riskiest end of the junk bond market plunged to a four-year low as yields fell across the board and investors allocated fresh funds to high yield.
  • Spreads tightened in four of the last five sessions across ratings
  • Triple-C spread tightened most, closing at a 4-year low of +556
  • Junk yields dropped to a 2-week trough, with CCC yields closing at a 3-week low as the S&P 500 closed at a 5-month high and the VIX dropped in four of the last five sessions to hit a 3-week low
  • Investors ignored the hype and hoopla surrounding the trade conflict as high yield retail funds reported cash inflows
  • Lipper reported an inflow of $1.8b for week ended July 11, the biggest inflow since April
  • YTD supply is down 25%
  • CCCs beat BBs and single-Bs with YTD returns of 3.65%
  • CCCs outperformed investment-grade bonds, which are down 2.56% YTD


(MarketWatch)  U.S. oil sees steepest one-day percentage decline in more than a year

  • Oil futures finished sharply lower Wednesday, with the U.S. benchmark registering its sharpest daily slump in about 13 months as fears of flagging demand and renewed production from Libya overshadowed a report showing the biggest weekly drop in domestic crude supplies in nearly two years.
  • August West Texas Intermediate crude the U.S. benchmark, fell 5%, to $70.38 a barrel on the New York Mercantile Exchange—its lowest finish since June 25. The drop marked the worst percentage decline for a most-active contract since June 7 of 2017 and the steepest fall on a dollar basis since Sept. 1 of 2015, according to WSJ Market Data Group.
  • “Market players are taking profits after reports of the return of Libyan crude oil,” possible waivers for U.S. sanctions on Iranian oil and renewed trade war fears, said Phil Flynn, senior market analyst at Price Futures Group.
  • There is also speculation that U.S. President Donald Trump “will hammer Russia on raising oil production” in an effort to push prices lower, and that has “traders running for cover,” he said.
  • The losses come even as the Energy Information Administration reported Wednesday that domestic crude supplies plunged by 12.6 million barrels for the week ended July 6.
  • “The biggest draw since September 2016 should be a wake up call for the U.S.,” said Flynn. “We are in a tightening supply situation that is not going to get better soon.” The EIA reported a climb in crude supplies last week, but that followed three-consecutive weeks of hefty declines.
  • Meanwhile, Libya’s state-run National Oil Corp. lifted force majeure on eastern oil ports on Wednesday after the ports were handed back from an armed faction, paving the way for a resumption of full production.
  • “Resumption of exports from Libya trumps one week of bullish EIA data,” said James Williams, energy economist at WTRG Economics. “That reduces fear of shortages with so little spare production capacity worldwide.”


(Bloomberg)  Dish Network Gets Distress Signals From FCC

  • Hurry up is the message the Federal Communications Commission had for Dish Network Corp. in a July 9 letter asking for more detail about how Dish plans to use the $40 billion of spectrum it acquired in recent years to build a wireless network. Dish faces an accelerated March 2020 deadline to use-or-lose some of the spectrum after missing previous cutoff dates.
  • Chairman Charlie Ergen has invested heavily in wireless spectrum as he pivots the company he co-founded away from its declining satellite TV business. He’s funneling cash from the old business to fund the new one, and bondholders are worried they’ll be left behind.
  • The agency said it’s following up on recent meetings between Ergen and FCC Chairman Ajit V. Pai with more more than a dozen questions about Dish’s plans to build out “spectrum that is apparently lying fallow.” Bond and stock holders might want the answers, too: The queries include the timing of critical milestones, the service Dish intends to provide and what industry standard technology might be used. Officials at Dish didn’t immediately respond to a request for comment.


(Fierce Telecom)  Frontier launches new cloud-based UCaaS offering for businesses

  • Frontier Communications is now offering its customers a cloud-based unified communications-as-a-service to help them migrate their voice services to the cloud.
  • Frontier’s AnyWare UCaaS allows small- to medium-sized business and enterprise customers to lease phones and equipment without having to worry about stranding investments in outdated gear.
  • The scalable and customizable platform can be adapted for each company’s specific needs. Customers are able to save money by putting former hardware functions into the cloud while also reducing the cost of investing in and maintaining on-premise PBX systems.
  • The UCaaS business has been booming of late. In the most recent fourth quarter, more than 300,000 subscriber seats were added to the global installed base, which is now growing by 29% per year, according to Synergy Research. Mitel and RingCentral were the top-two UCaaS companies in Synergy Research’s fourth quarter report. Combined, the two companies accounted for more than half of all the growth in the fourth quarter.
  • Other UCaaS competitors in Frontier’s footprint include Charter Spectrum, Comcast and 8×8.
16 Jul 2018

CAM Investment Grade Weekly Insights

Corporate spreads have moved tighter throughout the week.  Generically, most credits are 2-4 basis points tighter on the week while the corporate index is 3 basis points tighter week over week as of Friday morning.

According to Wells Fargo, IG fund flows for the week of July 5-June 11 were +$3.4 billion.  IG flows are now +$71.912 billion YTD.

Per Bloomberg, $11.4 billion of new issuance priced through Friday morning.  A slow week of issuance is unsurprising given that earnings season has begun, which precludes issuance due to blackout periods.  Bloomberg’s tally of YTD total issuance stands at $651.404bn.

Treasury rates did not change materially this week and curves remain near their flattest levels of the year.


(Bloomberg) AT&T Appeal Seen as High-Stakes Shot at Redemption for Enforcers

  • The Trump administration’s renewed battle against AT&T Inc.’s Time Warner Inc. deal signals that it still sees a path to undoing the blockbuster merger — even after a stinging rebuke of its case last month.
  • Rather than walk away, the Justice Department’s antitrust division took a big gamble Thursday, with a one-sentence notice of appeal filed in federal court in Washington. In doing so, it risks a second defeat that could lead to binding precedent that makes future merger challenges harder.
  • But the move offers a tempting shot at redemption after a humiliating loss handed down by U.S. District Judge Richard Leon. The case will be heard by the U.S. Court of Appeals for the District of Columbia Circuit, where President Donald Trump’s recent Supreme Court nominee Brett Kavanaugh sits.
  • “Their assessment of the strategic risks may be bad, may be unduly risky — a lot of people said that about this case in the first place,” said Chris Sagers, an antitrust law professor at Cleveland State University. “So far that has all proven true and maybe it will prove true that appealing this decision was also unwise.”
  • In last month’s 172-page opinion, Leon ripped apart the government’s case that the $85 billion deal would give AT&T the power to hike prices. The Justice Department argued that the telecom giant would charge its cable-TV competitors more money for Time Warner shows, bringing higher bills to consumers across the country.
  • To some observers, the judge’s decision smacked at times of anti-government bias — particularly when Leon admonished Justice Department lawyers not to bother seeking a temporary order halting the merger from proceeding. Obtaining a stay, which the government had a right to seek, “would undermine the faith in our system of justice,” Leon wrote.
  • “The judge’s ruling showed an extreme favoritism for AT&T’s arguments and appeared to substantially discount everything the government presented,” said Gene Kimmelman, the head of Public Knowledge, a Washington-based public policy group that opposed the merger. “I’m not surprised the government views it as a totally incorrect ruling.”
  • AT&T closed the Time Warner transaction on June 14, two days after Leon’s ruling. The Justice Department had agreed not to seek an emergency court order preventing the deal from closing after AT&T promised to operate Time Warner’s Turner Broadcasting as a separate business unit until 2019. That would make it easier for AT&T to sell Turner if the government ultimately prevails.


 (Bloomberg) NAFTA Repeal Would Be ‘Disaster’ for U.S.: Union Pacific CEO         

  • Repealing the North American Free Trade Agreement would be a “disaster” for the U.S. economy, says Union Pacific CEO Lance Fritz.
    • Growing list of tariffs from President Trump’s trade policies threatens “to undo progress” made in economy in recent years, Fritz says at the National Press Club in Washington
    • Administration should address China’s impact and modernize NAFTA, but other trade proposals “look as if they’ll do more harm than good”: Fritz
    • To change China’s behavior, “we need to work with our allies, not start trade wars,” he says
      • “The best thing we can do for American workers is to create new jobs, and the best way to create new jobs is trade”
    • Uncertainty over trade is discouraging capital expenditure, he says
      • It costs $3m to build a mile of railroad track; costs $3.25m with steel tariffs, he says


(Bloomberg) U.K. Takeover Panel Sets Sky Floor Price in Disney-Comcast Fight

  • The body that oversees U.K. takeovers raised the minimum price that Walt Disney Co. must pay for British pay-TV company Sky Plc as Disney battles Comcast Corp. for control of Rupert Murdoch’s media empire.
  • Disney would have to bid for all of Sky at 14 pounds ($18.37) a share if it manages to acquire the entertainment assets of Murdoch’s 21st Century Fox Inc. before a bidding war for Sky between Fox and Comcast concludes, the Takeover Panel said in a statement.
  • The panel’s decision is unlikely to affect the outcome of the contest as the floor price is in line with Fox’s current bid for Sky and below the 14.75 pounds a share offer from Comcast.
  • Disney and Comcast are vying for Fox assets including a 39 percent stake in Sky. The Takeover Panel can uphold the interests of other Sky shareholders by forcing Disney and Comcast to buy them out at a minimum price. That price is calculated by examining the bids for the Fox assets and ascribing an implied valuation to the Sky stake. The Panel’s so-called chain principle mandates a full takeover bid for a company if a buyer acquires more than 30 percent of its shares, even if those shares are acquired as part of a larger deal.
  • The panel had previously ruled, following Disney’s initial $52.4 billion bid for Fox, that a Disney offer for Sky would be required at 10.75 pounds a share. Disney has since increased its offer for the Fox bundle by 35 percent.
  • Sky is seeking to review the latest ruling, the panel said in the statement, without giving details of Sky’s concerns. “Each of Disney and Fox is considering its position,” it added.
06 Jul 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.9 billion and year to date flows stand at -$34.4 billion. New issuance for the week was $5.8 billion and year to date HY is at $106.7 billion, which is -27% over the same period last year. 


(Bloomberg) High Yield Market Highlights


  • Junk bond yields were flat and spreads little changed in a quiet market after the Independence Day holiday. Issuance is expected to resume next week.
  • July has traditionally been a light month for HY bond sales with an average volume of $15.5b the last five years
  • Last July issuance was under $11b and it was $8b in 2015
  • Investors pulled cash from retail funds last week, wary of continuing trade tensions
  • While some signs of caution emerged, high yield continued to operate in a benign environment of low default rates, a steady economy and strong oil prices
  • Default rate projected to decline to 1.5% by April 2019 according to Moody’s
  • CCCs continued to outperform BBs and single-Bs, with YTD returns of 3.08%
  • CCCs also beat investment-grade bonds, which are down 2.95% YTD 


  • (Industrial Distribution) United Rentals To Acquire BakerCorp For $715M


  • United Rentals and BakerCorp International Holdings announced Monday they have entered into a definitive agreement under which United Rentals will acquire BakerCorp for approximately $715 million in cash. The boards of directors of United Rentals and BakerCorp have unanimously approved the agreement. The transaction is expected to close in the third quarter of 2018.
  • BakerCorp is a  multinational provider of tank, pump, filtration and trench shoring rental solutions for a broad range of industrial and construction applications. The company has approximately 950 employees serving more than 4,800 customers in North America and Europe. BakerCorp’s operations are primarily concentrated in the United States and Canada, where it has 46 locations, with another 11 locations in France, Germany, the UK and the Netherlands. For the trailing 12 months ended May 31, 2018, BakerCorp generated $79 million of adjusted EBITDA at a 26.9 percent margin on $295 million of total revenue.
  • “We’re very pleased to announce an agreement to acquire BakerCorp, an expert in fluid solutions and a highly regarded, customer-focused operation,” said Michael Kneeland, CEO of United Rentals. “We’re gaining a terrific team that shares our strong commitment to safety and customer service, and operations that complement our North American pump and trench offerings. This transaction will also be our company’s first experience in Europe, where BakerCorp has established an attractive, fast-growing business with significant future opportunity. We set a high bar across strategic, financial and cultural metrics when evaluating any acquisition. BakerCorp met every test, with the additional advantage of being primed to benefit from our systems and technology. We expect the combination to augment our revenue, earnings and EBITDA in 2018, while propelling the growth of one of our most promising specialty segments.”
  • Also, United Rentals announced that William Plummer will retire as executive vice president and chief financial officer on Oct. 12. Plummer is the company’s longest-serving CFO, having joined United Rentals in 2008. He will remain with United Rentals until January 31, 2019, in an advisory capacity.
  • The United Rentals board of directors has appointed Jessica Graziano as chief financial officer, effective Oct. 12. Graziano joined United Rentals in December 2014 as controller and principal accounting officer and was promoted to her current role in March 2017. In this role, she works closely with the senior leadership team and oversees the company’s accounting, financial planning and analysis and insurance departments. Graziano has more than two decades of financial management experience, previously serving as senior vice president, principal financial officer, chief accounting officer and corporate controller for Revlon Inc. Earlier, she held senior financial positions with UST Inc. (now Altria Group), Sturm, Ruger & Company Inc. and KPMG LLP.


  • (Seeking Alpha) Crude Oil Makes Another New High This Week
  • Crude oil continues to be the strongest commodity out there these days. As precious metals recently fell to their lowest level of the year, copper fell below a critical support level, grains are feeling the pain of tariffs, and many other raw material prices are under pressure, crude oil keeps on grinding higher. After the correction that took the price to a low of $63.59 per barrel on the NYMEX active month futures contract early in the week of June 18, the path of least resistance for the energy commodity has been higher.
  • On Tuesday, July 3, the price of nearby August NYMEX crude oil futures rose to a higher high at $75.27 per barrel. Meanwhile, the Brent active month September futures contract has not been able to make it back above $80 per barrel since reaching a high of $80.50 on May 22. On that day, NYMEX WTI crude oil only traded to a high of $72.90 per barrel, so then Brent premium since the end of May has declined which is likely the result of OPEC’s increase in output at the June 22 biannual meeting. Despite the production increase by the world’s oil cartel at the end of June, the U.S. President continues to push the OPEC’s leading producer to pump up the volume, even more, these days.
  • Before, during, and after the OPEC meeting on June 22, U.S. President Donald Trump continued to push for higher production from the cartel.
  • In the aftermath of the OPEC meeting, President Trump has repeatedly called for more oil from the cartel. Russia and Saudi Arabia favored a production increase at the June meeting of oil ministers. However, Iran stood against any increase and the Trump administration warned other nations around the world from buying Iranian crude in coming months. The politics surrounding crude oil production in the Middle East is a complicated political puzzle these days. Despite continued requests and even threats about protection in the region, President Trump’s requests for more production have done little to stop the ascent of the price of the energy commodity which remains not far below its most recent high, and around $10 above the lows seen on June 18 before the OPEC meeting.
29 Jun 2018

CAM Investment Grade Weekly Insights

Corporate spreads moved modestly wider during the week as BBB credit continues to underperform A-rated credit.

According to Wells Fargo, IG fund flows for the week of June 21-June 27 were +$1.3 billion.  IG flows are now +$69.387 billion YTD.

Per Bloomberg, it was the slowest week for the new issue calendar thus far in 2018, with only $2.4 billion in new corporate debt priced through Thursday.  This brings the YTD total to ~$595bn.

Treasury rates did not change materially this week and curves remain flat.


(Bloomberg) Fed Test Slaps Wall Street Titans, Unleashes Record Payout

  • Tougher Federal Reserve stress tests forced some of Wall Street’s top banks to rein in ambitious plans for pumping out cash to shareholders. But even those diminished returns spell a record payout to investors.
  • As the central bank’s annual stress tests ended Thursday, the nation’s four largest lenders — JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and Citigroup Inc. — said they will distribute more than $110 billion through dividends and stock buybacks, sending their stocks higher. Even shares of Goldman Sachs Group Inc. and Morgan Stanley — which the Fed blocked from boosting total payouts — climbed in early trading Friday.
  • The Fed’s decisions in the test provided some relief for investors after arecord 13 straight days of declines in the S&P 500 Financials Index. In the hours after clearing the test, more than 20 firms described how they’ll reward their owners over the coming four quarters. Wells Fargo plans to boost payouts more than 70 percent to about $33 billion, while JPMorgan signaled a 16 percent increase to $32 billion.
  • The Fed also delivered some bad news. The regulator said it rejected initial proposals from six firms — JPMorgan, Goldman, Morgan Stanley, American Express Co., M&T Bank Corp. and KeyCorp — to make even higher payouts, forcing them to temper their requests. Never have so many firms taken that so-called mulligan to finish the exam.
  • The Fed also failed a U.S. subsidiary of Deutsche Bank AG, citing “widespread and critical deficiencies” in its planning. The widely anticipated rejection limits the unit’s ability to send capital home to Germany and comes as senior executives try to bolster investor confidence. The Frankfurt-based firm said it’s working with regulators and making progress.


 (Bloomberg) Charter Pays Double-Digit Concession                     

  • Domestic telecom company Charter Communications was the lone issuer to navigate what’s become a treacherous investment-grade primary market.
    • Compressing spreads 15bps, CHTR paid 10bps in new issue concession to print $1.5 billion split between 5.5-year fixed- and floating-rate notes when taking into account both their outstanding 22s and 25s.
    • New issue fatigue continues to grip the market as investors digest more than $31 billion in jumbo acquisition-related financing from Bayer and Walmart alone. After considering persistent headline risk from global trade tensions, sensitivities around Italy and an upcoming holiday-shortened week, activity is likely to remain muted until the week beginning July 9.
    • With just $2.4 billion pricing, we are on pace for the lightest volume week of the year. Prior to this, the last week of May held that distinction with $4.75 billion of sales.
    • It was surprising that a split-rated, high-beta telecommunications company elected to move forward today given the recent uneven broader market backdrop and weaker credit landscape.
    • Execution can best be described as mixed this week, highlighted by triple-B captive finance issuer Penske Truck Leasing’s 5-year deal stalling Tuesday, launching at initial price thoughts while the borrower was forced to pay elevated concessions.
    • As we saw over the last two active sessions, today’s final orderbook was less than 2 times covered.


(Bloomberg) In GE Overhaul, Once-Mighty Finance Arm Goes Out With a Whimper

  • General Electric Co.’s finance business was once considered “too big to fail’’ by the U.S. government. These days, John Flannery is trying to make it too small to notice.
  • The chief executive officer is selling the bulk of what’s left of GE Capital as part of an effort to remake the parent company into a less volatile — and much smaller — maker of aerospace and power equipment.
  • When he’s done, the lending side, which GE has been downsizing since the financial crisis, will consist of a world-class aircraft leasing unit and not much else. It wasn’t that long ago that it offered everything from credit cards and commercial real estate loans to freight-train financing and pet insurance.
  • Flannery’s plan, which also calls for spinning off the health-care division and backing out of the oil and gas market, would effectively complete the slow-motion breakup of a banking business that predecessors Jack Welchand Jeffrey Immelt had built into a Wall Street titan.
  • Flannery, who spent decades in finance roles at GE, acknowledged the diminishing role of lending at the company but wouldn’t call it the end of GE Capital. After all, there’s still one big business left.
  • GE Capital Aviation Services, better known as Gecas, is one of the world’s top plane lessors, with a fleet of almost 2,000 aircraft. The business generated $283 million in profit in the first quarter, while GE Capital overall lost $1.8 billion.
  • Flannery has no plans to sell Gecas, which he argues is complementary to GE’s jet-engine manufacturing operations. Still, he said there’s a lot of external interest, giving GE “optionality” down the road. As he put it, potential acquirers “call us constantly.”
29 Jun 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.5 billion and year to date flows stand at -$33.4 billion.  New issuance for the week was $4.2 billion and year to date HY is at $100.8 billion, which is -27% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • The yield on the Bloomberg Barclays US Corporate High Yield Bond Index jumped to the highest since December 2016 as issuance surged and funds saw outflows.
  • Yesterday was busiest day for issuance this year, marking the busiest week of supply since early March
  • Stars Group, a CCC-credit, got orders over $2b, priced at tight end of talk, increased size of the offering, cut size of TLB
  • Nationstar, a low single-B credit, priced in middle of talk on orders of more than $3b
  • AmWINS, also single-B, priced at tight end of talk
  • June on track to be slowest sixth month since 2013
  • 2018 issuance expected to be lower than last year’s $275b
  • BB and single-B yields jumped to 20-month high after rising most in more than 2 months


(Bloomberg)  Community Health Continues Debt Revamp With $1 Billion of Senior Notes

  • Community Health Systems Inc. is raising $1.027 billion by selling new senior notes to pay down more than$1 billion in term loans.
  • The new first lien debt due in 2024 would be used to pay off Community’s Term Loan G, according to a statement. The sale would put off a near-term maturity and give the hospital operator a respite from refinancing for more than two years, at an incremental cost of $50 million in interest, Mike Holland, a Bloomberg Intelligence analyst, said in an interview.
  • The offering follows Community’s debt exchange of unsecured notes for secured bonds with longer maturities. The Franklin, Tennessee-based company is unwinding a debt-fueled acquisition binge and cutting costs as it confronts tepid admissions, low margins and the industry’s high expenses. Community sold 30 hospitals last year, and it’s trying to strengthen results at the hospitals it’s keeping by focusing on more profitable treatments and getting out of low-margin treatments.
  • Moody’s Investors Service rated the new first lien notes at B3, six steps below investment grade, on the expectation that Community will continue to operate with “very high financial leverage” of over eight times. The ratings firm expects negative free cash flow over the next 12 to 18 months as a result of high interest costs and “significant capital requirements” of the business.


(Moody’s)  Moody’s upgrades Diamondback Energy’s debt by one notch, positive outlook

(CAM Notes)  The Moody’s upgrade was based on the expected production and reserve growth over the next year and a half.  Additionally, Moody’s likes the generated top-tier margins of Diamondback.


(PR Newswire)  Steel Dynamics Announces Columbus Flat Roll Division’s New Galvanizing Line Expansion

  • Steel Dynamics announced plans to expand its offering of value-added flat roll steel products through the addition of a new galvanizing line in Columbus, Mississippi.  The company plans to invest approximately $140 millionand create 45 new jobs, adding a third galvanizing line at its Columbus Flat Roll Division.  After the planned completion of this new facility, the company will have nine value-added galvanizing lines located throughout the eastern half of the United States, with a total annual coating capacity of approximately 3.8 million tons.  Upon the closing of the recently announced planned Heartland acquisition, the company will have ten flat roll steel galvanizing lines with approximately 4.2 million tons of coating capacity, solidifying Steel Dynamics as the largest provider of non-automotive galvanized flat roll steel in the United States.
  • “This investment is another step of further diversification into higher-margin products for our Columbus Flat Roll Division,” said Mark D. Millett, President and Chief Executive Officer.  “In recent years, Columbushas transformed its product offerings through the addition of painting and Galvalume® coating capability, as well as through the introduction of more complex grades of flat roll steel, some of which serve the automotive sector.  These value-added improvements have reduced the amount of volume available to our existing galvanized customer base.  The addition of a third galvanizing facility will allow Columbus to serve these existing customers, as well as new customers in the region, and will also further reduce its exposure to the more cyclical hot roll market.”
  • Construction is planned to take place during the next 24 months, with operations expected to begin mid-year 2020.
  • Additionally, Steel Dynamics was recognized as the “2018 Steel Producer of the Year” on Tuesday, June 26, 2018, during the AMM Awards for Steel Excellence ceremony.
  • Finalists were selected by senior American Metal Market editors, and those entries were scored by steel industry veterans who serve as judges to select the winners.


(CNBC)  Conagra Brands to acquire Pinnacle Foods for about $8.1 billion

  • Conagra Brands on Wednesday announced plans to acquire Pinnacle Foods in a cash-and-stock deal valued at about $8.1 billion that furthers Conagra’s transformation under CEO Sean Connolly and its push into frozen foods.
  • Including debt, the deal is valued at $10.9 billion.
  • The pairing of Healthy Choice-owner Conagra and Bird’s Eye-owner Pinnacle would create the second-largest U.S. frozen food company behind Nestle, analysts at RBC Capital Markets have written. Conagra has poured money into its frozen business, with an eye toward repackaging and reformulating its products to cater to younger diners.
  • Under the agreement, Pinnacle shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra’s common stock for each share of Pinnacle. Pinnacle shareholders are expected to own approximately 16 percent of the combined company.
  • The deal is the culmination of on-again, off-again talks the two have had for years. It comes months after activist investor Jana Partners disclosed a roughly 9 percent stake in Pinnacle and said it planned to talk with the company about a possible sale.
25 Jun 2018

CAM Investment Grade Weekly Insights

Trade concerns continued to weigh on debt and equity markets throughout the week. Spreads on the Bloomberg Barclays Corporate Index are 7 wider on the week as we go to print on Monday.  A deluge of corporate bond supply in the primary market has certainly helped to push spreads wider.  On Monday, Bayer printed a $15bln deal to fund its acquisition of Monsanto.  At the time, this was the second largest deal of the year, after the jumbo $40bln deal that CVS brought to market in early March.  Walmart would soon take the mantle of the second largest deal from Bayer as the retailer brought a $16bn deal on Wednesday to fund its acquisition of Indian-based ecommerce retailer Flipkart.

According to Wells Fargo, IG fund flows for the week of June 14-June 20 were -$1.4 billion. Even with the reversal in flows, IG flows are still positive at +$68.107 billion YTD.

Jumbo M&A led to one of the busiest new issue calendars that we have seen thus far in 2018. Per Bloomberg, over $43 billion in new corporate debt priced through Thursday.  This brings the YTD total to $636 billion.


(Bloomberg) Why Corporate Bond Liquidity Might Not Be as Bad as You Fear

  • Banks’ shrinking corporate-bond holdings are partly a statistical mirage, according to a consulting firm. Some money managers and analysts believe it may be time to stop worrying about it.
  • One measure of total dealer holdings of corporate bonds has dropped by around 90 percent since the crisis, a fact that has instilled fear in money managers for years. Dealers’ inventories of corporate bonds can be a shock absorber for the market: in times of trouble, banks can buy the securities from panicked sellers, hang onto them, and then offload them slowly, potentially preventing prices from plunging.
  • But the decline in inventories is less dramatic than it seems because of a quirk in the data, consulting firm Tabb Group wrote in a recent report. The Federal Reserve Bank of New York statistic in question, primary dealer positions in corporate securities, fell to around $23 billion as of June 6 from around $265 billion in 2007. Much of that decline stemmed from the New York Fed narrowing the way it defined corporate bonds in 2013, when it appeared to have removed mortgage-backed securities without government backing from the mix, according to Tabb. On an apples-to-apples basis, inventories declined more like 35 percent to 50 percent for banks between 2007 and 2014, the consulting firm estimated.
  • Inventories aren’t even the best measure to look at for assessing liquidity, Tabb Group said. What money managers care about is a bank’s capacity to buy securities, and the bigger a dealer’s inventory, the less ability it has to buy more. The average capacity at the six biggest U.S. banks for corporate bond underwriting fell just 16 percent between 2006 and 2017, according to Tabb, and most of the banks can take on even more risk if there’s a valid business reason to do so.
  • Looking at the top 20 dealers, the decline in banks’ capacity from the pre-crisis era is closer to around 35 percent, Tabb estimates. But it’s not fair to completely blame rulemakers for these declines. There are good business reasons for banks to be less willing to hold the debt because interest rates are broadly rising, said Timothy Doubek, senior portfolio manager at Columbia Threadneedle Investments, which manages about $172 billion of fixed income assets.
  • There are still reasons to be worried about how corporate bonds may perform in a downturn. The declines in inventories and capacity have come at a time when the amount of debt outstanding has surged: there were about $9 trillion of U.S. corporate bonds outstanding as of the end of March, according to the Securities Industry and Financial Markets Association, a trade group. That’s an increase of around 85 percent from the end of 2006.
  • There’s no single way to define liquidity and it can vanish during times of stress. One measure known as the “bid-ask spread,” which looks at differences between the prices at which dealers will buy and sell a security, tends to grow wider when liquidity is low, and shrink when it’s strong. That spread is about as tight as it’s ever been.



22 Jun 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.5 billion and year to date flows stand at -$31.8 billion.  New issuance for the week was $1.7 billion and year to date HY is at $96.5 billion, which is -28% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • Junk bond yields are up slightly with equity weakness and rising VIX, while lack of supply is supportive.
  • Yield to worst on Bloomberg Barclays US Corporate High Yield Bond Index rose to 6.26%
  • VIX saw the biggest jump in more than three weeks, closed at a 3-week high
  • DJIA dropped in nine of the last 10 sessions, closed at a 3-week low amid continuing tensions over tariffs
  • New issuance has been quite sparse
  • Junk bond YTD returns are 0.69%, the best performing in U.S. fixed income
  • CCCs continue to top BB, single-Bs with YTD returns of 3.52%
  • CCCs also beat investment grade bonds, which are down 3.58%


(Moody’s)  Moody’s Upgrades AES Corporation’s Corporate Family Rating to Ba1 from Ba2; Rating Outlook is Stable

(CAM notes)  Moody’s upgrade was based on the business diversity, lowering of carbon risk exposure, and an improving credit profile.


(Bloomberg)  Cheniere to Buy Unit for $30.93 a Share in Streamlining Move

  • Cheniere Energy Inc., the first U.S. company to export shale gas overseas, will buy the remaining stake in a holding company it already controls for $30.93 a share, moving to simplify amid a U.S. tax overhaul that’s pummeling natural gas partnerships.
  • Investors in Cheniere Energy Partners LP Holdings LLC will receive 0.475 of a share in Cheniere Energy Inc. for each share of the holding company, of which Cheniere already controls 91.9 percent. The deal values the acquired company at about $7.2 billion.
  • The pact comes as companies from Williams Cos. to Enbridge Inc. take steps to tighten their structures as changes in U.S. tax law upend the master limited partnerships often used to own pipelines. Units in MLPs plunged in March after regulators said they can no longer charge customers for taxes they don’t pay.
  • “This has been the plan all along,” for Cheniere, Pavel Molchanov, an analyst at Raymond James Financial Inc., said by phone “This is part and parcel of a broader theme across the MLP landscape: companies are cleaning up, simplifying their structures.”
  • The holding company has a stake in Cheniere Energy Partners LP — the business that owns and operates Sabine Pass, the terminal that was first to export U.S. shale gas overseas.


(Moody’s)  Moody’s downgrades U.S. Concrete’s Corporate Family Rating to B2 from B1; outlook remains stable

(CAM Notes)  Moody’s downgrade was based on leverage being elevated from the expected level.  Moody’s does see value in the Company’s ability to generate free cash flow.  Additionally, the private non-residential commercial segment of the construction market is favorable.


(CNBC)  Conagra has approached Pinnacle Foods about a potential deal 

  • Conagra Brands has approached Pinnacle Foods about a potential acquisition, sources familiar with the situation told CNBC on Thursday.
  • A pairing of Healthy Choice-owner Conagra and Bird’s Eye-owner Pinnacle would combine two companies with a large presence in frozen foods at a time when the category is seeing a resurgence. Food companies, including Conagra, have poured money into previously neglected brands to highlight their healthiness, affordability and ease of use.
  • Pinnacle has a market capitalization of $7.9 billion, while Conagra’s is $15.1 billion. A combination of Conagra and Pinnacle would create the second-largest U.S. frozen food company, analysts at RBC Capital Markets recently wrote. The other major players include Kraft Heinz and Nestle, the latter of which is the largest in the U.S., according to RBC.
  • The deal talks come after activist hedge fund Jana Partners recently disclosed a roughly 9 percent stake in Pinnacle and said it planned to talk with the company on a range of subjects, including a possible sale.


(Street Insider)  Frontier Communications CFO R. Perley McBride Resigns

  • Frontier Communications announced that R. Perley McBride, its Executive Vice President and Chief Financial Officer, will be resigning from the company for personal reasons, and to return to Atlanta where his family resides. Mr. McBride will remain in his position until August 31, 2018 to help transition responsibilities. A search for his successor is being conducted.
  • Frontier’s President and Chief Executive Officer Daniel J. McCarthy stated, “We announce Perley’s resignation with regret. Perley has done a tremendous job managing our balance sheet. He has negotiated improvements in the terms of our credit agreements, raised $1.6 billion of new second lien debt, and retired approximately $1.7 billion of unsecured notes. These steps, together with the stabilization in our business as reflected in our most recent quarterly results, have placed Frontier on a positive path forward. On behalf of everyone at Frontier, I wish Perley and his family the best in the future.”
15 Jun 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.5 billion and year to date flows stand at -$28.1 billion.  New issuance for the week was $2.0 billion and year to date HY is at $94.7 billion, which is -29% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • Junk bond spreads have dropped to an 8-week low — just 18bps from the tightest in 10 years — as investors seem to shrug off geopolitical tensions, fears of trade war and rates volatility. Supply is tight and fund inflows have resumed.
  • High yield index spread closed at +329
  • CCC spreads have dropped 53bps YTD to close at 5-month low of +562
  • For returns, CCCs continued to top BBs and single-Bs
  • High yield supply thin, retail funds seeing cash inflows
  • Summer is likely to see issuance picking up as acquisitions and buyouts gain some momentum
  • Moody’s survey of non-financial companies finds that 65% of them were better off with the 2017 tax cut and they expect to use additional cash to repay debt, and to a lesser extent, repurchase stocks


(Fierce Wireless)  Sprint slashes data prices with $15 unlimited plan for those willing to switch

  • Sprint has unveiled one of the most aggressive wireless promotions yet, offering unlimited data, talk, and text for just $15 per line per month. The offer is for people who are switching to Sprint from another carrier. It can only be activated online, and does not require a contract.
  • By undercutting its competitors on price, Sprint is making several points. First, the carrier appears confident that its network can handle a lot more traffic and perform as well as those of its competitors. Second, despite a major investment in new Sprint retail stores across the country, Sprint would rather sign up its new customers online than in person. Third, Sprint is not content to languish in fourth place in the U.S. market while it waits to see if U.S. regulators will approve its merger with T-Mobile next year.
  • And finally, Sprint is underlining the point that a wireless market with four operators invites aggressive price promotion. Washington wants to see a competitive wireless market, but it doesn’t necessarily want to see carriers cutting prices to a point that threatens their ability to invest in next-generation networks.
  • The promotion also underscores the cutthroat nature of a four-carrier wireless market. Some analysts say a three-carrier market is likely to result in fewer discounts for customers. This is a negative for consumers in the short term, but could be positive in the longer term, according to some analysts.
  • Analyst Joe Madden of Mobile Experts has pointed out that in countries with just three carriers, higher margins create the financial opportunity for carriers to invest in new technologies, which ultimately lead to more value for consumers. Consumers may not see rock-bottom data prices, but they are able to get a lot more data for each dollar they spend. This is the type of argument that will almost certainly be made in Washington as the Justice Department and the FCC consider the proposed merger of Sprint and T-Mobile.


(Bloomberg)  OPEC Highlights Demand Uncertainty Before Crucial Meeting

  • OPEC emphasized the deep uncertainty over the strength of demand for its oil just a week before contentious talks on whether to raise production.
  • There’s a “wide forecast range” for how much crude the Organization of Petroleum Exporting Countries needs to pump in the second half of the year, its research department said in a monthly report. With a range of uncertainty of 1.7 million barrels a day, demand could either be significantly higher, or slightly lower, than OPEC’s current output.
  • “Looking at various sources, considerable uncertainty as to world oil demand and non-OPEC supply prevails,” said the report, published by OPEC’s secretariat in Vienna. “This outlook for the second half of 2018 warrants close monitoring.”
  • OPEC and its allies will debate whether to revive halted output when they gather in Vienna next week. Saudi Arabia and Russia have said they want to raise supplies to prevent high prices hurting economic growth, but opposition among other producers is growing.


(Moody’s)  Moody’s Downgrades Tenneco’s Debt Ratings

  • The rating actions incorporate Tenneco’s proposed capital structure related to financing its planned acquisition of Federal-Mogul LLC (Federal-Mogul), a leading global supplier to automotive original equipment manufacturers and the aftermarket. On a pro forma basis for 2017, the transaction will increase Tenneco’s leverage to over 4x inclusive of estimated synergies, from 2.4x. This is transformational for Tenneco, both the acquisition of Federal Mogul as well as the plan to separate into two separate businesses with one focused on Aftermarket & Ride Performance and the other on Powertrain Technology.
  • Tenneco is expected to acquire Federal-Mogul from affiliates of Icahn Enterprises L.P. for $5.4 billion. This is about a 7.2x multiple of Tenneco’s calculation of Federal-Mogul’s 2017 adjusted EBITDA (pre synergies). The acquisition is expected to close in the second half of 2018, subject to regulatory and shareholder approvals and other customary closing conditions.
  • The ratings reflect the significant increase in leverage, with the expectation that improvement is unlikely over the near term, as approximately 75% of the synergies will not be realized until late 2019. Pro Forma debt/EBITDA is estimated at 4.8x, and about 4.2x adjusting for Tenneco’s projected synergies. The ratings also reflect a number of near-term execution risks including: operating the ongoing businesses while both integrating certain operations related to the planned separation; and implementing programs to achieve the planned synergies and working capital improvements.

(CAM Note)  S&P and Fitch have also downgraded the debt of Tenneco


(CNN)  Fed raises interest rates and signals faster hikes on the way

  • The Federal Reserve on Wednesday lifted its benchmark rate by a quarter of a percentage point, the second hike this year.
  • And a majority of policy makers said they now expect a total of four interest rate increases this year. Fed officials had been split about whether to raise rates three times this year or four.
  • The decision reflected an economy that’s getting even stronger. Unemployment is 3.8%, the lowest since 2000, and inflation is creeping higher. The Fed is raising rates gradually to keep the economy from overheating.
  • “The main takeaway is that the economy is doing very well,” Fed Chairman Jerome Powell said at a news conference. “Most people who want to find jobs are finding them, and unemployment and inflation are low.”