Category: Insight

22 Mar 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The investment grade credit markets closed at YTD tights on Thursday evening, riding a wave of strong sentiment from a surprisingly dovish Fed statement on Wednesday.  The story changed on Friday, however, with a decidedly softer tone fueled by concerns about the lack of growth globally.  Credit is mixed as we go to print on Friday with major stock indices firmly in the red on the day.  The 10yr Treasury will finish the week almost 10 basis points lower than where it started, which will likely mark a YTD low for the benchmark rate.  After peaking at 3.24% in November of 2018, the 10yr has now completely retraced its steps to 2.43%, which is almost exactly where it opened in 2018.  The extreme volatility that we have seen in rates over the past six months offers us a reminder of just how difficult it can be to accurately predict interest rate moves and this unpredictability is the reason that we at CAM focus on credit risk and the intermediate portion of the yield curve as opposed to trying to predict where rates will go next by making duration bets.

It was another solid week of issuance for corporate bowers, as companies brought $21.55bln in new corporate debt during the week.  $88.125bln of debt has been priced in the month of March and the year-to-date tally of new issuance is $292.298bln according to data compiled by Bloomberg.  The pace of 2019 IG issuance is trailing 2018 by 9%.

According to Wells Fargo, IG fund flows during the week of March 14-March 20 were +$4.5 billion. This brings YTD IG fund flows to +$62.222bln.  2019 flows to this juncture are up 2.43% relative to 2018.

22 Mar 2019

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $2.3 billion and year to date flows stand at $12.7 billion.  New issuance for the week was $8.4 billion and year to date HY is at $53.0 billion, which is -0% over the same period last year.


(Bloomberg)  High Yield Market Highlights

  • S. junk bond returns hit 7 percent for the year-to-date as BB yields fell to a 13-month low after the Fed’s mid-week dove surprise.
  • S. high-yield funds have seen net inflows in 8 of the last 10 weeks
  • Junk bond rally also boosted by S&P 500 at a 5- month high, oil at a 4-month high
  • Supply was steady, with another $1.8b pricing led by ADT’s senior secured tranches
  • Senior secured notes dominated junk bond supply year-to-date accounting for 30% of the issuance activity, the highest proportion in at least 2 years
  • They accounted for 13% of the supply last year and 21% the year before
  • ADT cut its bond offering to $1.5b after dropping the $1.25b 8NC3 senior unsecured tranche as there was not enough demand for those notes at an acceptable rate
  • Both secured tranches priced at lower end of talk, had orders above $3b for the 2 tranches combined
  • With loan supply lagging this year, senior secured notes are being used to repay loans and/or fund acquisitions as in Power Solutions
  • High-yield returns YTD surged to 7%, the best in fixed income
  • Single-Bs beat CCCs for second time this year, with YTD return of 6.97%
  • BBs and CCCs were at 6.93%
  • Loans lag high yield, with YTD return of 4.2%


(Business Wire)  B&G Foods Announces that Bill Herbes, EVP of Operations, Plans to Retire

  • B&G Foods announced today that William F. Herbes, the Company’s Executive Vice President of Operations, plans to retire at the end of December 2019. Mr. Herbes, age 64, has served as Executive Vice President of Operations since joining the Company in August 2009.
  • Commenting on Mr. Herbes’ retirement plans, Kenneth G. Romanzi, who currently serves as Executive Vice President and Chief Operating Officer and, as previously announced, will become B&G Foods’ next President and Chief Executive Officer on April 6, 2019, said, “Bill has been a very important member of our management team since joining B&G Foods almost ten years ago. It has been a privilege to work with Bill and I am delighted that Bill has agreed to remain with B&G Foods through year end and partner with Erich Fritz, our Executive Vice President and Chief Supply Chain Officer, to continue to evolve our operations to become even more efficient and cost effective.”
  • Robert C. Cantwell, President and Chief Executive Officer of B&G Foods said, “Bill has been a tremendous contributor to B&G Foods’ growth over the past ten years. Since assuming responsibility for our supply chain and manufacturing operations in 2009, our company’s net sales have more than tripled and our domestic and international sourcing and manufacturing operations and capabilities have greatly expanded. Mr. Herbes has played an integral role in our growth, including through post-M&A integration of numerous manufacturing facilities, distribution centers and co-pack arrangements, including B&G Foods’ two largest manufacturing facilities. Under Bill’s strong leadership, we also successfully established a frozen distribution network following our acquisition of the Green Giantbrand and successfully outsourced our shelf-stable distribution network to a third-party logistics provider. Over the years, Bill has also played a key role in our cost savings initiatives. I am very pleased that Bill will continue with B&G Foods through the remainder of 2019 and wish him the best of luck in his retirement.”


(PR Newswire)  Steel Dynamics Provides First Quarter 2019 Earnings Guidance

  • Steel Dynamics provided first quarter 2019 earnings guidance in the range of $0.88 to $0.92 per diluted share.  Comparatively, the company’s sequential fourth quarter 2018 earnings were $1.17 per diluted share and prior year first quarter earnings were $0.96 per diluted share. Fourth quarter 2018 results included additional company-wide performance-based compensation of $0.04 per diluted share and lower earnings of $0.10 per diluted share, associated with planned maintenance outages at the company’s liquid pig iron production facility and its two flat roll steel mills.
  • First quarter 2019 earnings from the company’s steel operations is expected to decrease in comparison to sequential fourth quarter results, primarily related to lower earnings from the company’s sheet operations.  However, recent increases in sheet steel prices are having a positive impact, resulting in increased order activity and reconstituted order backlogs.
  • Overall steel shipments are expected to increase in the first quarter 2019, compared to fourth quarter 2018 results, and average quarterly steel product pricing is expected to decrease more than the cost of average scrap consumed.  The company believes domestic steel consumption will continue to improve through the year.


(New York Times)  Fed, Dimming Its Economic Outlook, Predicts No Rate Increases This Year

  • The Federal Reserve said Wednesday that the United States economy was slowing more than it had previously thought as it left interest rates unchanged and signaled little appetite for raising them again in the near future.
  • The Fed now expects 2.1 percent growth this year, down from the 2.3 percent it forecast in December. The outlook for 2020 is even more bleak, with the Fed now projecting growth of just 1.9 percent.
  • The downbeat assessment comes as the Fed sees signs of weakness in areas like consumer spending and business investment, which Mr. Powell said “suggest that growth is slowing somewhat more than expected.” Average monthly job growth, while strong, “appears to have stepped down from last year’s strong pace,” he added.
  • Powell tried to reassure markets by saying “economical fundamentals are still very strong,” but he acknowledged that recent developments both domestically and abroad were making it harder for the American economy to grow as quickly as it did last year.
  • Forecasts released at the end of the two-day meeting show the typical member of the Federal Open Market Committee now expects not to raise rates at all this year. Most officials now expect a single rate increase in 2020 and none in 2021.
15 Mar 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The investment grade credit markets look to finish the week marginally tighter.  After opening the week at 123, the OAS on the corporate index closed on Thursday at 121, near the YTD low of 120.  The 10yr Treasury is 4 basis points lower on the week as we go to print and it is 15 basis points lower than where it closed on the first trading day of March.



It was yet another solid week of issuance as IG firms issued just over $25bln in new corporate debt during the week.  New issue concessions remain razor thin and in some cases turned negative as investors “pay up” for the liquidity that it is afforded by the availability of new debt.  At the midpoint of the month, $64bln in new debt has been issued which brings the YTD tally to $268.498bln according to data compiled by Bloomberg.

According to Wells Fargo, IG fund flows during the week of March 7-March 13 were +$4.9 billion. This brings YTD IG fund flows to +$49.968bln.  2019 flows to this juncture are up 1.39% relative to 2018.

(WSJ) $10 Billion Corporate Debt Sale Highlights Credit Market’s Recovery

  • The world’s largest maker of automotive batteries is set to sell more than $10 billion worth of speculative-grade debt Friday to fund its purchase by an investor-group led by Brookfield Business Partners LP, underscoring the recent resurgence in demand for low-rated bonds and loans.
  • Power Solutions, the automotive-battery business currently owned by Johnson Controls International, is poised to sell roughly $3.7 billion worth of secured and unsecured bonds, denominated in both dollars and euros, along with around $6.5 billion in loans, also split between euro and U.S. dollar tranches.
  • The long-anticipated sale is on track to be relatively easy for a large group of underwriting banks, as investors have eagerly embraced what many see as a stable business that is able to shoulder the large amount of debt being placed on it.
  • The expected completion of the Power Solutions deal is a testament to the improved tone in high-yield debt markets, several investors said. Though fears of an economic slowdown led to a sharp decline in bond and loan sales in the final months of 2018, issuance picked up in the middle of January and has been fairly steady since then.
  • Through Wednesday, businesses had sold a total of $106.9 billion of speculative-grade bonds and loans this year, according to LCD, a unit of S&P Global Market Intelligence. That is down from $162 billion in the same period last year.
  • Some investors cautioned that the likely success of the Power Solutions deal doesn’t necessarily mean other businesses will find it as easy to sell such a large amount of debt in the current market. Even using conservative assumptions, analysts expect the company should be able to generate ample free cash flow in the coming years. Its secured bonds and loans, in particular, appealed to investors who have been eager to buy debt at the higher end of the speculative-grade ratings scale.
  • Not everything about the deal pleased investors. Prospective buyers were able to make some changes to the package of investor protections, known as covenants, an unusual outcome for such an in-demand deal. Yet the result, some said, still gives the company’s owners plenty of room to pay themselves dividends and remove collateral from the business, in keeping with the long-term trend toward weaker covenants.


(Bloomberg) U.S. Junk Bonds May Be Signaling That It’s Time to Be Cautious

  • There are early signs that it’s time to be cautious now in U.S. junk bonds.
  • Investors seem reluctant to buy the weakest high-yield corporate securities, a potential signal of trouble ahead, according to Citigroup Inc. strategists. Ratings firms are downgrading speculative-grade companies at the fastest rate relative to upgrades since the start of 2016, according to data compiled by Bloomberg. And to sell their bonds, a handful of issuers including Scientific Games International Inc. have had to pay higher yields this month than dealers had expected.
  • For now, many investors are shrugging off those concerns. Junk bonds have reached record highs this year and are the best performing U.S. fixed-income sector, gaining more than 6.4 percent through Wednesday. A Bank of America Corp. survey of U.S. credit-fund managers found the lowest level of alarm about high-yield and investment-grade corporate bonds since 2014.
  • A handful of companies including Arrow Bidco LLC and Community Health Systems Inc. are feeling the impact of those concerns. The borrowers had to pay more than dealers expected to entice investors to buy bonds in recent weeks.
  • There are other reasons for investors to be cautious now. Economists surveyed by Bloomberg expect growth to slow in the U.S. over the next three years. U.S. corporate earnings growth could come under pressure as tax benefits subside, which should reset junk bond prices and generate “meaningful” negative excess returns in the coming weeks and months, Bank of America said. Corporate bankruptcy filings in the U.S. have jumped, according to a Bloomberg index.
  • Warning signs aren’t limited to the U.S. The European Central Bank has slashed its economic expansion forecasts for the region, China has lowered its goal for economic growth, and an increasing number of corporate borrowers there are struggling to repay debt obligations.
  • There are still positives for corporate-debt investors. More companies have been getting upgraded to investment grade than getting cut to junk, a trend that’s expected to continue this year, according to Barclays Plc strategists led by Bradley Rogoff. The highest ratings tier now makes up almost 46 percent of the overall junk market, near an all-time high. The size of the junk bond market has been shrinking for more than a year, in part because companies have borrowed more in the loan market, making the securities scarcer. And default rates remain low, although they are rising.








15 Mar 2019

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.4 billion and year to date flows stand at $11.1 billion.  New issuance for the week was $4.6 billion and year to date HY is at $42.7 billion, which is -12% over the same period last year.


(Bloomberg)  High Yield Market Highlights

  • S. junk bonds extended this week’s rally, as dedicated funds received fresh cash inflows.
  • Yields held firm as oil rallied to close at a 4-month high after rising for 4 straight sessions
  • Returns were at new YTD highs across ratings, with high-yield index at 6.52%
  • Triple Cs were best performers yesterday, held top rank YTD, with 6.83% gain
  • BBs returned 6.35%, single-Bs 6.45%
  • Loans lagged high yield bonds, with YTD return of 4.2%
  • S. junk operating against backdrop of strong technicals as reflected in slow issuance activity, net inflows into retail funds, low default rate, steady corporate earnings


(Fierce Wireless)  New details cause FCC to pause T-Mobile/Sprint merger for third time

  • The FCC has stopped the clock on a proposed merger between wireless carriers Sprint and T-Mobile. The agency said it has received “significant new information” regarding the deal and has opened up a three-week period ending March 28 for public comment. The pause comes on day 122 of the 180-day review period the FCC holds for mergers.
  • Opposition to the merger gained momentum when the Wireless Internet Service Providers Association (WISPA) joined a coalition of rural wireless providers that oppose the merger. The 4Competition Coalition is comprised of 25 organizations, including WISPA, Dish, C Spire and the Rural Wireless Association (RWA). The coalition has argued that the merger, which would reduce the number of nationwide wireless carriers to from four to three if successful, would hamper rural consumers’ access to wireless service. “The combined company would have significant new incentive and ability to raise prices and preemptively stamp out competition from newcomers. And the merger would result in the loss of tens of thousands of jobs in the process,” the coalition claims on its website.
  • Earlier this week, T-Mobile filed new plans for the combined company to provide residential broadband service. T-Mobile CEO John Legere seemed to respond to the opposition in a blog post this week, which claimed that the combined company will pose a competitive challenge to cable broadband providers.
  • “We’ll give millions of Americans—especially those in underserved rural areas—more choices and options for connecting to the internet and participating in the digital economy,” Legere wrote. “With the New T-Mobile and our unique 5G capabilities, we’ll be able to offer a fast and reliable alternative for in-home broadband.”


(Company Filing and CAM)  AMC Entertainment notes downgraded to CCC+ by S&P 

  • AMC launched a potential refinancing of their existing credit facilities. They intend to use a portion of the net proceeds of such refinancing to redeem all of the outstanding 5.875% Senior Subordinated Notes due 2022 and 6.00% Senior Secured Notes due 2023 pursuant to the provisions of the indentures pursuant to which such notes were issued. There can be no assurance as to whether and when such refinancing and redemption will occur and on what terms such refinancing will occur, if at all.
  • While the refinancing is for the most part leverage neutral, S&P lowered the ratings on the existing senior subordinated notes due to the added secured debt placed above the notes in the capital structure.
08 Mar 2019

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 $9.7 billion.  New issuance for the week was $5.0 billion and year to date HY is at $38.0 billion, which is -6% over the same period last year.


(Bloomberg)  High Yield Market Highlights

  • S. junk bond yields jumped the most in four weeks, closing at a two-week high, as returns turned negative across ratings for a third consecutive session, the worst run since January. Triple C bonds suffered the biggest decline since December.
  • Yields rose in 5 of the last 9 trading sessions as S&P 500 dropped the most in 4 weeks to close at 3-week low
  • Equity fell for 4 straight sessions for first time since December
  • VIX rose for 4 straight sessions for the first time since October, closing at a 5-week high
  • Nervous junk bond investors withdrew cash from high yield funds, the first negative flow since January
  • Resilience of high yield was evident in steady pricing of new issues
  • Biggest LBO deal YTD, Power Solutions, had $15b in orders for senior secured and unsecured tranche combined, after just two days of roadshow
  • Junk bonds still remain best-performing in fixed income, with YTD return of 6.07%
  • CCC bonds fell 0.18% yesterday, have gained 6.38% YTD
  • High yield maintained lead over loans, which returned 4.16% YTD
  • S. junk bonds operate against the backdrop of strong technicals as reflected in slow issuance, low default rate, steady corporate earnings


(Bloomberg)  CenturyLink Finds ‘Material’ Accounting Issues With Level 3

  • CenturyLink Inc. discovered a “material weakness” in accounting involving the value of assets acquired with the 2017 purchase of Level 3 Communications and notified regulators that its 10-K filing will be late.
  • CenturyLink said it found problems with “internal controls” in its books involving recording and “measuring fair value of assets and liabilities” it took over with the Level 3
    acquisition, according to a filing Monday. The rural telephone company said it needs to audit the accounting before it can report its year-end numbers, but that the problem won’t cause any material changes to the results it reported Feb. 13.
  • Monroe, Louisiana-based CenturyLink bought Level 3 to strengthen its sales to businesses and cope with a long-running decline in landline demand. The company — one of the largest junk-bond issuers in the U.S. — is part of a challenging industry that includes Windstream Holdings Inc., which filed for bankruptcy protection last month.


(Bloomberg)  Digital Colony Is Said to Weigh Bid for Zayo 

  • Digital Colony, a communications infrastructure-focused firm formed by Tom Barrack’s Colony Capital Inc. and Digital Bridge Holdings LLC, is part of a potential buyer group weighing a bid for Zayo Group Holdings Inc., according to a person with knowledge of the matter.
  • The group, led by Digital Colony and investment firm EQT, has fully committed debt financing, said the person, who asked not to be named because the matter is private. A Digital Colony representative didn’t immediately respond to a request for comment, and an EQT representative declined to comment.
  • Zayo is a Boulder, Colorado-based owner of fiber networks across North America and Europe on Wednesday said it’s “evaluating strategic alternatives.”
  • Zayo, led by Chief Executive Officer Dan Caruso, postponed its analyst day, and said it will take “a minimum of several weeks to months” to consider its options, though there’s no set timetable nor assurance a strategic alternative will result.

(Bloomberg)  T-Mobile’s Sprint Deal Draws State Concerns Over Consumer Harm

  • State antitrust enforcers are expressing deep concerns that T-Mobile US Inc.’s proposed takeover of Sprint Corp. could raise prices for consumers, signaling they might seek to thwart the deal.
  • Some state attorneys general who are investigating the $26 billion transaction took the unusual step this week of publicly voicing worries that the combination could harm competition, offering insight for the first time into how they view the tie- up.
  • Maryland Attorney General Brian Frosh, a Democrat, said combining T-Mobile and Sprint would further concentrate an already consolidated industry by leaving just three national carriers. “That’s dangerous for competition. That’s dangerous for consumers,” Frosh said in an interview on the sidelines of an annual conference in Washington for state attorneys general.
  • The comments come after more than a dozen states joined to investigate the deal in parallel with the Justice Department and the Federal Communications Commission, which are nearing the end of their reviews.
  • The tie-up has been widely criticized by consumer groups and Democratic lawmakers who want officials to oppose the deal. The states can sue to block the merger on antitrust grounds even if federal officials approve the takeover.
04 Mar 2019

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at $11.0 billion.  New issuance for the week was $2.2 billion and year to date HY is at $31.4 billion, which is -10% over the same period last year.


(Bloomberg)  High Yield Market Highlights 

  • U.S. junk bond supply has revved up, with $21 billion priced in February making it the busiest month since March 2018. It was the highest-volume second month in four years.
  • 30 deals priced, all oversubscribed multiple times, most priced at lower end of talk
  • About 26% of the supply was to fund LBO suggesting strong demand for risk
  • About 25% was rated CCC, some funding dividend distributions to equity sponsors
  • About 54% of total supply was drive-by offerings
  • S. high yield returned most YTD since 2001, up 6.26% after the best January since 2009
  • Triple-Cs led the gains in junk bonds with 6.96%, also best since 2001
  • CCCs January performance was best in almost 3 years, at 5.28%
  • Junk bond yields dropped across ratings closing February near 4-month lows, with the exception of BBs, which closed at a 10-month low of 5%
  • CCC yields and spreads dropped most for the month, closing at 10.52% and +780bps, respectively
  • CCC spreads fell below +800 for first time since early December
  • Low default, better-than-feared corporate earnings, firm oil and above all a dovish Fed boosted risk assets


(Globe Newswire)  Windstream Holdings, Inc. Files for Voluntary Reorganization Under Chapter 11 of the U.S. Bankruptcy Code Following Judge Furman’s Decision

  • The Company intends to use the court-supervised process to address debt maturities that have been accelerated as a result of the recent decision by Judge Jesse Furman in the Southern District of New York against Windstream Services, LLC, a subsidiary of the Company.
  • “Following a comprehensive review of our options, including an appeal, the Board of Directors and management team determined that filing for voluntary Chapter 11 protection is a necessary step to address the financial impact of Judge Furman’s decision and the impact it would have on consumers and businesses across the states in which we operate,” said Tony Thomas, president and chief executive officer of Windstream. “Taking this proactive step will ensure that Windstream has access to the capital and resources we need to continue building on Windstream’s strong operational momentum while we engage in constructive discussions with our creditors regarding the terms of a consensual plan of reorganization. We acted decisively to secure the long-term financial stability of Windstream, and we are confident that, upon completion of the reorganization process, we will be even better positioned to invest in our business, expand our speed and capabilities for our customers and compete for the long term.
  • As previously announced on February 15, 2019, Judge Furman ruled that Windstream Services, LLC’s 2015 spinoff of certain telecommunications network assets into a real estate investment trust (REIT) violated its agreements with bondholders. The decision arose from challenges by Aurelius Capital Management (“Aurelius”) and U.S. Bank National Association that the spinoff was invalid under the terms of those agreements.
  • The effect of Judge Furman’s decision was that an event of default under the relevant indenture had occurred that had not been cured or waived. The acceleration of the obligations outstanding under such indenture gave rise to a cross-default under the indentures governing Windstream’s other series of secured and unsecured notes. In addition, the decision gave rise to a cross-default under the credit agreement governing Windstream’s secured term and revolving loan obligations.


(PR Newswire)  S&P Global Ratings Upgrades Equinix to Investment Grade (‘BBB-‘) On Improving Credit Quality

  • Equinix, the global interconnection and data center company, announced that S&P Global Ratings (“S&P”) has upgraded all of Equinix’s ratings with S&P by one notch to the investment grade rating of “BBB-“, including its issuer credit rating, its global multi-currency credit facility and term loan ratings, and all of the company’s senior unsecured notes.
  • “We are very pleased to have received an investment grade credit rating from S&P, which reflects increased confidence in improving leverage levels and our demonstrated commitment to fund expansion in a disciplined and balanced manner,” said Keith Taylor, Chief Financial Officer, Equinix.


(PR Newswire)  Huntsman Receives Investment Grade Ratings from Moody’s and Fitch

  • Huntsman Corporation announced that Moody’s Investors Service, Inc. has upgraded our senior unsecured rating from “Ba1” to “Baa3” with a “stable outlook”.  In addition, Fitch Ratings, Inc. published an initial Long-term Issuer Default Rating for the Company of “BBB-” with a “positive outlook”.
  • Peter Huntsman, Chairman, President and CEO commented: “We are pleased to receive today the formal recognition of Investment Grade.  This has been our objective for many years and reflects the significant transformation of our balance sheet and downstream portfolio of businesses. This action will further strengthen our shareholder base, provide greater flexibility with our balance sheet and allow us to continue to expand our downstream businesses.”
01 Mar 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The investment grade credit markets are barreling toward year-to-date tights as the week comes to a close.  The OAS on the corporate index closed at 121 at the end of February, which marks a new low for spreads in 2019.  Risk assets continue to perform well even as Treasuries have inched higher.  The 10yr Treasury is 9 basis points higher as we go to print and sits just a few basis points lower than the 2019 high water mark.

In what seems to be a recurring them, it was yet another solid week of issuance as companies raised nearly $25bln in new debt during the last week of the month.  Concessions on new issuance remain thin as most order books are well oversubscribed to the tune of 3-5x deal sizes.  $98.21bln of new corporate debt was priced during the month of February, bringing the YTD total to $202.573bln.

According to Wells Fargo, IG fund flows during the week of February 21-February 27 were +$5.6 billion. This brings YTD IG fund flows to +$35.345bln.  Flows at this point in the year are modestly outpacing 2018 numbers.



22 Feb 2019

CAM High Yield Weekly Insights

CAM High Yield Market Note



Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.6 billion and year to date flows stand at $10.7 billion.  New issuance for the week was $2.1 billion and year to date HY is at $29.1 billion, which is -12% over the same period last year.


(Bloomberg)  High Yield Market Highlights


  • S. junk bond spreads and yields were resilient amid wavering stocks as oil prices held steady and funds reported more cash inflows. Spreads continued to tighten after falling below 400 basis points for the first time since mid-November and yields were flat to little changed.
  • This was the fourth straight week of inflows and the seventh of the last eight weeks
  • Junk bond index rose for eighth straight day to new record high
  • Return is 5.7% YTD, making it the best fixed income performer
  • CCCs turned negative yesterday, have returned 6.03% YTD
  • High yield beats IG, which returned 2.44% YTD, and leveraged loans which are up 3.53%
  • Supply continued to trickle in, with a drive by offering from USAC
  • Size was increased by $250m after receiving orders of more than $2b for a $500m offering
  • Priced at lower end of talk
  • Several deals have priced this week, all were drive bys, had orders more than 3x size of offering, suggesting risk appetite is strong
  • Supply expected to remain light overall as there has been no big acquisitions or buyouts recently and a good part of refinancing has already been done
  • S. junk bonds operate against the backdrop of strong technicals as reflected in slow issuance activity, net cash inflows, low default rate, steady corporate earnings


22 Feb 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

The investment grade credit markets look to end the week on a positive tone, but spreads are largely unchanged for the third consecutive week.  The OAS on the index closed at 125 on February 4th and has traded within just a 2 basis point range since then and most of that time was spent within a 1 basis point range.  The OAS on the index was 125 at the market close on February 21st and we remain wrapped around that number as we go to print this morning.


It was another solid week of issuance as companies raised over $25bln in new debt during the holiday shortened week.  Investor demand for new deals remains very strong and concessions on new debt have continued to grind lower.  As far as basis points go, mid-single digit new issue concessions are the name of the game in the current environment.  Over $73bln in new bonds has come to market in February and the YTD total is now $178bln.

According to Wells Fargo, IG fund flows during the week of February 14-February 20 were +$1.6 billion. This is a more modest pace of flows compared to prior weeks and it brings YTD IG fund flows to +$30bln.  Flows at this point in the year are modestly outpacing 2018 numbers by the tune of 2%.

A Blurb about BBB’s – CAM is significantly structurally underweight and quite cautious when it comes to BBB credit.  However, we can pick and choose the credits that we would like to own so we are not nearly as worried as some market commentators and those in the financial press seem to be with regard to the growth of the BBB portion of the index.  Here are a few interesting recent developments that show that not all the growth in BBB credit should be viewed as negative and that there are some very large BBB-rated issuers who may become A-rated in the near term.

  • HCA 1st lien debt was upgraded to investment grade by Moody’s in January. HCA was previously the single largest issuer in the high yield index.  As a result of receiving its second BBB-rating, $13.2bln of HCA debt moved from junk to investment grade with low-BBB ratings.
  • Also in January, payment processor Fiserv, Inc. announced that it would be acquiring First Data. Junk rated First Data is one of the 50 largest issuers in the high yield index.  The deal is structured in a manner so that Fiserv will retain its mid-BBB investment grade ratings.  Fiserv plans to re-finance $5.31bln of junk rated debt – and the new debt will be BBB rated.  The NewCo will have more BBB debt, but it is largely the result of refinancing junk rated debt while creating a larger company with more scale, better growth prospects and greater free cash flow generation.
  • On February 21st, Verizon held an investor day. Verizon has been actively paying down debt in recent quarters and its CFO highlighted this when talking about its capital allocation plans.

    “Our long-term leverage target is to have net unsecured debt to adjusted EBITDA between 1.75 and 2.0….This metric improved by 0.3 times last year to 2.1. …. And we believe this target is consistent with a low-single-A credit profile.”

Verizon already has an A- rating at Fitch and it is high-BBB at both Moody’s and S&P so it needs only one of them to upgrade it to single-A before it is “officially” an A-rated credit.  An upgrade is a distinct possibility if the company remains on a deleveraging path.  Verizon is the second largest BBB-rated bond issuer in the corporate index and an upgrade would result in over $73bln of index eligible debt leaving the BBB-rated portion of the index and entering the A-rated portion.

Bottom line, headlines about BBB-rated credit are just that –to get the real story one must dig into the details.

(Bloomberg) ‘Disastrous’ Kraft Heinz Quarter Foments Street Doubt on M&A

  • CAM NOTE: This is yet another example of a highly levered BBB-rated company impairing shareholders in order to pay down debt. It is our view that equity holders are the ones most at risk when it comes to BBB-rated credit, as bond holders have priority in the capital structure waterfall.  CAM has no exposure to Kraft Heinz.
  • Kraft Heinz Co.’s “disastrous” earnings announcement prompted analysts to question the packaged-food giant’s growth prospects and its capacity to move ahead with plans for a significant acquisition.
  • The shares plummeted as much as 28 percent to $34.70. Kraft’s plunge erased about $16 billion in market value. For perspective, that’s more than the entire value of packaged-food peers JM Smucker Co. or Campbell Soup Co.
  • Analysts at Goldman Sachs, Barclays, JPMorgan, Stifel, Piper Jaffray, Barclays and UBS cut their ratings on the stock following what Stifel described as a “barrage of bad news:” Quarterly profit missed estimates, the outlook for 2019 was disappointing, and Kraft Heinz cut its dividend, lowered profit-margin expectations and took a $15.4 billion writedown on key brands.
  • “The dividend cut and the margin rebase reflect serious balance sheet concerns,” Robert Moskow, an analyst at Credit Suisse AG, wrote in a note detailing his decision to slash his price target to a street-low of $33 from $42. The update “also pokes an enormous hole in management’s contention that it can execute a meaningful acquisition any time soon.”



15 Feb 2019

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Investment grade spreads tightened modestly throughout the first half of the week before a deluge of new issue supply led the market to take a breather on Thursday.  While the tone is positive on Friday morning, the corporate index looks like it will finished the week relatively close to unchanged.



The real story this week was the aforementioned new issue supply.  Over $38bln of new debt priced in just three trading days, through Wednesday while no deals priced on Thursday or Friday.  Altria led the way this week as it priced $11.5bln on Tuesday and then AT&T came with $5bln on Wednesday.  3M Co, Goldman Sachs, Boeing and Tyson Foods were among the other companies that printed multi-billion dollar deals during the week.

According to Wells Fargo, IG fund flows during the week of February 7-February 13 were +$2.9 billion. This brings YTD fund flows to +$13.312bln.

As far as new supply is concerned, monthly volume projections for February are still calling for ~$90bln of issuance during the month.  As we roll past the mid-month mark, we have seen just over $48bln in new supply.