Category: High Yield Weekly

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.7 billion.  New issuance for the week was $8.2 billion and year to date HY is at $35.7 billion.

(Bloomberg)  High Yield Market Highlights

• S. junk-bonds are heading for their second weekly loss amid fears about the spreading coronavirus from China. Investors pulled $2.7 billion from high-yield retail funds, the biggest cash withdrawal in almost six months, and exchange-traded funds are continuing to leak cash.
• Junk-bond returns turned negative for the second time this week posting a loss of 0.16% Thursday. The CAA index posted losses of 0.17% and is also set for its second weekly declines
• Those falls may extend Friday with stock futures lower. Oil prices are higher this morning, but fell to an almost six-month low on Thursday, weighing on the high-yield energy index
• Junk bond yields rose 9 basis points to 5.49%, the biggest weekly jump since October, while spreads widened 11 basis points to 382 basis points over Treasuries
• Single-B yields jumped 10 basis points to 5.46%, while CAA yields rose 9 basis points to 10.32%
• The two biggest high-yield ETFs — HYG and JNK — saw a combined outflow of $547 million in the last session as outflows continue

(Business Wire)  Arconic Reports Financial Results

• Arconic Inc. reported fourth quarter 2019 and full year 2019 results. The Company reported fourth quarter revenues of $3.4 billion, down 2% year over year. Organic revenue was up 1% year over year on growth in the aerospace, packaging and industrial markets and favorable product pricing, largely offset by weakness in the automotive, commercial transportation, and building and construction markets.
• Operating income excluding special items was $444 million, up 37% year over year, driven by net cost reductions, favorable product pricing, and favorable aluminum and raw material costs, partially offset by lower volumes in automotive and commercial transportation. Full year 2019 operating income was $1.0 billion versus $1.3 billion in the full year 2018. Operating income excluding special items for full year 2019 was $1.8 billion versus $1.4 billion in the full year 2018, driven by favorable product pricing; net cost reductions; volume growth in aerospace, packaging and commercial transportation markets; and favorable aluminum and raw material costs. These impacts were partially offset by unfavorable product mix.
• Arconic Chairman and Chief Executive Officer John Plant said, “In 2019, the Arconic team delivered improved revenue, adjusted operating income, adjusted operating income margin, adjusted free cash flow and adjusted earnings per share. Arconic’s 2019 return on net assets improved by 450 basis points year over year to 13.7%.”

(Bloomberg)  Fed Holds Main Rate as Powell Stresses Need to Hit 2% Inflation

• The Federal Reserve kept its key interest rate unchanged and continued to signal policy would stay on hold for the time being, while stressing the importance of lifting inflation to officials’ target.
• The central bank also made a technical adjustment to the rate it pays on reserve balances and said it would extend at least through April a program aimed at smoothing volatility in
  money markets.
• “We believe monetary policy is well positioned to serve the American people by supporting continued economic growth,” Chairman Jerome Powell told a press conference Wednesday in Washington.
• Officials kept the target range of the benchmark federal funds rate at 1.5% to 1.75% and called that stance “appropriate to support sustained expansion of economic activity.”
• S. stocks erased gains while yields on the 10-year Treasury note declined and the dollar fluctuated. Traders extended bets the Fed would cut rates toward the end of this year.
• “The Fed has made it clear that the barriers to move in either direction are quite high,” said said Daniel Ahn, the chief U.S. economist at BNP Paribas. “But we believe the wall
  for a cut is lower than the wall for a hike.” He detected a “dovish tilt” in Powell’s efforts to stress the Fed was uncomfortable with inflation running persistently too low.
• Policy makers changed their statement to say that the current stance of monetary policy is appropriate to support “inflation returning to the committee’s symmetric 2% objective.” Previously they had said policy was supporting inflation “near” the goal.
• Powell explained in his press conference that the change was made to send “a clearer signal” that the committee was not comfortable with inflation running persistently below target. “We wanted to underscore our commitment to 2% not being a ceiling,” he said.
• Their preferred gauge of price pressures — the personal consumption expenditures price index — rose 1.5% for the 12 months ending in November. Powell said inflation was expected to move closer to 2% over the next few months thanks to so-called base effects, “as unusually low readings from early 2019 drop out of the calculation.”

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion.  New issuance for the week was $13.2 billion and year to date HY is at $27.4 billion.

(Bloomberg)  High Yield Market Highlights

• S. junk bonds posted a third straight day of losses as issuance neared $32 billion, the most for a January in more than a decade.
• Borrowers are rushing to take advantage of low rates before the window closes
• Markets may see support today as stock futures climb on economic data and investors set aside concerns about a deadly virus from China hampering growth
• Yields rose 8bps to 5.17%, a three week high, as stocks fluctuated and oil dropped to an eight-week low
• Spreads widened 8bps to +340, a six week high
• Energy yields jumped 30bps to 8.56%, the biggest increase in more than five months
• Energy index posted a loss of 0.675%, the biggest loss since October,
• CAA yields were back at 10%, returns were negative for a third day
• Retail funds have reported three straight weeks of inflow, the longest streak in almost three months

(Wall Street Journal)  Glut Pushes Natural Gas Prices Below $2 

• The price of natural gas typically rises this time of year as temperatures plunge and homeowners dial up their thermostats. Instead, the price of the heating and electricity-generating fuel has dropped to multiyear lows.
• On Tuesday, natural-gas futures fell below $2 per million British thermal units to their lowest level in nearly four years, highlighting how a persistent glut has buffeted energy investors and producers. This winter’s mild weather has joined an oversupply of the commodity to push natural-gas prices down to levels not seen since March 2016. On Tuesday, futures fell 5.4% to $1.895 per MMBtu.
• The shale boom, spurred by horizontal drilling and hydraulic fracturing techniques, has transformed the U.S. energy industry and flooded the market with oil and natural gas in recent years. The decline in prices has hit shares of energy companies, raising calls for them to curtail production. But few analysts see signs of the glut abating soon: The U.S. Energy Information Administration predicts dry natural-gas production in the U.S. will rise by 2.9% in 2020.
• The fall in prices has come faster than analysts and traders had predicted. Colder winter temperatures typically drive up prices as homeowners demand more fuel to heat their houses. However, warmer-than-expected weather this season has helped drive prices down, adding to investors’ grim outlook.
• On Tuesday, oil-field services company Halliburton Co. said it swung to a loss in 2019 on a decline in revenue that it blamed on diminished drilling onshore in North America, which in turn was due to low commodity prices.
• “Gas prices in the U.S. are below break-even levels,” Chief Executive Jeffrey Miller told analysts and investors. Mr. Miller said that he expects a 10% reduction in spending among the oil-field services company’s customers in North America, with the bulk of those cuts coming in gas-producing regions. Halliburton has been idling equipment to match customers’ reduced needs, he said.

(Bloomberg)  Junk Bond Volume Nears $30 Billion in Refi Frenzy

• The U.S. junk-bond market is on track for its busiest January in at least a decade with volume poised to exceed $30 billion as companies rush to refinance at cheap rates.
• At least seven issuers are looking to sell debt on Thursday after an already hectic pace. Those deals will potentially take new issue volume to $30.8 billion, the most for any January since 2006, according to data compiled by Bloomberg
• Companies are mostly selling debt to refinance. Some of those issuers are replacing loans with bonds
• Garda World Security, owned by private-equity firm BC Partners, is marketing $400 million 7 year senior secured notes to take out a term loan
• It’s at least the third company to do so this month amid more favorable pricing — in some cases — for bonds
• Another BC Partners portfolio company, Presidio, priced secured bonds at a cheaper rate than loans last week
• Grocer Albertsons also sold $2.35 billion of bonds on Wednesday to refinance loans
• The primary market appears open to the deals in the lowest CAA junk rating tier. Community Health and Altice are in market with bonds that have at least one rating in that range
• Junk-bond spreads widened to a two-week high on Wednesday, and may weaken more as stocks fall and oil prices fall to an almost eight-week low of $55.51 a barrel

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $2.0 billion.  New issuance for the week was $8.1 billion and year to date HY is at $14.2 billion.

(Bloomberg)  High Yield Market Highlights

• Triple C-rated debt is leading the rally in high-yield as returns for the year jump to 1.23% and yields on the lowest tier of junk fall below 10% for the first time in seven months.
• Triple C spreads tightened 10bps to 823bps over Treasuries, according to Bloomberg Barclays index data. That’s a more than five-month low and extends a recovery from over 1,000 bps in November
• Energy is powering CCC. The energy index yield fell to 7.99%, a new six-month low
• Junk-bond yields dropped to 5.01%, just 5bps off the 5.5-year low of 4.96%. They may fall further as stock futures rise amid easing trade tensions and a solid start to the earnings season. Oil is also up this morning to almost $59 a barrel

(Bloomberg)  Encompass Health Boosts Fiscal Year Operating Revenue View

• Encompass Health boosted its operating revenue forecast for the full year; the guidance midpoint met the average analyst estimate.
• Encompass sees FY operating revenue $4.59 billion to $4.61 billion, saw $4.5 billion to $4.6 billion, estimate $4.59 billion (range $4.57 billion to $4.61 billion)
• Encompass sees FY adjusted EPS from continuing operations $3.90 to $3.94, saw $3.71 to $3.85
• Encompass sees FY adjusted Ebitda $962 million to $967 million, saw $940.0 million to $960.0 million, estimate $952.2 million (range $942.0 million to $957.0 million)
• Encompass sees 2020 Adjusted EPS Continuing Operations $3.50 to $3.72, Est. $3.68

(Bloomberg)  WSP Is Said to Approach Engineering Firm Aecom About Deal

• Canada’s WSP Global Inc. has approached rival engineering services firm Aecom about a possible deal, according to people familiar with the matter. There’s no guarantee that the overture will lead to a transaction, said the people, who asked to not be identified
  because the matter isn’t public.
• Aecom, which had been targeted by activist investor Starboard Value last year, agreed in October to sell its management services division to a group of private equity firms
  for $2.4 billion.
• The potential acquisition would give WSP more exposure to the U.S. and could lead to cost savings of about $200 million, Deutsche Bank analyst Chad Dillard wrote in a note to clients Tuesday.
• Aecom’s services include consulting, planning, architecture, engineering and construction management, according to its website. While it has a growing backlog thanks to a steady stream of government and infrastructure contracts, profits have stagnated in recent years due to inefficiencies and construction contract
  losses, according to a Bloomberg Intelligence report in December.

(Wall Street Journal)  MGM, Blackstone Strike Casino Deal

• MGM Resorts International said a joint venture that includes Blackstone Group Inc. would buy the real estate of the MGM Grand and Mandalay Bay resorts and casinos on the Las Vegas Strip, in a deal valuing the properties at $4.6 billion.
• The deal values MGM Grand’s real-estate assets at about $2.5 billion and Mandalay Bay’s at just over $2 billion.
• Blackstone will own slightly less than half of the properties through the private-equity and real-estate giant’s nonlisted real-estate investment trust, while MGM Growth Properties LLC, a publicly traded REIT, will own the remainder.
• MGM Resorts spun off MGM Growth Properties in 2016 and still controls the REIT, which owns some MGM real estate including Mandalay Bay’s.
• MGM Resorts expects to receive cash proceeds of about $2.4 billion from the deal, as well as $85 million in MGM Growth partnership units.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.9 billion and new issuance for the week $6.1 billion.

(Bloomberg)  High Yield Market Highlights

• S. high-yield bonds are set for the longest streak of weekly gains since the first half of 2019 as the global hunt for yield continues to bolster the market.
• The Bloomberg Barclays U.S. high-yield index has posted gains each day this week as yields held steady at 5.11% through Thursday, one basis point lower on the week.
• The high-yield energy index weighed on performance as oil prices lost steam earlier in the week. The securities posted losses for the second consecutive day on Thursday, losing 0.13%; yields on energy bonds ended at 8.12%.
• Even while oil prices dropped back to levels before the Mideast tensions began, issuance activity was driven by energy borrowers.

(Reuters)  Fed focuses on repo market exit strategy after avoiding year-end crunch 

• Wall Street’s worst fears of a year-end funding squeeze never materialized thanks in large part to the quarter-trillion dollars the Federal Reserve stuffed into the market to ensure nothing became gummed up.
• The question now, though, is what it will take for the U.S. central bank to withdraw from its daily liquidity operations in the $2.2 trillion market for repurchase agreements, or repos – after it became a dominant player in a short three months.
• “The repo operations are a band-aid, but the wound isn’t healed fully,” said Gennadiy Goldberg, an interest rate strategist at TD Securities.
• The New York Fed began injecting billions of dollars of liquidity into the repo market in mid-September, when a confluence of events sent the cost of overnight loans as high as 10%, more than four times the Fed’s rate at the time. A month later, the Fed moved to expand its balance sheet – and boost the level of reserves – by snapping up $60 billion a month in U.S. Treasury bills.
• The Fed will continue pumping tens of billions a day into the repo market through at least the end of January. Its ability to exit from the repo market after that time will depend on how long it takes the central bank to make the balance sheet large enough so there are adequate reserves in the banking system – and the repo operations are no longer needed.
• “It seems implausible to me that the Fed will be able to stop their repo operations by the end of January,” said Mark Cabana, head of U.S. rates strategy at Bank of America Merrill Lynch.

(Company Report)  Tenneco Inc. plans to streamline its leadership structure

• The Company announced that Brian Kesseler, Tenneco’s Co-Chief Executive Officer and a member of the Board of Directors, will assume the newly consolidated role of Chief Executive Officer of Tenneco. Kesseler will oversee the operations of the New Tenneco business, in addition to continuing to oversee the DRiV business. Roger Wood will no longer serve as Tenneco’s Co-Chief Executive Officer and is stepping down as a Director of the Company, effective immediately.
• Jason Hollar will continue to serve as Executive Vice President and Chief Financial Officer of Tenneco overseeing the financial organizations of both DRiV and New Tenneco.
• “On behalf of the Board of Directors, I would like to thank Roger for his dedication to Tenneco during a critical time for our company,” said Gregg M. Sherrill, Chairman of the Tenneco Board. “We appreciate his service and contributions in leading the New Tenneco business as we began the integration of the Federal-Mogul acquisition. As we pursue the separation of our businesses, the Board determined that consolidating our leadership structure now will help improve Tenneco’s operational efficiency and achieve our near-term financial performance objectives. We wish Roger the very best in his future endeavors.”
• During 2020, Tenneco will be focused on the execution of its accelerated performance improvement plan to facilitate the expected separation of the businesses.
• As previously discussed in the Company’s third quarter release on October 31, 2019, current end-market conditions are affecting the Company’s ability to complete a separation in the mid-year 2020 time range. The Company expects that these trends will continue throughout this year. The Company is ready to separate the businesses as soon as favorable conditions are present.

CAM High Yield Market Note

11/29/2019

This is an abbreviated Note due to the Thanksgiving holiday. Happy Thanksgiving!

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at $23.5 billion. New issuance for the week was $12.8 billion and year to date HY is at $251.1 billion, which is +55% over the same period last year.

(Bloomberg) Single and Double B Junk Bond Returns Hit 2019 Peak Amid Rally

• Junk bond returns are creeping back to record highs after three consecutive days of gains.
• Junk bond year-to-date returns rose to 11.928%, inching closer to the highs of just over 12% reached earlier this month. Index yields were unchanged, closing at a two-week low of 5.64%
• BB returns hit a year-to-date peak of 13.944%, while single B returns set a new high at 12.553%
• CCCs are also catching a bid, boosted by a lift in energy bonds, after posting gains for three straight sessions to take year-to-date returns to 4.101%. That comes less than a week after CCC spreads jumped above 1,000bps over U.S. Treasuries for the first time in more than three years 

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.6 billion and year to date flows stand at $24.4 billion.  New issuance for the week was $3.8 billion and year to date HY is at $219.3 billion, which is +37% over the same period last year.

(Bloomberg)  High Yield Market Highlights 

• S. junk bonds rebounded as equities rallied to a record high and the 10Y UST yield jumped. The debt may open on a softer note as stock futures declined and oil prices dropped amid uncertainty over supply cuts.
• The debt’s returns turned positive on Thursday after a two-day losing streak as equities climbed to a new high. Year-to-date returns were 12.01%, just 9bps off the 2019 peak
• Gains were across ratings, with single-Bs posting the most at 0.1% and YTD at 12.39%
• Junk bond yields were little changed. Single-Bs dropped 6bps to close at 5.68% and BBs closed at 3.88%, down 2bps
• Spreads held firm across ratings moving in tandem with UST yields
• There was lull in the primary market with just two drive-by deals for $1.1b pricing yesterday
• Yesterday’s deals took the November volume to $4.98b
• As investors turned cautious of weaker credits, Wesco’s $2.18b bond offering faced some resistance and its pricing was delayed

(Reuters)  U.S. may not need to impose auto tariffs this month 

• The United States may not need to impose tariffs on imported vehicles later this month after holding “good conversations” with automakers in the European Union, Japan and Korea, U.S. Commerce Secretary Wilbur Ross said in an interview published on Sunday.
• The United States must decide by Nov. 14 whether to impose threatened U.S. national security tariffs of as much as 25% on vehicles and parts. The tariffs have already been delayed once by six months, and trade experts say that could happen again.
• “We have had very good conversations with our European friends, with our Japanese friends, with our Korean friends, and those are the major auto producing sectors,” Ross said.
• “Our hope is that the negotiations we have been having with individual companies about their capital investment plans will bear enough fruit that it may not be necessary to put the 232 (tariffs) fully into effect, may not even be necessary to put it partly in effect,” he added.

(Business Wire)  The GEO Group Reports Third Quarter 2019 Results

• GEO reported third quarter 2019 net income attributable to GEO of $45.9 million, compared to $39.3 million, for the third quarter 2018. GEO reported total revenues for the third quarter 2019 of $631.6 million up from $583.5 million for the third quarter 2018.
• GEO reported third quarter 2019 Normalized Funds From Operations (“Normalized FFO”) of $70.3 million, compared to $62.9 million, for the third quarter 2018. GEO reported third quarter 2019 Adjusted Funds From Operations (“AFFO”) of $85.6 million, compared to $77.9 million, for the third quarter 2018.
• George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “We are pleased with our strong quarterly financial performance, which reflect strong fundamentals and growing earnings. During the quarter, we reactivated 4,600 previously idle beds, which are expected to drive future cash flow growth. We are proud to have published our first-ever Human Rights and ESG report in September, highlighting our long-standing commitment to respecting the human rights of all those in our care, as well as, the continued success of our GEO Continuum of Care enhanced rehabilitation and post-release programs. We believe that our current dividend payment is supported by stable and predictable cash flows, and we expect to continue to apply our growing excess cash flow towards paying down debt.”
• During the third quarter 2019, GEO repurchased approximately $34 million of senior unsecured notes due 2022. GEO also closed on a $44 million, 15-year real estate loan bearing interest at 4.22 percent annually. At the end of the third quarter, GEO had approximately $395 million in available borrowing capacity under its $900 million revolving credit facility, which matures in May 2024.

(Business Wire)  Arconic Reports Third Quarter 2019 Results

• The Company continues to target the completion of the separation in the second quarter 2020. We expect the Form 10 filing to be available in the fourth quarter 2019. The Engineered Products and Forgings businesses (engine products, fastening systems, engineered structures and forged wheels) will remain in the existing company (Remain Co.), which will be renamed Howmet Aerospace Inc. at separation. The Global Rolled Products businesses (global rolled products, aluminum extrusions and building and construction systems) will comprise Spin Co. and will be named Arconic Corporation at separation.
• Arconic Inc. reported third quarter 2019 results, for which the Company reported revenues of $3.6 billion, up 1% year over year. Organic revenue was up 6% year over year on strong volumes across all key markets and favorable pricing in the Engineered Products and Forgings segment, and volume growth in packaging, industrial, and aerospace markets as well as favorable pricing in the Global Rolled Products segment.
• Third quarter 2019 operating income was $326 million, versus operating income of $345 million in the third quarter 2018. Operating income excluding special items was $475 million, up 36% year over year, as favorable product pricing, higher volume, favorable aluminum prices, and net cost reductions more than offset operational challenges in the aluminum extrusions business and unfavorable product mix.
• Arconic Chairman and Chief Executive Officer John Plant said, “In the third quarter 2019, the Arconic team delivered improved quarterly revenue, adjusted operating income, adjusted operating income margin, adjusted free cash flow and adjusted earnings per share on a year-over-year basis. Arconic’s third quarter 2019 return on net assets improved by 550 basis points year over year. We expect this positive year-over-year trend to continue in the fourth quarter. Based on our performance through the first nine months of 2019 and our outlook for the remainder of 2019, we are increasing our full-year adjusted earnings per share guidance for the third time in 2019.”
• Arconic ended the third quarter 2019 with cash on hand of $1.3 billion. Cash provided from operations was $52 million; cash used for financing activities totaled $202 million, reflecting the impact of the accelerated share repurchase program of $200 million; and cash provided from investing activities was $117 million. Adjusted Free Cash Flow for the quarter was $154 million.

CAM High Yield Market Note

11/1/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.1 billion and year to date flows stand at $22.9 billion. New issuance for the week was $5.9 billion and year to date HY is at $215.4 billion, which is +36% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bonds are set to rebound from a three-day decline to open higher this morning as stock futures advance on the heels of better-than-expected manufacturing data from China and as oil prices rise after a four-day losing streak.
• Junk bonds fell for the third straight session and reported a loss of 0.15%, the longest losing streak in almost five weeks. Spreads are 38bps wider in the past four days at 392bps over U.S. Treasuries
• CCCs posted a loss of 0.29%, the most across high yield yesterday, taking year-to-date returns down to 5.38%. CCC yields surged to a nine-month high of 11.25% and spreads widened the most in 10 months to 969bps
• Investors, though cautious, continued to allocate cash to high-yield for the week
• Supply has ground to a halt with no new deals announced or priced in the past two days but there are some in the pipeline that could emerge soon.  

• (Bloomberg) Extended Junk Rally Squeezes Spread Between BBB and BB to Record 

• The difference between BBB and BB U.S. corporate bond spreads collapsed further as investors continued chasing yield in the highest-rated junk bonds

• • The differential between the best high yield and worst investment grade hit a fresh post-credit crisis low amid continued inflows to bond funds and negative yielding debt
    overseas
  • The compression is making it so investors may have to start reaching even further down the ratings spectrum to find value
  • The differential between BBB and BB was 49 basis points Monday morning, a new record

   

(Business Wire)  Western Digital Announces CEO Succession Plan

• Western Digital Corp. announced that Steve Milligan, chief executive officer and a member of the Western Digital Board of Directors (“the Board”) since January 2013, has informed the Board that he intends to retire as the Company’s CEO. Milligan will continue to serve as CEO until the Board has identified and appointed a successor, and then will remain with the Company in an advisory role until September 2020 to ensure a smooth transition. He will also remain a director on the Company’s Board for a transition period after his successor is appointed.
• The Board has initiated a search to identify Western Digital’s next CEO, and has engaged Heidrick & Struggles, a leading executive search firm, to assist in the process. In order to facilitate a comprehensive process, the Board will evaluate both internal and external candidates.
• “The Board and management team are committed to ensuring a smooth transition, and we are grateful that we’ll continue to benefit from Steve’s experience and perspective throughout this process,” said Matthew Massengill, chairman of the Board. “As the Board conducts its search for Steve’s successor, we are focused on identifying a strong leader with a proven track record of operating successfully at scale while defining and executing a growth strategy driven by innovation, operational excellence, and world-class talent development.”

(PR Newswire)  Tenneco Reports Third Quarter 2019 Results

• Tenneco Inc. reported third quarter 2019 revenue of $4.3 billion, versus $2.4 billiona year ago, including $1.8 billion from acquisitions.  On a constant currency pro forma basis, total revenue increased 3% versus last year, while light vehicle industry production declined 3% in the quarter.
• Third quarter EBIT was $148 millionincluding the acquired Federal-Mogul business, versus $112 million last year.  EBIT as a percent of revenue was 3.4% versus 4.7% last year.   Cash generated from operations was $164 million.
• Light vehicle production in the fourth quarter is expected to be lower year-over-year by 6%, and the commercial truck market is showing signs of softening in the quarter. In this environment, Tenneco expects fourth quarter revenue in the range of $3.95 billionto $4.05 billion.  Further, the company expects its fourth quarter adjusted EBITDA to be in the range of $295 million to $315 million, including year-over-year margin improvement of approximately 50 basis points in the DRiV division. The company expects the GM labor stoppage to have a negative impact on EBITDA of approximately $35 million.
• The company has made significant progress on the administrative separation of the two business divisions into two independent companies
• Tenneco remains committed to the separation of the businesses and continues to execute its plan for the spin off. Additionally, the company is evaluating multiple strategic options to deleverage and facilitate the separation.  Certain of these options could help mitigate the impact of challenging market conditions, which, if current trends were to continue, would likely affect the company’s ability to complete a separation in the mid-year 2020 time range.

Reuters)  U.S. Fed cuts interest rates, signals it is on hold

• The Federal Reserve on Wednesday cut interest rates for the third time this year to help sustain U.S. growth despite a slowdown in other parts of the world, but signaled there would be no further reductions unless the economy takes a turn for the worse.
• “We believe that monetary policy is in a good place,” Fed Chair Jerome Powell said in a news conference after the U.S. central bank announced its decision to cut its key overnight lending rate by a quarter of a percentage point to a target range of between 1.50% and 1.75%.
• “We took this step to help keep the economy strong in the face of global developments and to provide some insurance against ongoing risks,” he said. “We see the current stance of monetary policy as likely to remain appropriate as long as incoming information about the economy remains broadly consistent with our outlook.”
• In his news conference, Powell ticked off an extensive list of reasons why he feels the economy is doing well, and likely to continue to do so under the current stance of monetary policy – from robust consumer spending, strengthening home sales, and asset prices he considered healthy but not to a level of excess.
• The outlook for the U.S. economy continues to be for “moderate” growth, a strong labor market and inflation rising back to the Fed’s 2% annual goal, he said, and only “a material reassessment” of that outlook could drive the central bank to cut rates further from here.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.7 billion and year to date flows stand at $21.7 billion.  New issuance for the week was $5.6 billion and year to date HY is at $209.4 billion, which is +33% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• S. junk bond returns hit a new peak of 11.853% this year, the highest since 2016, amid a hunt for yield by investors. Junk bonds have rallied for 11 straight days, the longest winning streak since April, according to Bloomberg Barclays index data.
• BB bond returns also rose to a high of 13.433%
• Junk bond yields also fell to 5.56%, approaching a 20-month low of 5.55% hit on Sept. 23
• BB yields are 3.85%, near the record low of 3.82% reached on Oct. 21
• Spreads were largely unchanged moving in tandem with 5Y UST
• Investors are pouring cash into the asset class.
• The rally may run out of steam Friday as oil prices are lower and stock futures mixed

(Bloomberg)  Cracks in Leveraged Credit Are Widening

• S. leveraged credit markets are coming under increasing pressure amid price swings, ratings downgrades and selling by CLOs, according to a report from Morgan Stanley.
• Strategists led by Srikanth Sankaran identified the increased frequency of big price moves in loans and bonds even outside stressed credits, amid a number of pockets of weakness
• In loans, about $48b of notional debt representing 4.2% of the leveraged loan index now trades below 80 cents, compared to $14b and 1.3% a year ago
• The sub-90 cash price bucket also increased to 9.8% from 3.2% in the same period, according to the report
• “Beneath the veneer of relative spread resilience and muted realized defaults, the weak links in the leveraged credit markets are coming under pressure,” the strategists wrote in the report
• Selling pressure from CLOs has exacerbated the loan price swings, and willingness to sell is particularly high in CCCs
• “CLO managers are net sellers of large price moves, especially in lower-rated names,” the strategists wrote

(Wall Street Journal)  Wave of Financial Stress Hits Low-Rated Companies

• An array of business challenges are hitting low-rated companies across the U.S. economy, driving selling in the bottom tier of the corporate-debt market that contrasts with gains in stocks and other riskier assets.
• In recent months, consumer demands for wireless phones and high-speed internet have helped push one landline telecom company, Windstream Holdings Inc., into bankruptcy protection and another, Frontier Communications Corp., into restructuring talks with its creditors.
• Meanwhile, competition from cheap natural gas and renewable-energy sources has caused at least seven coal producers to file for chapter 11 protection over the past year. Opioid lawsuits and the threat of legislation that would curb surprise medical bills have exposed vulnerabilities at some highly leveraged health-care companies. Retailers continue to be pressured by the shift to online shopping. And a wave of financial distress has again hit the oil patch due in part to persistently low commodity prices.
• Taken together, these developments have caused yields, which rise when bond prices fall, to climb for months on the lowest-rated group of corporate bonds. Unusually, that has happened even as yields have fallen on higher-rated junk bonds.
• Investors and analysts closely watch junk bonds because companies with subpar credit ratings tend to be affected by economic problems sooner than others. Right now, many remain confident that the problems befalling certain companies aren’t symptomatic of broader economic challenges. Still, others worry that cracks at the very bottom of the market shouldn’t be taken lightly and could ultimately spread to a larger group of assets.
• “There are specific names and specific subsectors where things are not working,” said Oleg Melentyev, a credit strategist at Bank of America Corp.
• Melentyev doesn’t think the problems facing the lowest-rated businesses will spill over into the broader market. Still, he said, it is difficult to know for sure because “you have too many yellow signs, warning signs, around.”

CAM High Yield Market Note

10/18/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.9 billion and year to date flows stand at $20.0 billion. New issuance for the week was $4.1 billion and year to date HY is at $203.8 billion, which is +33% over the same period last year.

(Bloomberg) High Yield Market Highlights

• A six-day rally in U.S. junk bonds is poised to run out of steam as investors digest more corporate earnings and as stock futures drift on data showing slowing growth in China.
• Returns on BB junk bonds hit a new high of 13.189% as investors continue to scramble for higher-quality junk debt
• BBs are the second best performing asset class in fixed income after BBBs, which have returned 14.31%
• The overall junk bond index extended gains for the sixth straight session to 11.635%. The year-to- date high was 11.809% on September 23
• Issuance has slowed this week as the earnings season keeps companies in blackout
• Junk bond index yields rose 2bps to close at 5.67%, while spreads held steady at 380bps over U.S. Treasuries
• BB yields eased to 3.96% after reaching a six-year low
• CCC yields rose 4bps to 10.97%  

• (Bloomberg) Aecom Reaches $2.4 Billion Deal for Management Services Unit

• Aecom, targeted by activist investor Starboard Value, agreed to sell its management services division to a consortium of private equity firms including Lindsay Goldberg and American Securities for $2.4 billion.
• The Los Angeles-based firm, one of the world’s top engineering and design groups, plans to use the proceeds from the sale to reduce debt and to repurchase stock, it said in a statement Monday, confirming an earlier report in Bloomberg News. The transaction is expected to close in the first half of fiscal year 2020, it said.
• “We are extremely pleased with today’s transformative and value-enhancing announcement, which significantly accelerates our planned debt reduction and commitment to repurchase stock,” Michael Burke, AECOM’s chairman and chief executive officer, said in a statement.
• Aecom announced plans to spin off its management services unit in June. It argued at the time that the move would create a leading government services company for its clients, including the U.S. Departments of Defense and Energy, by leveraging its expertise in areas such as intelligence, cyber-security and information technology.

Business Wire) AMC Entertainment Selects Sean Goodman as Its New CFO

• AMC Entertainment announced the hiring of Sean Goodman, currently CFO of Fortune 500 company Asbury Automotive Group (NYSE: ABG), who will commence working with AMC as Executive Vice President – Finance on December 2, 2019. Current AMC CFO Craig Ramsey will retire on February 28, 2020, in a long-envisioned move.
• During the overlap, the two executives will work closely together, and Goodman will assume the Chief Financial Officer title upon Ramsey’s retirement. The Company expects an orderly, easy and seamless transition.
• After an extensive and comprehensive national search, AMC has tapped Goodman, 54, to be Ramsey’s successor. Goodman has more than 30 years of finance experience including leading Financial Planning and Analysis as well as Business Development at Home Depot in Atlanta, was an investment banker at Morgan Stanley in London and worked for Deloitte & Touche in South Africa and New York. He has U.S. public company CFO experience at Asbury Automotive Group. In addition to his almost 20 years working in the United States, Goodman has extensive international work experience in Europe, Asia and Africa.
• In early February, Craig Ramsey will achieve a milestone 25th anniversary in leadership roles at AMC, including having become its CFO in the year 2000. His eventual retirement has long been in the executive succession planning process for AMC.
• Adam Aron, AMC CEO and President said, “I cannot thank Craig Ramsey enough for his longstanding service to AMC, and the many vital contributions he has made as one of our most key executives. Our company has greatly benefited from his distinguished career, which has been marked by integrity, ability and common sense. At the same time, I am absolutely thrilled that we have been able to attract to AMC Sean Goodman who surely will help us to propel AMC forward in the years ahead. As we recruited him to join AMC, the sharpness of his mind, his strategic clarity, his extensive international experience and authentic leadership style were all quite evident. It is a terrific outcome that we have added such a superb top tier talent to AMC’s executive team.”

(Business Wire) Geysers Power Company, LLC Announces Senior Secured Notes Offerings

• Geysers Power Company, LLC (“GPC”), an indirect wholly owned subsidiary of Calpine Corporation and the owner of 13 Geysers geothermal power plants and related assets, announced that it intends to offer Senior Secured Notes, Series A, due 2039 and Senior Secured Notes, Series B, due 2039 in a private placement to qualified institutional buyers. Prior to consummating the notes offerings, GPC and certain other Calpine Corporation subsidiaries (collectively, the “Geysers Entities”) involved in the geothermal power generation business will each be released from current guarantee obligations in respect of Calpine Corporation’s indebtedness and the related liens encumbering the Geysers Assets will be released and no longer available to satisfy creditors of Calpine Corporation. The notes will be guaranteed by the Geysers Entities. The notes and related guarantees will be secured equally and ratably with the indebtedness under a new seven-year senior secured revolving credit facility and a new ten-year senior secured term loan facility in an estimated aggregate principal amount of up to $320.0 million and $400.0 million, respectively (which GPC intends to enter into concurrently with the consummation of this offering) and other indebtedness that is permitted to be secured by such assets, by a first-priority lien on substantially all of GPC’s and the guarantors’ existing and future assets, subject to certain exceptions and permitted liens.
• GPC intends to use the proceeds from the offerings, together with borrowings under the new term loan facility and letters of credit issued under the new revolving credit facility, to (i) fund a debt service reserve account and a major maintenance reserve account, (ii) pay costs associated with the offerings and entry into the new revolving credit facility and the new term loan facility, (iii) pay a dividend to Calpine Corporation (the majority of which Calpine Corporation intends to use to repay a portion of its existing indebtedness, and any excess funds from such dividend may be used by Calpine Corporation for general corporate purposes) and (iv) fund working capital, ongoing capital requirements and general corporate purposes of the Geysers Entities.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at $17.0 billion.  New issuance for the week was $1.1 billion and year to date HY is at $199.5 billion, which is +30% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• The U.S. high-yield bond market is set to extend its first weekly gain in three weeks as trade-talk optimism boosts stock futures and after reports of a missile attack on an Iranian tanker pushed the price of Brent crude to $60 per barrel.
• Junk bonds posted gains for the second straight session on Thursday, with the Bloomberg Barclays U.S. high-yield index up 0.08% this week and 10.97% YTD; yields have dropped one basis point this week to 5.89%
• BBs gained 0.03% to take YTD returns to 12.615% and yields dropped to close at 4.20%
• Single-B yields saw the biggest drop in more than three weeks on Thursday to close at 5.98%, with YTD climbing to 11.294%
• CCC yields jumped to a more than eight-month high of 11.17% while returns rose by 0.05% to take the YTD to 4.51%
• Sentiment remains cautious as investors pulled cash from U.S. high-yield funds
• The primary market activity gained pace yesterday after a sluggish start to the week, pricing three deals

(The Philadelphia Inquirer)  Aramark has a new CEO, activist investor becomes vice chair of the board

• Aramark Corp. on Monday named John J. Zillmer, an executive associated with an activist investor who controls 20% of the Philadelphia company, chief executive, replacing Eric Foss.
• The food- and uniform-services giant also announced a revamped board of directors, with the appointment of five new independent directors, all with consumer goods and food industry experience.
• Zillmer had previously spent 18 years at Aramark, rising to be president of global food & support services before departing in 2004. After leaving Aramark, Zillmer, 64, served as CEO of Allied Waste Industries and Univar Solutions, a global chemical and ingredients distributor.
• “I am extremely excited about the opportunity to rejoin Aramark at such a dynamic time in the company’s history,” Zillmer said in a news release. “I look forward to working closely with the board and the Aramark team to drive growth and value for our employees, customers, partners, and shareholders.”
• Even though Zillmer left Aramark in 2004, he has maintained his residency in Philadelphia. Current and former Aramark employees who know Zillmer from his previous time at the company said they were pleased to have him back and confident that he would take the company in the right direction.
• Paul C. Hilal, whose Mantle Ridge L.P. is Aramark’s largest shareholder, will be vice chairman. Hilal and Zillmer both serve on the board of CSX Corp., another of Hilal’s targets. Zillmer is non-executive chairman of CSX’s board. Zillmer also joined Aramark’s board, where Steve Sadove remains chairman.
• The moves come six weeks after Foss abruptly retired from the Philadelphia company, shortly after activist investor Hilal disclosed that Mantle Ridge had acquired 9.8% of Aramark’s shares and additional interest that gives Mantle Ridge 20% of the company.

(Reuters)  Trump says U.S., China have reached substantial phase-1 trade deal

• S. President Donald Trump on Friday outlined the first phase of a deal to end a trade war with China and suspended a threatened tariff hike, but officials on both sides said much more work needed to be done before an accord could be agreed.
• The emerging deal, covering agriculture, currency and some aspects of intellectual property protections, would represent the biggest step by the two countries in 15 months to end a tariff tit-for-tat that has whipsawed financial markets and slowed global growth.
• But Friday’s announcement did not include many details and Trump said it could take up to five weeks to get a pact written.
• He acknowledged the agreement could fall apart during that period, though he expressed confidence that it would not.
• “I think we have a fundamental understanding on the key issues. We’ve gone through a significant amount of paper, but there is more work to do,” U.S. Treasury Secretary Steven Mnuchin said as the two sides gathered with Trump at the White House. “We will not sign an agreement unless we get and can tell the president that this is on paper.”
• With Chinese Vice Premier Liu He sitting across a desk from him in the Oval Office after two days of talks between negotiators, the president told reporters that the two sides were very close to ending their trade dispute.
• China’s official state-owned news organization Xinhua said that both sides “agreed to make the efforts towards a final agreement.”
• Trump, who is eager to show farmers in political swing states that he has their backs, lauded China for agreeing to buy as much as $50 billion in agricultural products. But he left tariffs on hundreds of billions of dollars of Chinese products in place.