Category: Investment Grade Weekly

06 Oct 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were the 4th largest inflow on record, at $6.3bln. This brings the YTD total to +$248.232bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $16.15bln, and YTD total corporate bond issuance was $1.077t. Investment grade corporate bond issuance thus far in 2017 is down 5% y/y when compared to 2016. October issuance is off to a slow start, relative to what we have seen through much of 2017, but this can be attributed to earnings blackout as well as the timing of the release of employment data.

(Bloomberg) Disney-Altice Deal Shows Operators Will Still Pay for Sports

  • Walt Disney Co. and cable provider Altice USA Inc. reached a preliminary programming agreement that will enable 2.4 million New York-area pay-TV subscribers to continue to get ABC, ESPN and the Disney Channel.
  • The two sides “have extended the deadline accordingly to try and finalize the terms,” according to a joint email on Sunday. No details were included in the statement. The preliminary terms were struck at the last minute, as Disney was about to cut off broadcasting to Altice subscribers Sunday night.
  • Disney won price increases for its major channels, though not as much as the Burbank, California-based entertainment giant originally asked, according to two people familiar with the terms who asked not to be named because the discussions are private. Altice also agreed to pick up two collegiate sports networks, the people said.
  • The agreement, if finalized, shows that pay-TV operators are still willing to pay for pricey sports channels even in an age of video streaming and declining viewership. The talks were seen as a litmus test of the business model that’s fueled Disney’s profit for years: charging ever-higher fees for ESPN even though many consumers don’t watch sports, and using the network’s popularity to force pay-TV providers to carry other programming.

(WSJ) Monsanto Boosted by Continued Adoption of New Products

  • Monsanto has been introducing soybean varieties that are genetically engineered to resist a more powerful combination of herbicides. More than 20 million U.S. acres were sown with the new seeds, the company said Wednesday, and it expects to have the supply for 40 million acres across next year’s planting season.
  • For the quarter Monsanto reported income of $20 million, or 5 cents a share, up from a loss of $191 million, or 44 cents a share, a year ago. Revenue grew 4.8% to $2.69 billion. On an adjusted basis, earnings were 20 cents a share.
  • The positive adjusted profit was far higher than the loss of 41 cents that analysts had projected. Monsanto said the better-than-expected results were due to tax benefits and a pretax benefit of $200 million due to corn licenses in Brazil.

(Bloomberg) PepsiCo Makes E-Commerce Bet as Amazon Roils Food Industry

  • The food-and-beverage giant has created a 200-person business unit that’s tasked with spurring online growth in a fast-evolving grocery landscape. So far, it’s working. PepsiCo is on pace to hit $1 billion in annualized e-commerce sales this year, Chief Financial Officer Hugh Johnston said in an interview.
  • That’s about double the rate a year earlier, even if it remains a small piece of the pie. PepsiCo has total revenue of about $63 billion a year.
  • “That business is just really growing like crazy,” said Johnston, who also serves on Microsoft Corp.’s board. “We run it more like a tech company than we do a consumer-products company, and it’s a real star of the portfolio for us right now.”
  • To further set the online business apart, it’s located in midtown Manhattan — about an hour from the company’s suburban headquarters in Purchase, New York.
  • The group is focused on marketing and packaging PepsiCo’s products for online sellers, including Inc. and Boxed Wholesale, as well as traditional brick-and-mortar grocers that are trying to boost their digital footprint. The division was founded about two years ago, but PepsiCo has been quiet about it until now.
  • PepsiCo faces more pressure to go big in e-commerce because grocery sales of soft drinks have weakened, especially in North America. And the overall food industry is bracing for a wave of change. Grocery companies have been rocked this year by Amazon’s $13.7 billion purchase of Whole Foods Market, a deal that sent shares of traditional supermarkets tumbling.

(WSJ) Corona is the New King of Beers

  • U.S. beer sales are in a funk, but Americans are still clamoring for Mexican suds.
  • Constellation Brands Inc., STZ the U.S. distributor of Corona and Modelo, reported a 13% jump in beer sales in the summer months. The gains come as market leaders Budweiser and Bud Light are hemorrhaging volume and even craft beer—which until two years ago was growing in the double digits—is experiencing a shakeout.
  • “It’s a little bit of a misnomer to think that the growth in the beer category, to the extent that there is any, is coming from imports” from around the globe, said the company’s chief executive, Robert Sands, on a conference call Thursday to discuss the latest results. “It is not. It is coming from Constellation’s portfolio of Mexican beers.”
  • The company has expanded beyond its roots as a bulk wine distributor, adding well-known brands such as Robert Mondavi and spirits like Svedka vodka. It now gets two thirds of its revenue from the beer division, which also includes Ballast Point, a craft brewer it acquired for $1 billion in 2015. In the latest quarter, Constellation purchased the small Florida craft brewery Funky Buddha.
  • Constellation plans a national launch next year for a new version of Corona called Corona Premier, as well as a rollout of a product called Corona Familiar in major Hispanic markets—a key demographic for the brand.
  • Constellation attributed 60% of its growth to expanded distribution, and Mr. Sands said Thursday that he’s still unsatisfied on that front. “We don’t have the distribution that we ought to have as a company,” he said. “There’s a big growth runway ahead of us.”

(Bloomberg) Lilly Jumps to Two-Year High After Cancer Drug Patent Upheld

  • Eli Lilly’s patent for its lung cancer drug Alimta was upheld, the Patent Trial and Appeal Board said in an opinion. Shares rise as much as 2.5% to the highest since September 2015.
    • Patent expires in May 2022; Alimta is LLY’s third-biggest drug behind Humalog and Cialis, making up $532.9m or 9.1% of total pharma sales in 2Q: Bloomberg data
    • Teva, Apotex, Neptune Generics and others had filed the challenge; other companies later joined the petition
    • The PTAB decision can be appealed to the U.S. Court of Appeals for the Federal Circuit, which had already upheld the validity of the patent in January

(WSJ, Press Release) Teva Comments on Anticipated At-Risk U.S. Launch of Generic

  • Teva Pharmaceutical Industries Ltd. today commented that any launch by Mylan of a generic version of COPAXONE(R) 40mg/ml (glatiramer acetate) prior to final resolution of the pending patent appeals and other patent litigation should be considered an “at-risk” launch, which could subject Mylan to significant damages among other remedies. Additionally, Mylan also announced approval of a generic glatiramer acetate 20mg/mL.
  • “We have planned for the eventual introduction of a generic competitor to glatiramer acetate,” said Dr. Yitzhak Peterburg, Teva’s Interim President and CEO. “We remain confident in patient and physician loyalty to Teva’s COPAXONE(R) due to its recognized efficacy, safety and tolerability profile, and we will continue to promote and support the product. As we are closing the third quarter, it is too soon to officially comment on any change to our full year business outlook.”
  • Two appeals will be argued before a single panel of judges of the U.S. Court of Appeals for the Federal Circuit. In the first case, Teva is appealing the December 2016 inter partes review decisions of the Patent Trial Appeal Board that found all of the claims of three COPAXONE(R) patents to be unpatentable. In the second case, Teva is appealing the January 2017 decision of the U.S. District Court for the District of Delaware, which declared certain claims of four COPAXONE(R) patents invalid. The two appeals have been fully briefed and await the scheduling of oral arguments. In additional litigation, Teva brought suit against five Abbreviated New Drug Application (ANDA) filers, including Mylan, for infringement of a patent covering a manufacturing process for glatiramer acetate product.
  • Due to the anticipated launch of another generic 20mg glatiramer acetate product and the anticipated launch of a first generic 40mg glatiramer acetate product, Teva’s early assessment of the impact of these launches to its earnings for the fourth quarter ended December 31, 2017 is that it could be affected by at least $0.25 cents per share. These conditions are subject to change based on the discount; adoption rate; and other factors of the competitive products. Teva will provide additional details on its 3(rd) Quarter Earnings Conference Call on November 2, 2017.

(Bloomberg) Hurricanes Wash Out More Than Payrolls in September

  • U.S. payrolls fell 33k in September, considerably weaker than the consensus estimate, which called for an 80k increase. The month of August was revised to a rise of 169k (previously estimated to have been a 156k gain). The two-month payroll net revision was -38k. The 3Q average of 91k currently stands less than half the 2Q average of 187k, and weaker than the 12-month average of 148k.
  • The hurricanes had an outsized impact on employment. Absences from work due to bad weather (1474k) and weather-related curtailments of average weekly hours (2934k) significantly exceeded their respective historical averages (10-year averages stood at 44k and 236k, respectively, before the report). Average hourly earnings were also vulnerable to storm-distortion. Acute demand for utility workers resulted in a spike in average hourly earnings in the sector, large enough to influence the overall outcome. Average weekly hours for utility workers also jumped. The leisure and hospitality industry bore the brunt of the storms’ impact on employment.
29 Sep 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows decelerated on the week, but were still positive at $2.3bln. This brings the YTD total to +$241.961bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $20.725bln, and YTD total corporate bond issuance was $1.06t. Investment grade corporate bond issuance thus far in 2017 is down 5% y/y when compared to 2016.

(Bloomberg, El Mostrador) Albemarle Said to Be Interested in Potash’s SQM Stake: Mostrador

  • Lithium-producer Albemarle is among the companies interested in acquiring Potash Corp.’s 32% stake in Soc. Quimica y Minera de Chile, says El Mostrador, citing unidentified sources with knowledge of the situation.
    • There’s also interest from Chinese, European and South Korean companies, news website says
    • Albemarle and SQM are the only two lithium producers in Chile
    • Acquisition of a stake in a company that has an ongoing dispute with the Chilean state would complicate Albemarle’s lithium operations in the country, sources tell Mostrador
    • Process is in a preliminary phase and would start formally in October after Potash receives at least two bids; process would last about four months, Mostrador says
  • The decision by the main shareholder of SQM to put on sale the 32% that controls in the nonmetallic mining leaves Corfo in a complicated situation. If successful, the purchase would leave the US giant with a dominant position in the lithium business in Chile, something that would be politically unviable for the government, sources close to the operation say. Lawyers who know the industry indicate that blocking the operation would be possible for the State of Chile, but it would not be an easy process or free of controversy.

(Bloomberg) FTC Approves Abbott’s Acquisition of Alere

  • The FTC on Thursday approved pharmaceutical company Abbott Laboratories’ bid to purchase Alere , a manufacturer of rapid point-of-care diagnostic tests, on the condition that Abbott sells two point-of-care medical testing units.
  • The deal, first proposed in February 2016, hit several snags on its route to approval over issues regarding the Alere’s accounting and sales practices. Abbott was able to reach a deal to buy Alere in April for around $5.3 billion, below its initial $5.8 billion offer.
    • The transaction establishes Abbott as the global leader in point of care testing – the fastest-growing segment of the $50 billion in vitro diagnostics market – and further strengthens the company’s diagnostics presence. The addition of this business aligns with Abbott’s long-standing strategy of shaping the company for growth and complements the leadership positions it has built across its other businesses, which include medical devices, nutritionals and established pharmaceuticals.

(Bloomberg) Chubb to Face Up to $1.3 Billion in Losses From Harvey, Irma

  • Chubb Ltd. said losses from Hurricanes Harvey and Irma could total as much as $1.3 billion after taxes.
  • Harvey, which hit Texas in August and caused flooding in Houston, will cost the insurer about $520 million, the company said Wednesday in astatement. Claims expenses from Irma, the storm that slammed southern Florida earlier this month, could be $640 million to $760 million. Those figures dwarf the $107 million in after-tax catastrophe losses the insurer took during the third quarter of 2016.
  • “For Chubb, these large losses should be manageable within the context of its earnings, capital position and ratings,” David Havens, an analyst at Imperial Capital, said Wednesday in a note. “But this is a big number.”
  • “It’s a little on the high side for storm losses,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said by phone. “They’re real losses and affect the book value, but most investors will normalize for these large events because they are very episodic.”

(Bloomberg) A $6.4 Billion Windfall Awaits Big U.S. Banks in Trump’s Tax Cut

  • The six largest U.S. banks could see net income rise $6.4 billion, or 7 percent, if President Donald Trump and Republicans in Congress can push through their proposed corporate tax rate cut.
  • Banks stand to benefit more than other industries because they typically have fewer deductions. The top six firms — JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley — paid an average of 26 percent in federal taxes last year, almost twice the average for nonfinancial companies, according to data compiled by Bloomberg. The Republican framework released Wednesday calls for lowering the corporate rate to 20 percent from 35 percent.
  • The estimates for the tax savings are based on the firms paying a 20 percent effective U.S. federal rate, assuming current deductions are no longer allowed. While earlier versions of Republican tax proposals have talked about eliminating some deductions, the latest plan has scant information on such changes. If some deductions are kept, banks would end up with a lower effective tax rate and their savings would be even greater.

(WSJ) U.S. Seeks to Undo Parker Hannifin’s Clarcor Deal on Antitrust Grounds

  • The Justice Department on Tuesday filed an antitrust lawsuit challenging Parker Hannifin Corp.’s $4.3 billion acquisition of Clarcor Inc., alleging the deal created an unlawful monopoly.
  • The department, in a legal challenge filed in a Delaware federal court, argued that Parker Hannifin’s acquisition, completed in February, had eliminated the company’s only competitor in the market for products that filter fuel for airplanes. Aircraft fuel must be filtered to remove particles that could cause engine failure.
  • The case marks the first merger challenge brought by the Justice Department under the Trump administration. The lawsuit asks a federal judge to order Parker Hannifin to sell off either its own aviation fuel filtration business or Clarcor’s to restore the previous competition in the market.
  • “Parker Hannifin’s acquisition of its only U.S. rival for these types of aviation fuel filtration products has effectively created a monopoly in these critical safety products, depriving their customers of the benefits of competition,” said Andrew Finch, the acting head of the Justice Department’s Antitrust Division.
  • The lawsuit alleged the company and Clarcor competed vigorously before the merger, resulting in better prices and more innovation for customers. Now, Parker Hannifin has “the power to raise prices without fear of losing a significant amount of sales,” the lawsuit said.
  • The department also alleged Parker Hannifin didn’t provide significant documents or data to the Justice Department while it was investigating the transaction.
  • The lawsuit comes at a time of transition for antitrust enforcement, as Republican officials begin to take over from Democrats who served during the Obama administration.
  • Antitrust enforcement often isn’t considered a partisan exercise, but Republicans have tended to take a more free-market approach. Whether the Trump administration will continue on that path is unclear. , given that President Donald Trump has at times embraced a populist sentiment that can be suspicious of big businesses growing more powerful.
  • Mr. Trump’s nominee to lead the department’s antitrust enforcement efforts, Makan Delrahim, hasn’t yet been confirmed by the Senate, but political deputies selected by Mr. Delrahim are already in place and conducting Justice Department business.
22 Sep 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week were $3.5bln. This brings the YTD total to +$239.6bln in total inflows. According to Bloomberg, investment grade corporate issuance for the week was $15.845bln, and YTD total corporate bond issuance was $1.04t. Investment grade corporate bond issuance thus far in 2017 is down 4% y/y when compared to 2016.

(Bloomberg) China’s Credit Rating Cut as S&P Cites Risk From Debt Growth

  • S&P Global Ratings cut China’s sovereign credit rating for the first time since 1999, citing the risks from soaring debt, and revised its outlook to stable from negative.
  • The sovereign rating was cut by one step, to A+ from AA-, the company said in a statement late Thursday. The analysts also lowered their rating on three foreign banks that primarily operate in China, saying HSBC China, Hang Seng China and DBS Bank China Ltd. would be unlikely to avoid default should the nation default on its sovereign debt.
  • “China’s prolonged period of strong credit growth has increased its economic and financial risks,” S&P said. “Although this credit growth had contributed to strong real gross domestic product growth and higher asset prices, we believe it has also diminished financial stability to some extent.”

(Bloomberg) Teva Pharmaceutical Downgraded to ‘BBB-‘ From ‘BBB’ By S&P

  • Teva announced that it had obtained amendments to restrictive financial covenants under its credit facilities, S&P Global Ratings says.
    • Although the amendments enable the company to more easily satisfy its leverage covenant requirement, it also leads S&P to reexamine its previous view that Teva will be able to reduce leverage to below 4x by 2018
    • In light of the revised covenants, S&P revised its forecast for 2017 and 2018
      • “While we continue to recognize the company’s commitment to reducing leverage, we believe it will take longer than previously expected due to ongoing pricing pressures in the generics industry that we project will continue well into 2018. We now expect 2018 leverage of about 4.6x, in contrast to our prior expectation that it would decline below 4x next year”
    • S&P cut all of its ratings on the company, including corporate credit rating to ’BBB-’ from ’BBB’. The outlook is stable.
    • The stable outlook reflects S&P’s expectation the company will reduce leverage more slowly than previously anticipated, with adjusted leverage of well over 4x over the next two years given continued generic pricing pressure and the introduction of generic competition to Copaxone in 2018.

(Reuters) Teva sells rest of women’s health business for $1.4 billion

  • Teva Pharmaceuticals said on Monday it would sell the remaining assets in its specialty women’s health business for $1.38 billion in two separate transactions.
  • The company, Israel’s biggest and the world’s largest maker of generic drugs, said it would use proceeds from the sales, along with those from its recently announced sale of contraceptive brand Paragard, to repay debt.
  • Monday’s announcement, coupled with Teva’s announcement last week that it would sell Paragard to a unit of Cooper Companies for $1.1 billion, demonstrates the company’s commitment to delivering on its promise to generate net proceeds of at least $2 billion from the divestitures, Teva acting CEO Yitzhak Peterburg said. “With these initial divestitures we have exceeded expectations,” he added.
  • Teva last week poached Lundbeck’s Kare Schultz as its new CEO, handing the industry veteran the urgent task of convincing investors of the struggling Israeli firm’s future.
  • Teva has said it plans to pay down $5 billion of debt by year-end and is selling off businesses such as its women’s health business and European oncology and pain unit.

(Bloomberg) Clicks Likely Derail Bricks That Fail to Evolve

  • Retailers focusing on a fast flow of goods and unpredictable inventory finds at lower prices are taking share from traditional stores.
  • The rise of online shopping, information sharing and social media have created transparency in the retail marketplace. This has consumers opting for treasure hunts and values, in-store and online, and forgoing browsing stores.
  • TJX, Ross, Burlington Stores, Costco, Wayfair,, Hayneedle and Zulily are sellers that use treasure hunts and value in their business model.
25 Aug 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week were $2.6nln. This brings the YTD total to +$213bln in total inflows. According to Bloomberg, investment grade corporate issuance for the week was just shy of $4bln, as issuers have decided to wait until after Labor Day before coming to market. Through the week, YTD total corporate bond issuance was $932.88bn. Investment grade issuance thus far in 2017 is down 2% y/y when compared to 2016.

(WSJ) Wal-Mart and Google Partner to Challenge Amazon

  • Google and Wal-Mart Stores Inc. are joining forces in a partnership that includes enabling voice-ordered purchases from the retail giant on Google’s virtual assistant, challenging rival Inc.’s grip on the next wave of e-commerce.
  • Wal-Mart said Wednesday that next month it will join Google’s online-shopping marketplace, Google Express.
  • While the deal will add hundreds of thousands of Wal-Mart items to Google Express, it will also give Wal-Mart access to voice ordering. The deal won’t alter how consumers receive their orders, because Wal-Mart will fulfill purchases made through Google Express.
  • Wal-Mart said it will share consumers’ purchase history with Google to enable users to quickly reorder items, a primary function of voice-controlled orders for commodity shopping.
  • “How do you help people who are going to be interacting more and more with devices get their weekly shopping tasks taken care of?” Google Express chief Brian Elliott said in an interview, citing a key reason for the partnership.

(Bloomberg) Bayer Faces In-Depth EU Review of $66 Billion Monsanto Deal

  • EU sets Jan. 8 deadline for last in trio of mega-mergers
  • EU flags concerns over higher prices and reduced innovation
    • The European Commission flagged worries that the deal to create the world’s largest pesticides and seeds company risked raising prices for farmers, lowering quality and reducing choice and innovation. It set a Jan. 8 deadline for its merger investigation.
    • Bayer said it had expected an extended review “due to the size and scope of the transaction.” The company said the deal “will be highly beneficial for farmers and consumers” and it will work constructively with the EU.
    • Monsanto said it was committed to working with regulators globally “with a view to receiving approval of the proposed transaction by the end of 2017.” It said it looked forward to supporting growers’ efforts to be more productive, profitable and sustainable.
    • The combined firm will have the largest portfolio of pesticides products and the strongest global market positions in seeds and traits. The EU said it will check if rivals’ access to distributors and farmers could worsen if the company were to link sales of pesticides or seeds to digital services that provide tailored advice or aggregated data to farmers.
    • Regulators’ concerns over innovation for agricultural chemicals saw DuPont Co. offer to sell part of its pesticides business and related research and development operations before it won EU approval to merge with Dow Chemical Co. earlier this year. China National Chemical Corp. also had to make concessions before the EU would clear its $43 billion takeover of Swiss pesticide maker Syngenta AG.

(Business Journal) Airbus to deliver first US-built A320 to Spirit Airlines this week

  • The Miramar-based, low-cost airline touts its fleet as being the “youngest of any major U.S. airline,” operating more than 420 flights to destinations in the United States, Caribbean and Latin America. As of March 31, the airline had 100 aircraft. Orders placed in late December 2016 and renegotiated in the first quarter of 2017 will add 73 aircraft to Spirit’s fleet by the end of 2021, according to documents the company filed with the U.S. Securities and Exchange Commission.

(WSJ) Chevron CEO John Watson to Step Down

  • The transition is expected to be announced next month, although Mr. Watson’s successor hasn’t yet been finalized by the board and plans could change, the people said. Mr. Watson isn’t expected to depart immediately and is likely to remain after the announcement for an orderly transition, the people said.
  • His likely departure underscores the dramatic shift under way at big oil companies as they adapt to a prolonged period of lower prices brought about by the U.S. shale boom. While the companies once favored swashbuckling leaders who bet billions on megamergers and pricey projects in far-flung regions, many are now turning to executives adept at squeezing every last dollar from a barrel through refining, and shorter-term investments that turn a profit faster.
  • The leading candidate to succeed Mr. Watson, 60, is Michael Wirth, 56, a refining specialist who earlier this year was elevated to the position of vice chairman at the oil company, the second largest in the U.S. behind Exxon Mobil Corp. , the people said.
  • Chevron directors see Mr. Wirth’s years of experience wringing costs out of big plants that process fuel and chemicals as a critical need in a new era for oil markets defined by $50-a-barrel crude, the people said.
  • “Big oil is turning toward very disciplined, returns-centric leaders who can manage razor-thin margins in disruptive, volatile markets,” said Les Csorba, who advises energy companies on CEO succession at executive search firm Heidrick & Struggles International , and wasn’t involved in Mr. Watson’s succession. “This is the answer for these companies as low prices continue.”
11 Aug 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended August 9, investment grade funds posted a net inflow of $2.464bn. This marks 34 straight weeks of inflows and inflows in 70 of the last 75 weeks. Per Lipper data, the year-to-date net inflow into investment grade funds was $81.490bn. According to Bloomberg, investment grade corporate issuance for the week was $43.55bn, as 26 issuers tapped the market across 48 tranches. Through the week, YTD total corporate bond issuance was $899.475bn. Investment grade issuance thus far in 2017 is down 4.5% y/y when compared to 2016.

(Bloomberg) IG NIC ANALYSIS: Softer Backdrop Prompts New Issue Concessions

  • High-grade bond issuers shrugged off a soft broader market tone for the second day running, pricing $4.25b Thursday.
  • Given the geopolitical tensions between the U.S. and North Korea, the recent deluge of primary supply, and wider credit spreads, many investment-grade bond deals are requiring new issue concessions. Thursday’s three corporate bond sellers, all rated BBB, provided no exceptions.
  • Deals priced with low-mid single digit concessions as issuers look to navigate the more uncertain primary market terrain.
    • Thermo Fisher Scientific Inc. (TMO) Baa2/BBB/BBB Mkt Cap $69.1b Healthcare/Medical Equipment
      • New Issue Concession: 10y: 8bps, 30y: 10bps
    • The Priceline Group Inc. (PCLN) Baa1/BBB+ Mkt Cap $91.1b Communications/Media
      •  New Issue Concession: 5bps
    • O’Reilly Automotive Inc (ORLY) Baa1/BBB+ Mkt Cap $17.6b Consumer/Auto Retailer
      • New Issue Concession: 5bps

(Bloomberg) Cimarex Reports Second Quarter 2017 Results

  • Second Quarter Production up 9% sequentially; Oil Production up 11% sequentially
  • Successful Wolfcamp Downspacing test in the Delaware Basin
    • 16 wells per section in Reeves County Upper Wolfcamp
  • E&D Capital unchanged for 2017; Production guidance raised slightly
  • Cimarex invested $296 million in exploration and development during the second quarter, 53 percent in the Permian Basin and 45 percent in the Mid-Continent. Cimarex completed 51 gross (18 net) wells during the quarter. At June 30, 2017, 98 gross (29 net) wells were waiting on completion. Cimarex is currently operating 14 drilling rigs.
  • Of note, Cimarex completed a successful four-well downspacing project testing 16 wells per section in the Upper Wolfcamp. Located in Reeves County, the Pagoda State project was brought on production in late April. The four 10,000-foot lateral wells had an average peak 30-day initial production of 1,922 BOE per day of which 956 barrels per day (50 percent) is oil. Please see our latest presentation (posted at for more detail.

(Bloomberg) American Water Capital $1.35b Debt Offering in Two Parts

  • American Water Works Co., Inc. provides drinking water, wastewater, and other water-related services in multiple states and Ontario, Canada. The Company’s primary business involves the ownership of regulated water and wastewater utilities that provide water and wastewater services to residential, commercial, and industrial customers.
  • Tranches
    • $600m 10Y (09/01/2027) at +73
    • $750m 30Y (09/01/2047) at +93
  • UOP: To lend funds to American Water and its regulated operating subsidiaries and to (1) repay $524m principal of the issuer’s 6.085% notes due 2017 upon maturity on Oct. 15, 2017, (2) redeem up to $327m aggregate principal amount of the issuer’s outstanding long-term debt securities due 2018 and 2021 and which have a weighted-average interest rate of 5.71% and (3) repay commercial paper obligations
04 Aug 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended August 2, investment grade funds posted a net inflow of $1.485m. This marks 33 straight weeks of inflows and inflows in 69 of the last 74 weeks. Per Lipper data, the year-to-date net inflow into investment grade funds was $79.026bn. According to Bloomberg, investment grade corporate issuance for the week was $25.49bn. Through the week, YTD total corporate bond issuance was $855.925bn. Investment grade issuance thus far in 2017 is nearly identical to the total seen through this period in 2016.

(Bloomberg) Teva 10Y, 30Y Bond Spreads Again Get Crushed

  • Teva Pharmaceutical bonds are seeing high volume for the second day amid reports that bond covenants may be breached. Its 3.15 percent coupon bond due 2026 tops the most active list, according to Trace data.
  • Client and affiliate flows account for 85 percent of the volume. Client buying is near 2.3 times selling. Its spread has widened to +190 area compared with +170 around close of business Thursday and +140 area last Friday. The wider spreads may have enticed clients to be better buyers than sellers today.
  • Teva was cut to BBB- by Fitch, outlook negative, this morning. Yesterday Moody’s cut Teva to Baa3 from Baa2 while S&P said its ratings on the company are not affected by the report of lower-than-expected second-quarter results and reduced 2017 guidance.
  • The dramatic repricing has brought the investment-grade name closer to junk comparables.

(Bloomberg) SoftBank Default Risks Jump as Son Mulls Charter Takeover

  • The possibility that SoftBank Group Corp. will pile on even more debt if founder Masayoshi Son goes ahead with a bid for Charter Communications Inc. is starting to spook the bond market.
  • The cost to insure SoftBank’s debt against nonpayment has jumped 17.2 basis points this week to 156.7 basis points on Wednesday, the highest level since Jan. 9, after people familiar with the matter said the company has as much as $65 billion in financing lined up as Son weighs whether to make an offer. Theyield premium on the firm’s 6 percent dollar perpetual bonds has surged 31 basis points in the period, Bloomberg-compiled prices show.
  • Going through with an acquisition of Charter would cause SoftBank’s already bloated debt burden to balloon even further. The ratio of debt to earnings before interest, taxes, depreciation and amortization at billionaire Son’s company is about 5.67, more than double the median of its telecom peers, according to data compiled by Bloomberg. Charter on Sunday rebuffed Son’s initial proposal to combine the company with Sprint Corp., which SoftBank controls.

(Bloomberg) IG NEW ISSUE SECONDARY: TMT Issues Trading Wider Despite NICs

  • This week’s Technology Media and Telecommunications bonds were among the new issues that widened the most in secondary trading, according to Trace.
  • Comcast Corp’s bonds last traded 7-8bps, Verizon Communications’ new 16y is off 2bps and last week’s AT&T jumbo $22.5b transaction is also trading 5-11bps back of issue levels.
  • Comcast & AT&T’s bonds are trading wider despite many of their tranches pricing with double-digit new issue concessions. These issuers have a plethora of debt outstanding suggesting healthy new issue concessions would be required to sell the bonds. Concessions, however, are beginning to creep back into the market across sectors as Kinder Morgan (20bps), Capital One NA (10bps) paid up to price their deals. We have been in a low yield, tight credit spread environment for an extended period and these recent prints could be signaling a degree of investor pushback.
28 Jul 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended July 26, investment grade funds posted a net inflow of $2.319m. This marks 32 straight weeks of inflows and inflows in 68 of the last 73 weeks. Per Lipper data, the year-to-date net inflow into investment grade funds was $77.541bn. According to Bloomberg, investment grade corporate issuance for the week was $36.35bn. Through the week, YTD total corporate bond issuance was $830.435bn, which is down 1% when compared to 2016.

(Moody’s) Moody’s upgrades PG&E Corporation and Pacific Gas & Electric; outlook revised to stable

  • Moody’s Investors Service, (“Moody’s”) today upgraded PG&E Corporation’s (PCG) senior unsecured rating to A3 from Baa1.The senior unsecured rating at Pacific Gas & Electric Company (PG&E), PCG’s principal utility operating subsidiary, was upgraded to A2 from A3. PG&E’s commercial paper rating was also upgraded to Prime-1 (P-1) from Prime-2 (P-2). The outlook on both companies was revised to stable from positive.

(Bloomberg) AT&T Sells Year’s Biggest Bond Deal and Market Wanted Even More

  • AT&T Inc. sold $22.5 billion of bonds in a multi-part offering on Thursday, drawing almost three times as many orders as there were securities for sale, according to a person with knowledge of the matter. It’s not only the largest investment-grade deal of the year, but the third-biggest in history behind offerings from Verizon Communications Inc. and Anheuser-Busch InBev SA. The sale is likely the last funding AT&T needs for its $85.4 billion takeover of Time Warner Inc.
  • The longest portion of the sale, which came in seven parts, is a 41-year bond that yields about 2.4 percentage points above Treasuries, down from initial talk of 2.55 percentage points, another person said. With the U.S. offering higher yields than Europe and Japan, it has become a destination for foreign investors to park their money, a trend that AT&T benefited from.

(FBN) Illinois Tool Works Sees Margin Expansion and Earnings Growth

  • Multi-industrial company Illinois Tool Works (NYSE: ITW) delivered another good quarter of earnings and raised full-year guidance across the board. It was a positive quarter for the company, driven by its automotive segment and recovery in some of its more cyclical segments (specifically welding, test and measurement, and electronics). That said, management served notice of a relative slowdown in the third quarter.

(Bloomberg) Caterpillar Outlook Bright as Sales, Margins Rebound

  • A global recovery in Caterpillar’s key markets is picking up steam — earlier than expected — after four years of plummeting sales as global growth accelerates. Aftermarket demand is leading the charge, yet construction equipment is strong and 2Q mining orders doubled. Almost $2 billion in cost cuts, with more to come, is generating much higher-than-historical operating leverage as volume rises. Market-share gains achieved in the downturn are another potential driver as mining and construction markets rebound.
  • As the leader in construction and mining machinery, Caterpillar is a major beneficiary of a global recovery. The company may face a one-time charge of $2 billion related to alleged tax violations at a Swiss-based subsidiary and a higher tax rate.
21 Jul 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended July 19, investment grade funds posted a net inflow of $3.817m down from $2.299bn the prior week. This marks 31 straight weeks of inflows and inflows in 67 of the last 72 weeks. Per Lipper data, the year-to-date net inflow into investment grade funds was $75.222bn. According to Bloomberg, investment grade corporate issuance for the week was $47.7bn. Through the week, YTD total corporate bond issuance was $794.085bn, which is down 3% when compared to 2016.

(Bloomberg) Abbott Boosts Full Year Forecast as Deals Fall Into Place

  • The company raised its full-year guidance after showing strength in its pain control and diabetes businesses. Abbott closed its $29 billion deal for St. Jude Medical in January, doubling the size of its medical technology division and expanding beyond devices used to clear clogged heart arteries. Its diagnostics business, about to swell with the addition of Alere Inc. after a protracted battle, is showing strength as well.
  • The legacy St. Jude business grew at about a 4 percent pace in the quarter, after breaking even for the past four years, Abbott Chief Executive Officer Miles White said during a conference call with analysts. That trend should continue or accelerate, he said, as the company continues to roll out new products like an MRI-safe defibrillator, helping it regain sales lost to rivals that already offer the technology.
  • “Our forecast, or deal model, was built on the expectation of sequential improvement in their sales going forward,” he said. “We are seeing that.”
  • The smaller operations secured by the St. Jude deal are posting the greatest gains. Demand for devices to control pain propelled growth of 49 percent, while sales of tools that deal with the heart’s electrical pathways rose 10 percent. The company’s focus on diabetes, with Bigfoot Biomedical picking Abbott’s Freestyle Libre for its artificial pancreas, yielded 21 percent growth.
  • The outsized performances are easing the pain caused by slowing markets in the company’s former key industries, like heart stents, which was down 6 percent, and devices like pacemakers and defibrillators, which fell 9.2 percent.
  • Abbott raised its full-year guidance range to $2.43 to $2.53 per share, excluding some items. That’s up from a previous forecast of $2.40 to $2.50 per share.

(WSJ) Lessons From Microsoft’s Success in the Cloud

  • Microsoft Corp.’s success in the cloud is driving the growth of the overall business. That’s because it is the business. Cloud isn’t a satellite orbiting around the data-center sun. The numbers speak for themselves. As the Journal’s Jay Greene reports, Microsoft’s “Intelligent Cloud segment, which includes Azure, rose 11% to $7.4 billion. In the Productivity and Business Processes segment, which includes the Office franchise, revenue climbed 21% to $8.4 billion.”
  • Microsoft doesn’t disclose revenue figures Azure and Office 365, but it said revenue from these businesses rose 97% and 43% respectively, surprising CFO Amy Hood. “Azure was the primary source of our outperformance in the quarter,” she said in an interview. “It’s higher than I was expecting.”\
  • Microsoft has gained traction in the cloud, one might argue, because it has accepted the idea that it isn’t the only platform that customers use. CIOs employ other clouds and they still have plenty of use for the data center. Microsoft has crafted a hybrid approach around those customer intentions. More recently, it has looked to build data and intelligence into its cloud infrastructure, platforms and applications. As the Journal notes, “Microsoft is working to connect its business products to LinkedIn, giving sales representatives using its Dynamics software, for example, tools to easily mine the professional social network to prospect for leads.” As this process continues, expect the cloud to fade into the background, much as the electric grid has faded into the background. In a few years, we won’t think about cloud computing any more than we think about “electrical toasters.” The cloud will be an invisible and ubiquitous dimension of most elements of business.

(Bloomberg) Scripps Talks Said to Be Advanced, Deal Soon as This Month

  • Negotiations to acquire media company Scripps Networks Interactive Inc. are advanced and a deal could be announced as soon as this month, people familiar with the matter said.
  • Both Discovery Communications Inc. and Viacom Inc. are vying to buy Scripps, and are likely to fund the deal with a mixture of cash and shares, the people said, asking not to be identified as the details aren’t public. No final decisions have been made and talks may still fall apart, they said.
  • Shares in Scripps rose as much as 4.1 percent in New York to a high of $80.02. They had already climbed about 14 percent this week on news of the possible combinations, giving the Knoxville, Texas-based company a market valuation of about $10 billion. Viacom was up less than 1 percent to $36.31 at 2:40 p.m., while Discovery fell less than 1 percent to $26.98. Representatives for Discovery, Viacom and Scripps declined to comment.
  • Buying Scripps could help the larger media companies cut costs, gain negotiating leverage with distributors and expand internationally as their U.S. TV businesses faces new pressures. Network owners are grappling with a decline in subscriptions for cable and satellite services as they lose viewers to online video services and social networks.

(Bloomberg) BNY Mellon Ups Revenue View, Shows 2Q Momentum: Earnings Outlook

  • Post-2Q Earnings Outlook: BNY Mellon showed a further acceleration in revenue in 2Q, with trends in fee income and managed assets boding well for 2H.
  • Fee growth of 4% for investment services and 6% in investment management marks another rise after 1Q’s pickup, while both assets under custody and management hit record levels.
  • The updated 2017 view includes spread income growth at the high-end of its prior 4-6% range and a cost rise of about 1%, with a caveat that this would be “challenging.”
14 Jul 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended June 28, investment grade funds posted a net inflow of $2.299m down from $2.535bn the prior week. Per Lipper data, the year-to-date net inflow into investment grade funds was $71.045bn. According to Bloomberg, investment grade corporate issuance for the week was $26.49bn. Through the week, YTD total corporate bond issuance was $746.385bn, which is down 5.5% when compared to 2016.

(WSJ) Visa Takes War on Cash to Restaurants

  • Visa Inc. has a new offer for small merchants: take thousands of dollars from the card giant to upgrade their payment technology. In return, the businesses must stop accepting cash.
  • The company unveiled the initiative on Wednesday as part of a broader effort to steer Americans away from using old-fashioned paper money. Visa says it is planning to give $10,000 apiece to up to 50 restaurants and food vendors to pay for their technology and marketing costs, as long as the businesses pledge to start what Visa executive Jack Forestell calls a “journey to cashless.”
  • Consumers at those stores would be able to pay for goods or services only with debit or credit cards or with their cellphones. In exchange, Visa is offering to pay for upgrades to merchants’ technology at the checkout line so that they can accept contactless payments, such as Apple Pay . The $10,000 incentive can also help cover some of the merchants’ marketing expenses.
  • Visa has long considered cash one of its biggest competitors and has been taking steps to chip away at it. Getting rid of cash is a priority for Visa Chief Executive Al Kelly, who took over late last year, especially as cash and check transactions continue to grow globally.
  • “We’re focused on putting cash out of business,” Mr. Kelly said at Visa’s investor day last month, adding that converting check and cash to digital and electronic payments is the company’s “number-one growth lever.”
  • Still, cash remains a formidable competitor. Check and cash transactions totaled $17 trillion world-wide in 2016, up about 2% from a year prior, according to Visa.
  • Cards have made a dent in cash in the U.S., but cash remains the most widely used payment form among Americans, accounting for 32% of all consumer transactions in 2015, compared with 27% for debit cards and 21% for credit cards, according to a November report by the Federal Reserve Bank of San Francisco.

(Moody’s) HCA’s Increased ABL Reduces Likelihood of Upgrade of Senior Secured Notes

  • HCA Inc. (subsidiary of HCA Healthcare, Inc.) recently amended and extended its asset-based revolving credit facility (ABL). The facility was upsized to $3.75 bilion from $3.25 billion and the expiration date was extended to June 2022. In addition, HCA amended and extended its $2 billion revolving credit facility. The expiration date of the revolving credit facility was extended to 2022 from 2019. There are no changes to any ratings including the Ba2 Corporate Family Rating, the Baa2 rating on the ABL, the Ba1 on the senior secured debt and the B1 on the unsecured notes. The rating outlook is positive.
  • Absent any further changes to the capital structure, there is reduced likelihood that the senior secured debt (including notes and credit facilities) would be upgraded to investment grade if Moody’s upgrades HCA’s CFR to Ba1. This is due to changes in the HCA’s capital structure and attributes of Moody’s Loss Given Default Methodology.

(Bloomberg) Implications of Tax Policy Changes on IG Industrials

  • Potential changes in tax laws could have credit implications for high grade industrials. The 28 high grade industrials tracked at BI have accumulated $55 billion of cash, largely in non-U.S. subsidiaries, mainly to avoid current repatriation laws. Cash-to-revenue averaged as low as 8% for the peers as recently as 2008, but topped 28% at year-end. That suggests about $27 billion could be repatriated, possibly earmarked for share repurchases and dividends, akin to 2004’s tax holiday.
  • Honeywell, Illinois Tool Works, Cummins and Rockwell Automation are among the group outliers, with above-average ratios, suggesting they may have more opportunity to bring cash home.

(WSJ) Corporate Bond Markets Asleep at the Wheel

  • There’s a fine line in financial markets between resilience and complacency. Corporate bonds are sitting right on it.
  • Global government bonds have been shaken as central banks, most notably the European Central Bank, have signaled that the clock is ticking on ultra-loose monetary policy. Ten-year German bond yields have risen about 0.3 percentage point from their late-June lows, pushing up U.S. Treasury yields too.
  • Yet corporate bonds haven’t even blinked. Indeed, the yield spread on European and U.S. investment-grade bonds versus underlying government debt has actually compressed since the turmoil started, Bank of America Merrill Lynch indexes show. Yields have risen, just not by as much as on government bonds. At 0.99 percentage point in Europe and 1.12 points in the U.S., investment-grade spreads are close to their tightest level since the global financial crisis.
  • And credit conditions may be shifting. Activist investors are making waves in Europe: perhaps the best example is Dan Loeb at hedge fund Third Point targeting consumer giant Nestlé , pitting shareholder interests against those of bondholders. The company promised to double its leverage ratio to fund stock buybacks, yet spreads on its bonds barely reacted. Better earnings prospects should support corporate bonds; but the real benefit will accrue to shareholders, not bondholders. Spreads do offer some protection against falling bond prices, but little against a deterioration in credit quality.
  • Corporate bonds have benefited greatly from central-bank support and benign credit conditions. Shifting tides mean relying on those factors persisting looks risky.
30 Jun 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended June 28, investment grade funds posted a net inflow of $724.337m down from $1.55bn the prior week. Per Lipper data, the year-to-date net inflow into investment grade funds was $66.571bn. According to Bloomberg, investment grade corporate issuance for the week remained muted, weighing in at $14.8bn. Through the week, YTD total corporate bond issuance was $714.145bn. Per Bloomberg data, U.S. investment grade credit spreads are at the tightest level since 2014:

  • Bloomberg Barclays US IG Corporate Bond Index OAS at 109, a new tight YTD and the tightest level since Sept. 2014, vs 110
    • 2017 wide/tight: 122/109
    • 2016 wide/tight: 215 (a new wide since Jan. 2012)/122
    • 2015 wide/tight: 171/122
    • 2014 wide/tight: 137/97
    • All time wide/tight back to 1989: 555 (Dec. 2008)/54 (March 1997)

(Bloomberg) Martin Marietta Will Buy Bluegrass Materials for $1.625b in Cash

  • Martin Marietta sees deal closing in 4Q, is expected to add to EPS and cash flow in first full year.
    • MLM sees annual run-rate cost savings of ~$15m.
    • Bluegrass Materials is largest closely held, pure-play aggregates company in U.S.; MLM says Bluegrass has leading positions in some of nation’s highest growth markets.
    • Bluegrass CEO says co. “ran a thorough, competitive process.”

(Bloomberg) Bayer Seeks EU Blessing for $66 Billion Monsanto Takeover

  • Bayer AG asked the European Union to approve its $66 billion combination with Monsanto Co., the last of a trio of mega-deals reshaping the global agrochemicals industry.
  • The German chemical giant’s filing kickstarts an initial review with an Aug. 7 deadline. Bayer said it’s still seeking to close the deal “before the end of 2017,” a sign that it’s hoping to sidestep a lengthy second phase probe that could add a further four months to the process.
  • Bayer has already filed for approval in the U.S. and the Justice Department could require additional asset sales to resolve competition concerns. BASF SE and Syngenta are among companies that have submitted preliminary bids for assets that Bayer plans to sell in order to get regulatory approval for its takeover, according to people familiar with the matter.
  • Agricultural businesses have been dogged by falling crop prices globally. Falling crop prices and a quest for greater efficiency triggered a cascade of deals in the industry.

(Forbes) Oracle’s Q4 Cloudburst: Why Larry Ellison’s All-In Cloud Strategy Is Paying Off

  • After a few years of lofty talk but lackluster performance, Oracle’s blowout Q4 results prove beyond a doubt that Larry Ellison’s 10-year-old decision to rewrite all of Oracle’s IP for the cloud is giving the company a unique competitive advantage in being fully vested across all three layers of the cloud: SaaS, PaaS and IaaS.
  • Ellison, who in recent quarters has called out Workday as Oracle’s primary SaaS competitor, did not mention Workday in his prepared remarks but focused instead on how Oracle is now ahead of on the cloud metric of Annual Recurring Revenue, or ARR. “Last fiscal year we sold more than $2 billion in cloud annually recurring revenue. This is the second year in a row that we sold more cloud ARR than,” Ellison said. “We are now well on our way to passing them and becoming number one in the enterprise SaaS market.”
  • Ellison based that prediction on the breadth of Oracle’s suite of SaaS applications versus those offered by Salesforce, noting that Oracle offers cloud apps for financials, procurement, supply chain, manufacturing, human resources, payroll, marketing, sales and service, whereas “Salesforce in contrast only competes in three of these nine market areas.”
  • With regard to IaaS market leader Amazon, Ellison didn’t speak specifically about the IaaS layer, but positioned Oracle’s combination of world leadership in databases (PaaS) with its next-gen technology for IaaS as the way Oracle will cut into the huge lead AWS currently enjoys. “During this new fiscal year, we expect both our PaaS and IaaS businesses to accelerate into hyper-growth, the same kind of growth we are seeing with SaaS. As our customers begin to migrate their millions of Oracle databases to Generation 2 of the Oracle Public Cloud…we expect that our Oracle PaaS and IaaS businesses will grow so fast that they will be even bigger than our SaaS business.”
  • Ellison’s linkage of Oracle’s emerging IaaS business with its PaaS business is significant because, as he says in the comment above, Oracle is the world’s leading database vendor by a wide margin—so if Oracle can pull lots of those on-premise customers into the Oracle Cloud and away from the aggressive marketing of Amazon and Microsoft, that would be a huge win.

(Bloomberg) Pfizer’s Glasdegib Gets FDA Orphan Status in Leukemia

  • FDA designated Pfizer’s drug as orphan treatment for acute myeloid leukemia.
    • FDA awarded designation to the treatment, which has generic name glasdegib, on June 28.
    • Orphan drugs are entitled to 7 years market exclusivity if approved by FDA for rare disease.