Category: Insight

30 Jun 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$0.2 billion and year to date flows stand at -$4.2 billion. New issuance for the week was $6.3 billion and year to date HY is at $143 billion.

(Reuters) Healthcare bill imperiled with 22 million seen losing insurance

  • Twenty-two million Americans would lose insurance over the next decade under the U.S. Senate Republican healthcare bill, a nonpartisan congressional office said on Monday, complicating the path forward for the already-fraught legislation.
  • The CBO assessment that an additional 15 million people would be uninsured in 2018 under the bill and its prediction that insurance premiums would skyrocket over the first two years prompted concern from both sides.
  • McConnell’s goal was to have a vote on the bill before the July 4 recess that starts at the end of this week.
  • McConnell can afford to lose just two Republican senators from their 52-seat majority in the 100-seat Senate, which would allow passage of the bill with Vice President Mike Pence casting the tie-breaking vote.
  • “If you are on the fence … this CBO score didn’t help you, so I think it’s going to be harder to get to 50, not easier,” Republican Senator Lindsey Graham said of the bill’s prospects.
  • The CBO is only able to assess the impact of legislation within a 10-year window, but it said that insurance losses are expected to grow beyond 22 million due to deep cuts to the Medicaid insurance program for the poor and disabled that are not scheduled to go into effect until 2025.

(CNBC) Report Arconic supplied flammable panels to Grenfell Tower

  • Six emails sent to and by an Arconic manager raised questions about why the company supplied the combustible panels despite a public warning that they posed a risk.
  • Grenfell Tower, which is more than 200 feet tall, was badly damaged in a June 14 fire that killed at least 79 people. London police said Friday the fire started after an appliance malfunction, adding they were considering manslaughter charges over the disaster.
  • Arconic, a former Dow Jones industrial index component, told CNBC in a statement that it is discontinuing the sales of the panels around the world.
  • “We believe this is the right decision because of the inconsistency of building codes across the world and issues that have arisen in the wake of the Grenfell Tower tragedy regarding code compliance of cladding systems in the context of buildings’ overall designs,” the company said in a statement.
  • It had also told Reuters in a statement it’s not up to the company to decide what’s compliant with local building regulations.

(The Verge) Comcast and Charter reportedly talking with Sprint to offer wireless service

  • Sprint’s merger talks with T-Mobile are temporarily on hold while the carrier mulls over a number of potential deals with the United States’ two biggest cable companies, Comcast and Charter.
  • The trio of companies has reportedly agreed to a two-month exclusivity period on cutting a deal. Comcast and Charter appear to be interested in reselling Sprint’s wireless service under their own name. That’s something Comcast has already been doing with Verizon, and it could use Sprint’s network to improve coverage.
  • Such a deal would likely involve the two cable companies making an investment in Sprint, which the carrier would then use to build out its network, generally known to be the worst of the four major phone service providers.

(Bloomberg) Alphabet Inks Deal for Avis to Manage Self-Driving Car Fleet

  • Waymo, the self-driving car unit of Alphabet Inc., has reached an agreement for Avis Budget Group Inc. to manage its fleet of autonomous vehicles. It’s the first such deal in a field that’s still fledgling but exploding with partnerships. Avis shares surged.
  • The rental car firm will service and store Waymo’s Chrysler Pacifica minivans in Phoenix, where the parent of Google is testing a ride-hailing service with volunteer members of the public. Waymo will own the vehicles and pay Avis for its service, an arrangement that is set for multiple years but not exclusive. The companies would not share financial terms.
  • Avis gives Waymo a potential asset that rivals like the major automakers and Uber Technologies Inc already have: a sprawling network of traditional cars and customers that could be transformed into an autonomous transport service over time. Avis owns Zipcar, the on-demand rental service with over one million members, largely in urban centers. The new deal is limited to Waymo’s vehicles in Phoenix, where it started its first pilot service in April after nearly a decade of research.
  • Yet Waymo could spread its self-driving systems into other cars over time. Zipcar was part of Avis’ appeal, said Waymo Chief Executive Officer John Krafcik. “One of the wonderful things about partnerships like this is that they are open,” he said.
  • This partnership is the first major one involving oversight of driverless car fleets, a business opening that could help the technology spread. It’s a symbolic win for Avis, which now has the aide of Alphabet, a pioneer in the field that is willing to heave large sums into the unproven tech. Sales at the car rental company have slipped, facing pressure from dips in used vehicle prices, with first quarter revenue falling 2.2 percent to $1.84 billion.
23 Jun 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended June 21, investment grade funds posted a net inflow of $1.55bn down from $2.603bn the prior week. Per Lipper data, the year-to-date net inflow into investment grade funds was $65.843bn. Per Bloomberg, investment grade corporate issuance for the week was $19.675bn, which was underwhelming relative to consensus. Through the week, YTD total corporate bond issuance was $700.045bn, which trails 2016 by 3%. Barring a Friday turnaround, WTI crude oil is headed for its fifth consecutive weekly drop, and while IG remains just off YTD tights, weakening oil prices are likely weighing on primary issuance.

(Bloomberg) Celanese, Blackstone to Form Venture for Cigarette Filter Fiber

  • Celanese Corp. and Blackstone Group agreed to form a joint venture to create a global supplier of acetate tow, a derivative of wood pulp used in making cigarette filters and other products.
  • The business will combine Celanese’s Cellulose Derivatives and Blackstone’s Rhodia Acetow units, the companies said Sunday in a joint statement. Celanese will own 70 percent of the venture and Blackstone the remaining 30 percent, and the as-yet-unnamed venture will distribute $1.6 billion to Celanese when it closes.
  • A tasteless, odorless form of cellulose, acetate tow is also used to make products such as marker tips, air fresheners and perfume dispensers. The new entity is expected to have 2017 pro forma revenue of about $1.3 billion with about 2,400 employees and will benefit from synergies in supply procurement, innovation, energy, equipment and other services, according to the statement.
  • “The combination of these tow assets will enhance our ability to serve customers more efficiently and reliably from a global production footprint while also creating growth opportunities for employees,” said Mark Rohr, chief executive officer of Celanese.
  • Celanese will name three members of the new company’s five-member board. Blackstone will pick the other two.

(BNA) Linde and Praxair Prepared for Long Haul in Antitrust Fight

  • Linde AG and Praxair Inc. are girding for a long antitrust fight across multiple countries for their proposed merger of equals, and have given themselves a generous two years to close the deal.
  • The two companies announced their proposed merger on June 1. The combined entity, with a current value in excess of $70 billion, would become the biggest player in a concentrated industrial gases market worldwide. It would outrank current market leader Air Liquide SA, which combined with Airgas Inc. in 2016 for $13 billion. The remaining players in the market have less than half the market position of either large firm, according to Bloomberg Intelligence.
  • By setting a closing deadline far in the future, Linde and Praxair have avoided having their contract expire before their deal clears regulatory hurdles. But they face other risks, including changes in the market and extra costs to sealing the deal, Jones Day partner Chip MacDonald told Bloomberg BNA.
  • MacDonald, who handles bank and broker dealer mergers with a complex regulatory overlay, said he doesn’t see parties setting longer deadlines in his own practice. A one-year expiration keeps everybody focused on closing the deal, including regulators, he noted.
  • Most notable examples include scuttled mega-mergers between Staples Inc. and Office Depot Inc., Sysco Corp. and US Foods Holding Corp., and Electrolux AB and General Electric Co.
  • U.S. regulators examined those mergers based on a narrow slice of “national accounts” served by limited big players. When regulators draw the market on that basis, it is the scale and scope of the operation that matters, not operational overlap that can be cured by divesting a few facilities or product lines.
  • “The gas industry’s growth is defined by new projects at customers’ sites,” said Bloomberg Intelligence senior analyst Jason Miner in an analysis. “It’s this pipeline of potential on-site sales, rather than overlaps in installed footprints, that would likely drive regulatory concerns in a Praxair-Linde combination.”

(Bloomberg, Reuters) AT&T Awaiting Justice Department Details for Time Warner Deal

  • AT&T senior executive VP Bob Quinn said the company is still unsure what final conditions may be needed as part of the approval process.
  • The Justice Department is continuing its review of the $85.4 billion acquisition of Time Warner Inc. by telecom company AT&T , with AT&T still awaiting details about any final requirements to get the deal done, Reuters reports.
  • Speaking with C-SPAN this week AT&T senior executive VP for external and legislative affairs Bob Quinn said the company is still unsure what final conditions may be needed as part of the approval process.
  • “That conversation is just beginning really. We’ve gotten through the point where we’re produced all the data and answered all the questions and I think that process will kick off this summer,” Quinn said, according to Reuters.

(Bloomberg) Medtronic Announces $5B Share Buyback; Boosts Qtr Dividend 7%

  • Medtronic qtr cash dividend raised to 46c/shr from 43c vs. estimate 47c, the company said in a press release.
    • Dividend is payble on July 26 to holders of record at the close of business July 7
    • Buyback replaces previous 2015 repurchase authorization
    • NOTE: 15 buys, 12 holds, 0 sells before today; avg PT $92.35

(Bloomberg) Dow-DuPont Wins U.S. Antitrust Nod to Create Chemicals Giant

(Bloomberg) Committee Approves Extension of Nuclear Production Tax Credit

16 Jun 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended June 14, investment grade funds posted a net inflow of $2.603bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $64.293bn. Per Bloomberg, investment grade corporate issuance for the week was $13.75bn. Through the week, YTD total corporate bond issuance was $680.37bn, which now trails 2016 by 5.5%. The FOMC meeting on Wednesday was a big factor in the lackluster primary calendar this week.

(CNBC) Eli Lilly CEO David Ricks weighs in on drug costs and health reform

  • CEO David Ricks on Thursday zeroed in on drug costs and the need for faster regulatory approvals as the debate over health-care reform rages on.
  • “We hope this is a moment where we can make improvements in the health care system for everyday Americans,” he told CNBC in an interview at the Heartland Summit in Minnesota.
  • One issue being talked about, according to Ricks, is why individual payers in high-deductible plans are paying the list price for medications.
  • “Because we’re providing deep rebates to payers in the system who enjoy those, but the small guy, the consumer on the street, doesn’t get that same benefit,” Ricks said.
  • He also advocated for faster FDA approval on generic drugs and “innovative breakthroughs,” in areas such as Alzheimer’s and cancer treatment, to help increase competition in the pharmaceutical industry.
  • Drug costs have become an increasingly visible issue following the controversial price hikes orchestrated by pharma bro Martin Shkreli and the uproar over Mylan’s skyrocketing EpiPen costs, among other developments.

(Bloomberg) Banks Leave Savers Waiting After Being Quick to Raise Loan Rates

  • Federal Reserve officials raised the benchmark lending rate to a range of 1 percent to 1.25 percent on Wednesday; the central bank’s third such move in six months. In the hours since the decision was announced, U.S. banks including Citigroup Inc., U.S. Bancorp and SunTrust Banks Inc. announced that they’ll pass on the higher interest rates to borrowers, without disclosing plans to provide better rates for deposit customers.
  • After years of stubbornly low interest rates, U.S. banks have been slow to increase offers for deposit accounts. They are seeking to benefit from a fatter margin between what they charge for loans and what they pay out to customers who provide the funds.
  • “We do think that there’s going to be a little bit more pressure on the retail side after this rate hike, and then certainly into the future,” Terry Dolan, chief financial officer at U.S. Bancorp, the country’s largest regional bank, said at an investor conference on Tuesday. So far, he said, the bank has “seen really no change in deposit betas on the retail side.”
  • At least one large U.S. bank has broken ranks. Goldman Sachs Group Inc. raised its deposit rate to 1.2 percent this month, among the highest rates offered by firms tracked on, a website that monitors 4,800 financial institutions.

(Bloomberg) Dow-DuPont Wins U.S. Antitrust Nod to Create Chemicals Giant

  • Dow Chemical Co. and DuPont Co. won U.S. antitrust approval for their $73 billion merger, overcoming one of the last remaining hurdles to a deal that would create a global chemicals giant.
  • DuPont agreed to sell off some of its herbicide and insecticide products to resolve government concerns that the combination would harm competition and raise prices for customers, according to a settlement filed Thursday in federal court in Washington. Dow will sell a plastics packaging unit.
  • The takeover is among a trio of mega-deals that would reshape the global agrochemicals industry if approved by regulators around the world. Bayer AG is seeking approval to buy Monsanto Co., while China National Chemical Corp.’s agreement to buy Syngenta AG is nearing completion. If cleared, the transactions together would consolidate the industry into four major players, including BASF SE.
  • The deals have drawn complaints from farmers and environmental activists who say the the combined companies’ control of pesticide and seed markets might increase prices for farmers.
  • The U.S. approval of the Dow-DuPont tie-up follows the European Union’sclearance of the deal in March, when DuPont agreed to divest part of its pesticide business, including research and development. The companies also won clearance from India and are awaiting approval from Canada.

(Bloomberg) Committee Approves Extension of Nuclear Production Tax Credit

  • House Ways and Means votes to approve legislation sought by the nuclear industry power that would extend an unused tax credit for new nuclear reactors.
    • H.R. 1551 extends Nuclear Production Tax credit past current sunset date of 2021
    • Bill also tweaks legislation to allow nonprofit public power co-owners of plants and other partners to use the credit by allocating their pro-rated share of the credit to private partners
    • Legislation is seen as beneficial to Southern Co. and Scana Corp., which have reactors under construction that could qualify for the credit
    • NOTE: Under current law, 1.8-cents-per-kilowatt-hour credit is capped at 6,000 megawatts and only available to nuclear power plants placed in service before January 2021
16 Jun 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $0.6 billion and year to date flows stand at -$2.2 billion. New issuance for the week was $2.4 billion and year to date HY is at $133 billion.

(CNBC) Fed hikes interest rates despite declining inflation, sets plan for balance sheet reduction

  • The Federal Reserve approved its second rate hike of 2017 even amid expectations that inflation is running well below the central bank’s target.
  • In addition, the Fed provided more detail on how it will unwind its $4.5 trillion balance sheet, or portfolio of bonds that includes Treasurys, mortgage-backed securities and government agency debt.
  • As financial markets had anticipated, the policymaking Federal Open Market Committee increased its benchmark target a quarter point. The new range will be 1 percent to 1.25 percent for a rate that currently is 0.91 percent.
  • “The combination of a rate hike and shrinking the balance sheet equates to a tightening monetary policy at a time when inflation is lower than expected,” said Kathy Jones, senior fixed income strategist at Charles Schwab.

(Bloomberg) Yellen Doubles Down on Bet Hot Job Market Stokes Inflation

  • Federal Reserve Chair Janet Yellen is pressing ahead with plans to normalize monetary policy, betting that the ongoing strength of the labor market will ultimately prevail over the recent weakness in inflation.
  • In a press conference on Wednesday after the Fed raised interest rates for the second time in 2017, Yellen played down a softening of price pressures in the last few months and voiced confidence the central bank was on course to hit its 2 percent inflation goal.
  • “It’s important not to overreact to a few readings, and data on inflation can be noisy,” she told reporters.
  • “The risk is that the Fed is too complacent on inflation and more than just transitory factors are keeping it from rising, and that the Fed is too confident about labor market improvement transitioning to wages and inflation,” said Michael Gapen, chief U.S. economist at Barclays Plc in New York.

(Modern Healthcare) CHS fires CEO of dissident Fort Wayne hospitals

  • Brian Bauer, the CEO of Community Health System’s Fort Wayne hospitals, has been fired in the wake of a failed physician effort to find a buyer for the eight hospitals.
  • The removal is the latest sign of trouble in the most profitable market for CHS, which has been facing hard financial times itself.
  • Bauer was removed Monday as CEO of Lutheran Health Network because “current circumstances put him in an untenable position and he is unable to continue in his leadership role,” CHS Division 1 President of Operations Marty Bonick said in a letter to physicians and employees.
  • Bauer’s ouster comes three weeks after Franklin, Tenn.-based CHS rejected a $2.4 billion offer from a buyout group that disgruntled physicians in Fort Wayne had brought forward to buy the profitable CHS division. More than 100 physicians supported the buyout effort.
  • The physicians said in an editorial Sunday that Bauer had been put in “an untenable position” by advocating for staffing and facilities improvements that were largely ignored by CHS and gave rise to the buyout effort.
  • “While this is precisely what leaders must do, it has led to Brian’s being criticized at a time when he should be praised for having the courage to say what needs to be said,” said the members of the physician group known as Fort Wayne Physicians.
  • Bauer’s removal has heightened tensions in Fort Wayne, CHS’s most-profitable market, said Dr. John Crawford, a Fort Wayne city councilman who runs an anesthesiology practice in Fort Wayne that practices at the Lutheran network hospitals, rival Parkview Health and other facilities in town.
  • “If you wanted a revolution rather than a resolution, this (Bauer’s firing) was the way to do it,” Crawford said.

(Business Wire) Frontier Communications Announces Cash Tender Offers for up to $800 Million Aggregate Maximum Consideration for Certain Series of Notes

  • Frontier Communications Corporation announced that it has commenced tender offers to purchase for cash certain series of its senior notes up to an amount such that the maximum aggregate consideration (excluding accrued interest) paid by the Company in the Tender Offers does not exceed $800,000,000, subject to the Acceptance Priority Levels and the Acceptance Sublimits.
  • The Tender Offers are intended to address maturities and reduce the Company’s current overall interest expense. The Tender Offers will be funded by the Company from borrowings under a new term loan B facility under its senior credit agreement, which the Company expects to enter into prior to the Early Settlement Date.
09 Jun 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $1.0 billion and year to date flows stand at -$2.8 billion. New issuance for the week was $6.8 billion and year to date HY is at $131 billion.

(New York Times) Trump Plans to Shift Infrastructure Funding to Cities, States and Business

  • President Trump will lay out a vision for curtailing the federal government’s funding of the nation’s infrastructure and calling upon states, cities and corporations to shoulder most of the cost of rebuilding roads, bridges, railways and waterways.
  • The federal government would make only a fractional down payment on rebuilding the nation’s aging infrastructure. Mr. Trump would rely on a combination of private industry, state and city tax money, and borrowed cash to finance the rest. It would be a departure from ambitious infrastructure programs of the past, in which the government played a major role and devoted substantial resources to paying the cost of large-scale projects.
  • “We like the template of not using taxpayer dollars to give taxpayers wins,” said Gary Cohn, director of the National Economic Council and an architect of the infrastructure plan.
  • “We want to be in the partnership business,” Mr. Cohn said. “We want to be in the facilitation business, and we’re willing to provide capital wherever necessary to help certain infrastructure along.”

(Reuters) Gold gains after disappointing U.S. jobs data

  • Gold prices rose to a near six-week high on Friday in response to disappointing U.S. non-farm payrolls data that lowered expectations for more aggressive U.S. interest rate increases.
  • Data showed that U.S. job growth slowed in May and employment gains in the prior two months were not as strong as previously reported, suggesting the labor market was losing momentum.
  • A slow recovery in the world’s biggest economy dents the likelihood for higher interest rates which benefits non-interest yielding and safe-haven gold.
  • “This is not the kind of report people had hoped for, and that has put pressure on the dollar and yields, and gold is always happy to profit from that,” Georgette Boele, commodity strategist at ABN AMRO, said.

(Bloomberg) Investors Given Black Eye on Frontier’s New $1.5 Billion Loan

  • Loan investors helped Frontier Communications Corp. raise $1.5 billion as the struggling company tries to shore up its balance sheet. Some of them are already regretting it.
  • The telecom operator’s term loan was sold and is now trading below its issue level, an unusual occurrence in a hot market where strong demand often leads to a bump in market prices after the debt has been sold. The loan was being quoted below 99 cents on the dollar. That’s less than the already discounted price of 99.5 cents it was sold at.
  • Banks typically price a loan to enable trading that results in a pop on the debt price after the deal has been allocated. In this case, JPMorgan, which led the deal, seems to have miscalculated demand for the loan that has left some investors flustered.
  • The new loan pays interest of 3.75 percentage points more than lending benchmarks.
  • Frontier has spent the past few years buying up landline telecommunications assets from Verizon Communications Inc. and AT&T Inc. to expand its revenue base. Though these deals helped double the size of the company, Frontier has been losing phone and internet subscribers to cable competitors, which has pressured sales and its stock price.
  • Its debt situation and the need for cash forced the company to cut its quarterly common dividend by 62 percent.

(Bloomberg) In T-Mobile-Sprint Talks, All-Stock Option Said to Emerge

  • If a Sprint Corp. merger with T-Mobile US Inc. happens, would-be lenders might be stuck on the sidelines.
  • In early-stage discussions between the two wireless carriers, an all-stock deal that would avoid the need for financing has emerged as a potential option, according to people familiar with the matter. Deutsche Telekom AG, the majority owner of T-Mobile, and SoftBank Group Corp., which holds about 83 percent of Sprint, still haven’t decided if they will even attempt a deal, said the people, who asked not to be identified because the negotiations are private.
  • An all-stock offer would let Deutsche Telekom avoid paying a premium for Sprint while still making a compelling proposal for investors because of the long-term upside from cost savings and competitive advantages.
  • T-Mobile has an enterprise value of more than $80 billion, compared with about $70 billion for Sprint. Such an enormous combination would typically involve billions of dollars in financing, so a stock-for-stock merger might be disappointing for Wall Street banks, which make millions of dollars from lending fees on megadeals.
  • One of the proposals that’s been informally considered would involve Sprint and T-Mobile setting an exchange ratio that would give Deutsche Telekom a slightly higher percentage of the company than SoftBank, the people said. Neither company would own more than 50 percent of the new combination.
09 Jun 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended June 7, investment grade funds posted a net inflow of $3.731bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $61.689bn. Per Bloomberg, investment grade corporate issuance for the week topped $18bn. Through the week, YTD total corporate bond issuance was $665.12bn, which is up ~3% from 2016.

Bloomberg Barclays US IG Corporate Bond Index OAS started the day on Friday 113:

  • 2017 wide/tight: 122/111
  • 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)

(WSJ) Amazon Fights Wal-Mart for Low-Income Shoppers

  • Inc. is dropping its membership price for low-income shoppers, going after a Wal-Mart Stores Inc. stronghold.
  • The online retailer giant said Tuesday that it will offer a nearly 20% segment of the U.S. population—people who obtain government assistance with cards typically used for food stamps—a $5.99 monthly Prime membership, less than the $10.99 a month or $99 annual plan for other consumers.
  • The new Prime offering takes direct aim at Wal-Mart, which counts on shoppers who receive government assistance for a large percentage of sales. Wal-Mart generated about $13 billion in sales last year from shoppers using the Supplemental Nutrition Assistance Program, or SNAP, accounting for around 18% of the money spent through the program nationwide.
  • Those customers also spend additional income while in Wal-Mart stores.
  • Amazon will require cards typically used for food stamps as an initial measure to determine participant eligibility, although they can’t yet be widely used for shopping online.

(Bloomberg) U.S. Natural Gas Heads for Weekly Gain on Hot Weather Outlook

  • Natural gas for July delivery +1.8c to $3.046 at 9:23am (Friday) on Nymex, setting pace for first weekly gain in four weeks.
  • Temperatures may above normal from West Coast to Great Lakes region June 19-23: the Weather Company
  • “A little bit of hot weather seems to be providing some support,” says Gene McGillian, manager of market research at Tradition Energy
  • The fact “that we’re basically getting ready to enter the prime months of summer cooling season might be putting some hesitation on the minds of the sellers”

(Bloomberg) From ‘King Arthur’ to ‘Mummy,’ Summer Is a Bummer in Hollywood

  • Even “Wonder Woman” may not be able to save the summer for Hollywood.
  • The acclaimed superhero movie is only the second big hit in an otherwise dismal season for the film industry, which typically counts on May to early September for about 40 percent of the year’s revenue. A rash of box-office disappointments, starting with “King Arthur: Legend of the Sword” and continuing through “Baywatch,” is likely to repeat this weekend, whenUniversal Pictures’ “The Mummy” lurches into theaters.
  • Even if the rest of this season’s films perform in line with estimates, summer 2017 is likely to just edge out 2014 — the worst summer for blockbuster films since 1976, by some measures, according to Doug Creutz, a Cowen & Co.
  • As some blockbuster films fall short, the market for smaller films is also getting squeezed, Creutz said. “Baywatch,” “Snatched” and “Diary of a Wimpy Kid: The Long Haul” underperformed his estimates by more than 50 percent. Concentration at the box office, with fewer movies sharing a majority of the spoils, has intensified.
  • The best solution for the industry is probably just to make better movies, said Wunderlich’s Harrigan. “The movie business is not a zero-sum game,” Harrigan said. “If you get good movies the box office will improve.”

(Bloomberg Intelligence) Chubb’s 9x Fixed-Charge Coverage Is Above Allstate, Hartford

  • Chubb and Travelers’ superior fixed-charge coverage, at over 9x, stems from their steady profitability and moderate leverage. Their coverage ratios are about two percentage points above Allstate and Hartford, which operate at a mid-7x level.
  • Allstate’s leverage is higher, at 23%, and its results haven’t been as steady as Chubb’s. Hartford’s profitability has suffered from weak results in its personal auto line, which it’s revamping. AIG incurred a loss in 2016 as it boosted reserves repeatedly.
  • Peer Comparison: Chubb’s leverage and fixed charge coverage ratios are in-line with Travelers and superior to the other three insurers’. Chubb is rated A3/A/A, similar to Travelers (A2/A/A+) and Allstate (A3/BBB+). AIG is rated Baa1/BBB+/BBB+ negative, and Hartford is rated Baa2/BBB+.

(Bloomberg BNA) Dow-DuPont Merger Inches Toward Finish Line With Australian OK

  • DuPont Co. and the Dow Chemical Co. are one step closer to closing their $78.5 billion merger after Australia cleared the deal on June 8, but they still face three important hurdles.
  • The deal is still being weighed by a few major merger review authorities — the U.S. Justice Department, India, and Canada. The tie-up is the first stage in a planned division of the combined Dow-DuPont business into three separate companies in agriculture, materials science, and specialty products.
  • Under the companies’ agreement, the deadline to complete the merger is Aug. 31. Dow’s Director of Public Affairs, Rachelle Schikorra, confirmed to Bloomberg BNA that companies expect the merger is on track to close in August with the intended spin-offs completed 18 months thereafter.
  • The deadline for public comment in India was April 10. Following public comment, the Competition Commission of India as a standard operating procedure asks for information from the parties and must generally reach a final determination 45 days after it receives the companies’ submissions.
  • Because the process in the U.S. and Canada is confidential, information on where the companies stand in those merger reviews is unavailable. Canada’s antitrust agency publicly announces its merger decisions on a monthly basis only, but a spokeswoman confirmed that the bureau is still reviewing the merger.
02 Jun 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: Corporate bond issuance for the week topped $25bn, which is higher than most market participants had expected in a holiday-shortened week. Through the end of this week, YTD total corporate bond issuance was $646bn+ (Source: Bloomberg).

(NYP) Cable giant Charter snubbed a buyout bid from Verizon

  • Verizon boss Lowell McAdam, his company facing slowing sales of mobile phones, made a proposal to acquire cable-TV giant Charter Communications in recent months, three sources told The Post.
  • The offer — valued at between $350 and $400 a share, and well over $100 billion, according to two of the sources familiar with the move — was rejected by Liberty Media-controlled Charter because it was too low — and because Charter was not ready to sell.
  • Verizon, whose archrival AT&T has moved to expand beyond the wireless world by buying DirecTV and Time Warner, also recently expressed interest in another Liberty Media property, Sirius XM Holdings, sources said.
  • Verizon’s interest in SiriusXM didn’t get as far as a bid, the sources said.
  • Also standing in the way of Liberty Media agreeing to a deal for any of its units is the tax implications, which would be unpalatable to its billionaire chairman John Malone, sources said.

(Business Wire) Chevron Highlights 2016 Performance and Future Plans at Annual Meeting of Stockholders

  • Chevron Corporation (NYSE: CVX) today provided an overview of the company’s 2016 operational and social performance and future growth plans for the company at its 2017 Annual Meeting of Stockholders in Midland, Texas.
  • “2016 was a transition year for Chevron and the industry,” said John Watson, chairman of the board and chief executive officer. “We took significant actions to reduce costs, limit cash consumption and protect the balance sheet. As oil prices improved, recovery in earnings was evident in the second half of the year. This progress has continued into 2017.”
  • Watson reiterated that he is confident about the company’s future. “We are well positioned with a strong portfolio and the right business model, including a profitable downstream and chemical business and an upstream portfolio of shorter cycle opportunities, highlighted by our enviable position in the Permian Basin,” said Watson. “Our long-term strength is also underpinned by projects in Kazakhstan, Australia, the deepwater Gulf of Mexico, and attractive future options in West Africa, South America, Asia and North America.”

(Fortune) State Street Takes On Wall Street’s Gender Gap

  • The financial services industry has long faced a pipeline problem in recruiting and promoting women—and its culture is one of the biggest obstacles. In the 1980s and ’90s, as asset management became a dominant branch of the economy, the sector earned a reputation as a particularly frat-house-like branch of the corporate boys’ club.
  • State Street wasn’t immune to such behavior. Since the early 1990s, 30 gender discrimination complaints have been filed against the firm at the Massachusetts Commission Against Discrimination. Most have been dismissed or settled, but a few have attracted embarrassing publicity.
  • Company veterans say such incidents were overblown in the press and involved just a few bad apples. Still, such history may be reflected in the fact that there are few women among State Street’s top leaders, most of whom began their careers at least 20 years ago. At the time, “the image of the industry was so tarnished,” notes Evelyn Murphy, former lieutenant governor of Massachusetts and founder of the WAGE Project, a campaign to end the gender pay gap. “For women who were graduating from business schools and colleges, [finance] was not an inviting place to go work.”
  • Despite the reputational troubles, ­financial services companies have largely caught up with corporate America when it comes to women in management. The problem is that women stall at the vice presidential rank. Imagine State Street’s 35,000 employees as a pyramid. At the bottom, there are roughly 17,000 associates and fund accountants, of whom 53% are women. A couple of levels up are assistant vice presidents—middle managers, essentially—and again, there’s a relatively high share of women, at 42%. But the numbers keep declining as you climb. At the top of the pyramid—senior vice presidents and above—only 27% of the positions are filled by women.
  • In 2012 the company announced its first explicit gender-parity goals. Aiming for fifty-fifty at the top right away seemed entirely unrealistic. Instead, State Street aimed for 27% women in senior management roles within three years, up from 24% at the time. They raised the target to 28% in 2015; they’re due to raise it again this year. The percentage of women at the SVP level and higher has steadily risen, and there are now three women on the firm’s 15-­person management committee, up from just one in 2010.
  • Earlier this year, State Street promoted six people to the executive vice president ranks, of whom three were women—the first time in company history that women accounted for 50% of executive-level promotions. The milestone brought Hooley satisfaction. “It’s been eight frustrating years, but I think we’re finally starting to make some traction,” he says.

(Bloomberg) American Tower Said to Explore Purchase of Spain’s Cellnex

  • American Tower Corp. is exploring a bid for Cellnex Telecom SAto expand in Europe as the Spanish tower operator’s main shareholder considers selling assets as part of a merger, according to people familiar with the matter. Cellnex surged in Madrid trading.
  • Any offer from American Tower would hinge on the successful combination of the Spanish company’s largest shareholder, Abertis Infraestructuras SA, with Atlantia SpA, the people said, asking not to be identified as the information is private. Atlantia would determine whether to sell the Abertis assets once the deal is concluded, one of the people said. The Italian company has said it expects the deal to close in the fourth quarter.
  • Cellnex shares rose 5.1 percent to $18.84 at 10:33 a.m. in Madrid on Wednesday after earlier gaining as much as 7.3 percent, the biggest intraday jump since 2015. The shares had risen about 31 percent this year through Tuesday, giving the company a market value of about 4.2 billion euros ($4.7 billion).
  • American Tower, which has a market value of about $56 billion, has yet to make a formal offer for the Spanish firm, another person said. No final agreements have been reached with any of the parties, and the discussions may not result in a deal, the people said.

(Bloomberg) The Whistleblower Behind Caterpillar’s Massive Tax Headache Could Make $600 Million

  • In the the spring of 2008, finance executives fromCaterpillar Inc. gathered for a few days of meetings in the Peoria Civic Center, a few blocks from company headquarters. Early in the proceedings, Eugene Fife, chairman of the audit committee, reminded the attendees that they cradled Caterpillar’s reputation in their hands.
  • It would take just one or two wayward stewards to wreak havoc, Fife said, even at a company as mighty as Caterpillar, the world’s largest maker of bulldozers and other construction equipment. Anyone aware of financial malfeasance or trickery was obliged to report it immediately. Later, then-Chief Executive Officer Jim Owens pressed the point, saying he slept well because he couldn’t imagine Caterpillar experiencing the sorts of ethical lapses that had doomed Enron Corp. and other companies.
  • Listening with dismay was Daniel Schlicksup, an accountant who’d been with Caterpillar for 16 years. He’d been telling his bosses that the company was engaged in an overseas tax arrangement that, by his reckoning, had helped it illegally avoid more than $1 billion in taxes. Now, as Owens spoke, Schlicksup concluded that no one had passed his warnings to the CEO. “I thought to myself, ‘Jim, it’s happening here,’  ” Schlicksup later said in sworn testimony. “ ‘You just don’t know it.’  ”
  • His missives began a chain reaction that’s still in motion. The IRS, aided by documents Schlicksup provided, concluded in 2013 that Caterpillar had employed an “abusive” tax strategy; the agency later demanded $2 billion in back taxes and penalties. In early 2014 a U.S. Senate investigative committee, with input from Schlicksup, grilled executives and concluded the company had avoided taxes on more than $8 billion in revenue.
  • Schlicksup, now 55, parted ways with Caterpillar five years ago. The company has portrayed him in court filings as a paranoid, self-righteous employee who buried his own future there. But if the IRS collects what it claims it is owed, Schlicksup might end up the best-paid whistleblower of all time, with a potential paycheck of $600 million, while Caterpillar, the 92-year-old pride of Peoria, will experience something unfamiliar: public humiliation.
  • For all its complexity, the basics are easy enough to understand: Caterpillar essentially flipped the parts profit allocation so the new Swiss entity would be credited with 85 percent of the income on those sales. The company then paid taxes on those earnings at rates ranging from 4 percent to 6 percent, as negotiated with the Swiss tax authorities.
  • Caterpillar wound up effectively keeping two sets of books. The public one attributed the bulk of parts profits to Geneva, with its puny tax rate. An internal ledger known as “accountable profits” tracked the operating income of the divisions and calculated employee bonuses accordingly, says a 2014 report on CSARL by the Senate Permanent Subcommittee on Investigations. Under former Senator Carl Levin, a Michigan Democrat, the subcommittee scrutinized tax avoidance strategies at Cat, Apple, HP, and Microsoft.
  • In court filings, Caterpillar says it took Schlicksup seriously, but he was just wrong. “Caterpillar has investigated every one of Mr. Schlicksup’s complaints and has been satisfied with the investigative process and the conclusions drawn,” the company told OSHA. “Mr. Schlicksup, however, was, and continues to be, unwilling to accept that investigations are initiated, closed, and owned by Caterpillar and that he is not entitled to know the outcomes of investigations.”
30 May 2017

Q1 2017 Investment Grade Commentary

After a very volatile end to the year in 2016, the first quarter of 2017 saw a much more benign movement in interest rates and corporate bond yields as most fixed income markets stabilized after a difficult fourth quarter. During the first quarter of 2017, Treasury yields traded within a fairly narrow, 24 bps range. The movements in Treasury yields were generally lower as the 10 Year Treasury yield began the quarter at 2.45% and ended it at 2.39%. Accompanying the lower yields in Treasuries, corporate credit spreads continued their persistent grind tighter that began in mid‐ February of 2016 and ended the quarter near the tightest levels of the past 13 months. Specifically, the A Rated Corporate credit spread tightened from 1.01% to 0.97% (down 4 basis points (bps)) and the BBB Rated Corporate credit spread tightened from 1.60% to 1.51% (down 9bps)i. When looking at the movement of interest rates and credit spreads together, the decline in Treasury yields and slightly tighter corporate credit spreads helped Investment Grade corporate bond yields end the quarter slightly lower than where they started. While both US Treasuries and Investment Grade corporate bonds both ended the quarter with lower yields, thus both achieving positive performance, Investment Grade corporate bonds outperformed Treasuries due to the tightening of credit spreads and higher coupon income collected. The Barclays US Investment Grade Corporate Index returned +1.22% for the quarter, outperforming the Barclays US Treasury 5‐10 year index return of +0.89%ii. The CAM Investment Grade Corporate Bond composite provided a gross total return of +1.37% which outperformed both of the above mentioned indices.

The beginning of the year saw robust demand for US Investment Grade corporate bonds which allowed for a record setting new issuance in the quarter. During the quarter there was $413B of new issuance across 565 issues which represented a 14% increase from Q1 2016iii. A large portion of the new issuance were bonds with 5 and 10 year maturities ‐ an area of interest for CAM. As an institutional investor who participates in the primary (new issuance) marketplace, we were able to be fairly active in Q1, which has benefits to our clients. According to CreditSights, the average yield pickup in the new issue market for 10yr Investment Grade Corporate Bonds in the first quarter was 10bps, or 0.10% in additional yield, versus comparable bonds of the same issuer in the secondary marketiv. We will continue to participate in the primary market when there are attractive opportunities in credits we like.

The first quarter was also marked by policy action by the Federal Open Market Committee (FOMC) at their March meeting. While CAM has always considered itself interest rate agnostic in its investment process, we think it makes sense to clarify what the FOMC has been doing and its effects on the yield curve as it relates to our portfolios. The FOMC sets interest rate policy for very short‐term interest rates by influencing the Federal Funds rate, the overnight lending rate between banks. One way this is done is through adjusting the reserve requirements of member banks with The Federal Reserve. The FOMC sets a target rate that is, effectively, what most think of when one hears that the Fed “raised rates” or “lowered rates”. This in no way directly affects interest rates for other, longer dated maturity bonds. Those interest rates are determined by investors’ inflation forecasts, which can be impacted by FOMC activities. So, interest rate policy indirectly affects yields on longer dated fixed income securities. It may be surprising what this impact has been since the FOMC has been hiking the target Federal Funds rate in this cycle. As an investor in the intermediate portion of the yield curve (5 – 10 year maturities), we will examine the 10 year part of the Treasury curve to analyze those interest rate movements around the recent FOMC policy actions.

The FOMC began their recent increase in monetary policy on December 16, 2015 by hiking the Federal Funds target rate by 25 bps or 0.25%v. This was their first “rate hike” in over a decade. The day they made this policy announcement the yield on the 10yr US Treasury was 2.30% (see graph)vi. The immediate effect on this yield was opposite of what most market commentators and investors thought as it began a sharp decline all the way to a low of 1.37% on July 5, 2016.

The next FOMC policy action came a year later on 12/14/16 when they announced a hike in the target rate by another 25bpsvii. At the time of this announcement the yield on the 10yr US Treasury was back up to 2.54%. The reaction to this policy move was again a decline in yield to a low on 2/24/17 of 2.31%. The FOMC’s most recent move, their third “rate hike” of 25bps saw the 10yr US Treasury yield at 2.51% which has since declined to 2.18% (as of 4/18/17)viii. In summary, since the FOMC began moving up their target range on the Federal Funds rate in December 2015 by a total of 75bps or 0.75%, the yield on the 10yr US Treasury has moved down from 2.30% to 2.18% with more downside volatility in between. We are not suggesting that this pattern will continue or that it is indicative of any future direction of interest rates. In fact if the FOMC were to begin unwinding their $4.5trillion balance sheet, as has been recently discussed by Janet Yellenix, they may directly affect this part of the yield curve by selling treasury and mortgage securities in the open market. Prior unconventional FOMC actions of quantitative easing (QE) directly affected longer term interest rates by lowering them through open market purchases of treasuries and mortgages. If any future unconventional FOMC policies were to unfold we will address those issues in future quarterly commentary or white papers available at The point is that while investors are sometimes focused on the short term noise of the FOMC policy actions, the long term outcome can be different from what one expects. In addition to this decline in yields on 10yr US Treasuries, credit spreads have tightened considerably during this time, giving a boost to the performance of US Investment Grade Corporate Bonds. During this period of FOMC policy action of “rate hikes” the total return of US Investment Grade Corporate Bonds as measured by the Barclays IG Corporate Bond index has been in excess of +7.0%x. Clearly this type of return was not expected by many when the FOMC embarked on this “rate hike” cycle, and should not be expected to continue in the future, but has rewarded those investors who stayed the course and were not led to exit corporate bonds because the FOMC was “raising rates”.

We remind our clients that corporate bond investors are compensated for two risks; interest rate risk and credit risk. The first, interest rate risk, is approximated by US Treasury yields as described above. The second, credit risk, is the remuneration for the business risk of the underlying company; this remuneration is expressed as the premium received in excess of the US Treasury yield, more commonly known as the credit spread. In our experience, investors spend a large portion of their time focusing on the risk they can’t control ‐ interest rate risk, and very little time on the risk that can be controlled – credit risk. We as a manager believe that we can provide the most value in terms of assessing credit risk. In our view, the key to earning a positive return over the long‐term
is not dependent on the path of interest rates but a function of: (1) time (a horizon of at least 5 years), (2) an upward sloping yield curve ‐ to roll down the yield curve, and (3) avoiding credit events that result in permanent impairment of capital. Following this philosophy over time can help investors to ignore the short term noise of any FOMC policy actions and focus on what is truly important.

This information is intended solely to report on investment strategies identified by Cincinnati Asset Management. Opinions and estimates offered constitute our judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. This material is not intended as an offer or solicitation to buy, hold or sell any financial instrument. Fixed income securities may be sensitive to prevailing interest rates. When rates rise the value generally declines. Past performance is not a guarantee of future results. Gross of advisory fee performance does not reflect the deduction of investment advisory fees. Our advisory fees are disclosed in Form ADV Part 2A. Accounts managed through brokerage firm programs usually will include additional fees. Returns are calculated monthly in U.S. dollars and include reinvestment of dividends and interest. The index is unmanaged and does not take into account fees, expenses, and transaction costs. It is shown for comparative purposes and is based on information generally available to the public from sources believed to be reliable. No representation is made to its accuracy or completeness.

i Barclay’s Credit Research: Daily Credit Call
ii Bloomberg Barclay’s Indices: Global Family of Indices March 2017
iii Dealogic & CreditSights, Strategy Analysis April 2017: US IG Issuance: Concessions Still Exist
iv Dealogic & CreditSights, Strategy Analysis April 2017: US IG Issuance: Concessions Still Exist
v FOMC statement dated 12/16/15
vi FRED database
vii FOMC statement dated 12/14/16
viii FOMC statement dated 3/15/17
ix Bloomberg News April 30, 2017: “Fed’s Cut in Bond Holdings May Be Messier Than Yellen Hopes” x Bloomberg Barclay’s Indices: Global Family of Indices March 2017

26 May 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$0.2 billion and year to date flows stand at -$4.3 billion. New issuance for the week was $6.0 billion and year to date HY is at $116 billion.

(Bloomberg) Clariant to Buy Huntsman for $6.4 Billion as M&A Surges

  • Clariant AG agreed to buy Huntsman Corp. in an all-stock deal valuing the U.S. company at about $6.4 billion, extending a record run in transactions in the global chemicals industry.
  • The chances another offer for Clariant emerges are “high,” given it’s the No. 1 target in the sector, a Baader Helvea analyst said in a note, adding that the planned combination with Huntsman comes across as a defensive move.
  • An agreement between Huntsman and Clariant adds to an already historic level of deals in the industry as CEOs seek to bolster tepid sales growth. Global chemical companies have more than $300 billion in M&A planned, according to a report by AT Kearney published in March. That level is more than twice the previous all-time high set at the end of 2015, according to the management consulting firm.
  • “We never felt or saw ourselves as a takeover candidate,” Clariant CEO Hariolf Kottmann said on the call. “It would be very surprising to me if there were another company who could match or even top the value we are creating by merging these two companies together or that could tell a more convincing story to the market.”

(Modern Healthcare) Trump budget proposal would slash Medicaid

  • President Donald Trump’s budget proposal reflects the same $800 billion cut to Medicaid over a decade that was in the bill which last month passed the House. The Congressional Budget Office estimates that could lead to 10 million people losing healthcare insurance over 10 years.
  • According to the Associated Press, the White House will also implement a federal order that allows states to impose work requirements on people who receive Medicaid and food stamps.
  • By cutting Medicaid, Trump is rejecting the calls of some Senate Republicans who asked him not to stop expansion of Medicaid, which funneled billions into cash-strapped states. Even the most ardent opponents of the Affordable Care Act held out their hands when the federal government offered to subsidize the cost of expanding eligibility for Medicaid.
  • “I would think that the health care bill is our best policy statement on Medicaid going forward,” said Rep. Greg Walden (R-Ore.), chairman of the House Energy and Commerce Committee, which has jurisdiction over the program.

(Bloomberg) Shale Is Just a Scapegoat for Weaker Oil Prices

  • When the Organization of the Petroleum Exporting Countries gathers in Vienna this week, members and non-OPEC oil producers are likely to extend the production cuts put in place in November as a way to shore up prices, which have been choppy this month. Whatever the final details look like, a mix of oil-bullish policy and jawboning are likely to be on the menu.
  • Oil prices have risen on trend since April 2016, but came under pressure in early May, and analysts once again pointed to U.S. shale oil production as the culprit. And while shale is a big deal, there wasn’t a major change in output that triggered the significant oil market selloff starting May 2. After all, the shale story has been playing out for some time, and oil rig counts are up around 125 percent since May 2016.
  • The focus on the supply side of the market to explain this recent selloff was misguided because this time, it was demand that engendered concerns: The April Chinese Manufacturing Caixin PMI, which was released late on May 1, fell to the slowest pace in seven months.
  • China is the critical marginal swing player for oil demand growth and consumption, and the weak Chinese manufacturing PMI — and its implications for oil demand growth — initiated the selloff in WTI crude oil prices that started with a close below a critical trendline that had been in place since April 2016. Although oil prices have risen since the early May selloff, they remain under pressure — and traders will be taking their cues from the action in Vienna this week.

(Bloomberg) MGM Said to Drop $1.3 Billion Bid for Sands Pennsylvania Casino

  • MGM Resorts International dropped its $1.3 billion bid to acquire a casino in Bethlehem, Pennsylvania, according to a person familiar with the situation.
  • The parties appeared close to a deal just weeks ago. MGM approached casino owner Las Vegas Sands Corp. in March and was performing due diligence on the property, according to the person, who asked not to be identified because the discussions were private. Sands sent a letter to employees of the casino informing them of the possible sale and halted work on an expansion.
  • It wasn’t immediately clear what derailed the sale, but lawmakers in Pennsylvania are considering legislation that would allow slot machines in bars, an expansion that has eaten into the business of traditional casinos in other states such as Illinois.
  • The deal would have allowed Las Vegas-based MGM to accelerate its expansion in the eastern U.S. through the company’s publicly traded real estate investment trust, MGM Growth Properties, which made the initial approach. Last year, MGM bought out its 50 percent partner in the Borgata casino in Atlantic City, New Jersey, and opened a resort in Maryland. Another casino is planned for Massachusetts next year.
  • Las Vegas-based Sands, the world’s largest casino company, would have parted with an asset that doesn’t fit its focus on large international meeting and convention destinations.
26 May 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: Fund flows remain positive but final data for the week is not yet available as we go to print. Issuance was strong ahead of the holiday shortened week which saw $48.775bn in investment grade corporate primary issuance. Through the end of this week, YTD total corporate bond issuance was $621.145bn. As we near the close of the week, the BofAML US Corporate IG Index is at +118 vs +117, tying the tight YTD and the tightest level since Sept. 2014, was also seen May 15-16 (Source: Bloomberg).

(Bloomberg Intelligence, CAM notes from conference call) Broad-Based Demand Fuels Toll’s Volume Gains, Prices Slip on Mix

  • Toll Brothers’ 2017 homebuilding revenue may top the midpoint of revenue guidance calling for an 11% gain. Closings are likely to skew toward the high end of the range, signaling growth of more than 20%, while average selling prices fall about 6% (driven solely by mix). Volume growth is being fueled by broad-based demand, particularly in California, where Toll will open 18 communities in 2017 as part of its 7% community count growth target. In addition, Toll’s lower-priced products should support faster turnover.
  • Regions: Toll Brothers’ homebuilding operations are divided into five regions and City Living. As of fiscal 2016, California accounted for 28% of revenue, followed by the West (18%), Mid-Atlantic (17%), South (16%), North (16%) and City Living (5%).
    • 2017 Outlook per conference call & investor presentation:
      • 9500 – 7,450 home closings (Previously 6,700-7,500)
      • ASP of $775-825k (unchanged)
      • Revenue of $5.4-6.1bn (Previously $5.19-6.19bn)
      • Community count growth similar to 2016 (unchanged)
      • Gross margins of 24.8% – 25.3% (unchanged)
      • SG&A Margin of 10.6% of revenues (unchanged)
      • JV income between $160-200mm (unchanged)

(CNET) Sports-free digital TV for $10 a month? Viacom may be trying

  • Hunting for a streaming TV option that doesn’t make you pay for ESPN? Viacom may be aiming to deliver.
  • The TV company, which owns networks like Comedy Central, MTV and Nickelodeon, is talking with rival programmers AMC and Discovery about a possible digital-TV bundle that could cost as little as $10 a month, according to a report late Monday in the New York Post.
  • Scripps, which operates channels like HGTV, is also a possible partner.
  • It would add a fresh option in the ballooning marketplace for live, online TV options. In the past year, YouTube, Hulu and DirecTV have rolled out livestreaming television subscriptions that go up against traditional cable as well as existing digital competitors like Sling TV and PlayStation Vue.
  • But Viacom’s potential bundle would be unique from all the rest in a major way: You wouldn’t be paying for the most expensive kind of TV out there, like sports on ESPN.

(PR Newswire) Vulcan Announces Agreement to Acquire Aggregates USA LLC

  • Vulcan Materials Company (NYSE:VMC), the nation’s largest producer of construction aggregates, today announced that it has reached a definitive agreement with SPO Partners to acquire its aggregates business, Aggregates USA LLC for $900 million in cash. Aggregates USA LLC operates 31 facilities serving high growth markets in Georgia, Florida, Tennessee, South Carolina and Virginia.
  • “We are pleased to have reached agreement with SPO Partners for these strategic assets, which enhance our ability to serve high growth markets throughout the southeastern U.S.,” said Vulcan’s Chairman and Chief Executive Officer Tom Hill. “With the addition of these quarries and related assets, Vulcan will be able to capitalize on continuing increases in state highway funding programs in Georgia, Florida, South Carolina, Tennessee, and Virginia, and on the continued private sector growth across the region. This transaction will provide Vulcan with long-term high quality reserves across the entire portfolio. Aggregates USA operates efficient, high productivity facilities run by strong teams, and we welcome them to our Company.”
  • The acquisition complements and expands Vulcan’s service offerings in Georgia with three granite quarries – two of which have rail capabilities extending the Company’s reach into important markets – along with 16 rail distribution yards in Georgia, South Carolina and Florida. In addition, the acquisition includes 12 limestone quarries in eastern Tennessee and southwest Virginia. Vulcan may divest several quarries in Tennessee to a third party in order to expedite the regulatory approval process.

(FitchRatings) Fitch Affirms Albemarle Corp.’s IDR at ‘BBB-‘; Outlook Revised to Positive

  • Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) of Albemarle Corp. (NYSE: ALB) at ‘BBB-‘. The Rating Outlook is revised to Positive from Stable. Albemarle’s ratings reflect its exposure to the growing lithium industry, the relative stability of its bromine and catalysts businesses, strong FCF generation and increased financial flexibility.
  • Albemarle’s credit metrics have improved considerably since the Rockwood transaction was finalized in early 2015 due primarily to strong growth in the company’s lithium business and the repayment of greater than $2 billion of debt using proceeds from several divestitures including the sale of its Chemetall business in 2016. Fitch projects Albemarle’s FFO Adjust Leverage will stay within the 2.5x-3.0x range through 2019 and forecasts strong FCF generation that should average between $150 million to 200 million on a normalized basis. Albemarle plans to spend greater than $2 billion in CapEx through 2021 with the bulk of that spending used to increase capacity in its lithium business. While Fitch projects the company should be able to comfortably self-fund these expenditures, Albemarle has also stated its intent to utilize its strengthened balance sheet to pursue acquisitions in the lithium space and return cash to its shareholders in the form of growing dividends and/or share repurchases. However, Fitch believes the company will balance such priorities against its goal of maintaining a net leverage ratio in the 2.0-2.5x range.
  • The Positive Outlook reflects Fitch’s view that Albemarle’s positive operating momentum and strengthened balance sheet paired with a demonstrated track record of adhering to a credit conscious capital allocation policy as the company pursues its strategic goals would likely lead to a positive rating action in the coming 12-18 months.