Category: Insight

21 Dec 2018


Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.8 billion and year to date flows stand at -$55.3 billion.  New issuance for the week was zero and year to date HY is at $162.5 billion, which is -41% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • Continued weakness in oil and stock markets will keep pressure on high yield bonds
  • Index yield rose to 7.92%, highest since April 12, 2016
  • Average yield on BB rated bond rose to 6.24%, highest since February 2016
  • Trading volume was slightly above average for the time of year
  • S. corporate high-yield funds posted a fifth consecutive week of outflows
  • Junk index return was -1.28% on Thursday, the fifth straight decline
  • High yield has lost 2.21% so far this month and is down 2.16% YTD
  • No new high-yield bond issues priced MTD
  • December could be first month in 10 years with no bond sales
  • Key drivers of U.S. junk bonds — low default rate, steady GDP growth, corporate cash flow, earnings — holding firm


(Bloomberg)  Community Health, Tenet Notes Slip on Judge’s Obamacare Ruling

  • Tenet Healthcare Corp. and Community Health Systems Inc. were among the biggest decliners in the high-yield market as hospitals sink after a federal judge in Texas ruled that Obamacare is unconstitutional.
  • Tenet’s 7% senior unsecured 2025 bonds slid 2.25 cents on the dollar to 94, while its 8.125% bonds due 2022 dropped 2.125 cents to 100.75, according to Trace
  • Community’s 6.25% notes due 2023 fell 1.25 cents to 92
  • The judge’s ruling brings the constitutionality question around the ACA back into the political arena which creates another “known-unknown” for healthcare investors, “especially though involved in rural hospitals operators and Medicaid managed care companies,” Mike Holland of Bloomberg Intelligence said in an interview
  • “The uncertainty around how and when this plays out will weigh on asset prices until the divided Congress comes up with a fix,” Holland said


(Bloomberg)  Charter Settles N.Y. Internet Suit for Record $174 Million

  • Charter Communications Inc. agreed to pay $174.2 million to settle consumer fraud claims by the state of New York, which accused the cable provider of ripping off customers with promises of faster internet speeds than the company knew it could possibly deliver.
  • The accord is believed to be the largest-ever payout to consumers by an internet service provider in U.S. history, New York Attorney General Barbara Underwood said in a statement Tuesday. The state claimed subscribers to the company’s premium plan received internet speeds as much as 70 percent slower than guaranteed in advertisements by Time Warner Cable, which Charter acquired in 2016 and renamed Spectrum.
  • The settlement marks another black eye for an industry that has long been ranked poorly by consumers for its lackluster customer service.
  • The pact includes $62.5 million in direct refunds to 700,000 consumers and provides about 2.2 million subscribers with more than $100 million in premium channels and streaming services, according to the attorney general’s statement. Charter also agreed to implement business reforms as part of the settlement, which will set the stage for similar marketing and business changes across the broadband industry, the attorney general’s office said.


(New York Times)  Sprint, T-Mobile Deal Gets Green Light From U.S. Regulators

  • A federal government committee and other top regulators in the United States have approved the proposed merger between T-Mobile and Sprint, paving the way for a union between the country’s third- and fourth-largest wireless operators.
  • The Committee on Foreign Investment in the United States — a body that reviews foreign investments in the United States for national security threats — the Department of Justice, the Department of Homeland Security, and the Department of Defense all agreed to the $26.5 billion deal, T-Mobile said in a statement.
  • Some investors, consumer advocates and government officials opposed the merger, claiming that the new telecommunications giant would limit customer choices and result in high prices for consumers.
  • Proponents of the deal said it would make the combined company, with about 100 million customers, a competitor that would be able to go toe-to-toe with AT&T and Verizon in the battle to dominate the next frontiers of wireless technology in the United States. John Legere, T-Mobile’s chief executive, has argued that he would “lower prices to attract new customers.”
  • The combination would still need to secure approval from the Federal Communications Commission, which has scrutinized a possible T-Mobile-Sprint merger before. In 2014, regulators at the F.C.C. rejected a proposed merger, concluding that effectively reducing the American wireless market to three major carriers from four would not be good for consumers.
  • The deal remains subject to other regulatory approvals as well. If the two companies receive those approvals, the deal is expected to close during the first half of 2019, according to T-Mobile.


(Natural Gas Intelligence)  Cheniere’s Sabine Pass LNG Train 6 Near FID as Petronas Contracts for 20-Year Supply

  • Cheniere Energy Partners LP on Tuesday said it has secured another liquefied natural gas (LNG) supply contract that may help to advance building the sixth train at the Sabine Pass export facility in Cameron Parish, LA.
  • Petronas LNG Ltd., a subsidiary of Malaysia’s state-owned Petroliam Nasional Berhad, aka Petronas, made the sale and purchase agreement (SPA) with Cheniere’s Sabine Pass Liquefaction LLC for 1.1 million metric ton/year over 20 years on a free-on-board basis.
  • The SPA is subject to a final investment decision (FID) by Cheniere to build Train 6 at the facility, which has been exporting gas overseas since 2016.
  • “Petronas is one of the largest and most experienced participants in the global LNG market, and we are pleased to have it as our newest foundation customer at Sabine Pass, supporting Train 6,” Cheniere Partners CEO Jack Fusco said.
  • “This 20-year agreement with Sabine Pass Liquefaction continues our momentum on Train 6, where early engineering, procurement, and site preparation activities have recently commenced ahead of a final investment decision.”
14 Dec 2018


CAM High Yield Market Note



Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.4 billion and year to date flows stand at -$51.5 billion. New issuance for the week was zero and year to date HY is at $162.5 billion, which is -40% over the same period last year.


(Bloomberg) High Yield Market Highlights


  • U.S. junk bond yields and spreads were flat to little changed across the risk spectrum, even as investors pulled more cash from funds.
  • Reported outflows again this week, the fourth consecutive week of outflows
  • This was the 7th outflow of over a billion dollars in the past 10 weeks
  • Junk bond returns stayed positive, while CCCs turned negative yesterday
  • Single-Bs were outperforming S&P 500, BBs and CCCs with 1.04% YTD return
  • Record withdrawals from retail funds are offset by supply shortage, as YTD volume is lowest since 2009
  • New issue market remained quiet and is expected to shut down by the end of next week ahead of the holidays
  • This would be the first month of no issuance since November 2008
  • Key drivers of U.S. junk bonds — default rate, GDP, corporate cash flow, earnings — are intact

(Washington Post) Investigation of generic ‘cartel’ expands to 300 drugs

  • Executives at more than a dozen generic-drug companies had a form of shorthand to describe how they conducted business, insider lingo worked out over steak dinners, cocktail receptions and rounds of golf.
  • The terminology reflected more than just the clubbiness of a powerful industry, according to authorities and several lawsuits. Officials from multiple states say these practices were central to illegal price-fixing schemes of massive proportion.
  • The lawsuit and related cases picked up steam last month when a federal judge ruled that more than 1 million emails, cellphone texts and other documents cited as evidence could be shared among all plaintiffs.
  • What started as an antitrust lawsuit brought by states over just two drugs in 2016 has exploded into an investigation of alleged price-fixing involving at least 16 companies and 300 drugs, Joseph Nielsen, an assistant attorney general and antitrust investigator in Connecticut who has been a leading force in the probe, said in an interview.
  • While precise estimates of alleged overcharges have not been released, generic-industry sales were about $104 billion in 2017. Excessive billings of even a small fraction of annual sales over several years would equal billions of dollars in added costs to consumers, according to investigators.
  • Generic manufacturers reject the accusations. They contend officials lack evidence of a conspiracy and have failed to prove anti-competitive behavior.
  • Among the 16 companies accused are some of the biggest names in generic manufacturing: Mylan, Teva and Dr. Reddy’s.
  • Investigators say voluminous documentation they have collected, much of it under seal and not available to the public, shows the industry to be riddled with price-fixing schemes. The plaintiffs now include 47 states. The investigators expect to unveil new details and add more defendants in coming months, which will put more pressure on executives to consider settlements.

( Aramark Tumbles as Forecast Disappoints

  • Shares of Aramark Corp. tumbled 12% Tuesday after the food, facilities management, and uniform services company provided an earnings forecast that disappointed Wall Street.
  • For fiscal years 2019-2021, the company, which held an investor day on Tuesday, forecast 2% to 4% organic growth and double-digit adjusted earnings per share growth.
  • On average over the last three years, Aramark has grown earnings per share by 31% each year. It achieved revenue growth of 8.1% over the last year.
  • The company operates in three segments: U.S. food and support services, international food and support services, and uniform and career apparel. In January, Aramark announced that it had completed the acquisition of AmeriPride Services Inc. for about $1 billion  


  • ( United Rentals FY19 Revenue Guidance Tops Views, Resumes Share Repurchase Program 
  • United Rentals, the world’s largest equipment rental company, held its biennial Investor Day in New York City on December 11, 2018, to provide an in-depth look at a range of key initiatives. The event, hosted by senior leadership for members of the investment community, focused on the company’s strategic vision, sustainable competitive advantages and emphasis on long-term value maximization.
  • The company reaffirmed its 2018 financial guidance and announced full year financial guidance for 2019.
  • Michael Kneeland, chief executive officer of United Rentals, said, “Our 2019 guidance reflects the healthy momentum we see going into year-end and our confidence that positive conditions will prevail in the coming year. Our five 2018 acquisitions have been successfully integrated, increasing the tailwinds in our gen-rent and specialty segments. We look forward to reporting our fourth quarter results on January 23.”
  • Additionally, the company announced that it will resume its $1.25 billion share repurchase program this month. The program was initiated in July 2018, with approximately $210 million of shares purchased through September
  • Additionally, the company announced that it will resume its $1.25 billion share repurchase program this month. The program was initiated in July 2018, with approximately $210 million of shares purchased through September 30, 2018. The Company subsequently paused the program on November 1, 2018 to focus on the integration of the BlueLine acquisition. The company intends to complete the program by the end of 2019.

(Bloomberg) T-Mobile-Sprint M&A On Track at FCC Despite Strong Dish Dissent

  • T-Mobile’s Sprint M&A is on track at the FCC, even though latest filing by Dish boosts its already strong case against the deal. While the combination’s level of concentration raises serious red flags and makes approval a very close call, we’re skeptical that Dish can sway a Republican-led FCC focused on 5G.
07 Dec 2018


It was another volatile week in the credit markets with wider spreads and lower rates. Through the close on Thursday evening, the Bloomberg Barclays Corporate Index was 8 basis points wider on the week while the 10yr Treasury is 9 basis points lower on the week as we go to print on Friday morning. The corporate index has now reached its widest levels year to date and is trading at an OAS of 145, its widest level since August of 2016. To put this into perspective, the index has had an average OAS of 108 over the past 12 months and 125 over the past 5 years. The long term average OAS is 133 dating back to 1988.

According to Wells Fargo, IG fund flows during the week of November 29-December 5 were +$0.5 billion. Per Wells data, YTD fund flows are +$82.665bln.

Investment grade borrowers printed a mere $4bln during a week where spreads inched wider day by day. The credit markets were also closed on Wednesday as a national day of mourning for formal President George H.W. Bush. According to Bloomberg, YTD corporate issuance has been $1.070 trillion.  Issuance is now down 11% YTD when compared to 2017 numbers.

07 Dec 2018


Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.9 billion and year to date flows stand at -$50.1 billion. New issuance for the week was $0.3 billion and year to date HY is at $162.5 billion, which is -37% over the same period last year.

(Bloomberg) High Yield Market Highlights

  • U.S. junk bonds had the worst day since February 9, with a loss 0.6 percent yesterday. CCCs led the downward spiral, with the biggest drop since February 2016.
  • CCCs return was -0.958%
  • YTD return turned negative for first time since early February
  • Yields hit a fresh 30-mo. high after biggest rise in eight months
  • CCC yields at 2 year high of 11.34% after biggest increase in two months
  • Single-B yields spiked to a 30-month high, steepest jump in eight months
  • Volatile stocks, falling Treasury yields, declining oil, rising VIX weigh on junk bonds
  • S&P 500 lost 3% in intra-day trading before rebounding to close little changed
  • VIX jumped 25% in early trading before stabilizing to close up 2.2%
  • Oil also volatile, sliding 5% intra-day amid uncertainty over OPEC’s decision on cutting supply, before recovering to close down 2.7%
  • Issuance drought continued in high yield with no issues added to calendar
  • November priced just $5.13b, slowest 11th month since 2008, least for a month since Dec. 2015
  • YTD supply is $163b, lowest since 2009

(Reuters) U.S., China agree on trade war ceasefire after Trump, Xi summit

  • China and the United States agreed to a ceasefire in their bitter trade war on Saturday after high-stakes talks in Argentina between U.S. President Donald Trump and Chinese President Xi Jinping, including no escalated tariffs on Jan. 1.
  • Trump will leave tariffs on $200 billion worth of Chinese imports at 10 percent at the beginning of the new year, agreeing to not raise them to 25 percent “at this time”, the White House said in a statement.
  • “China will agree to purchase a not yet agreed upon, but very substantial, amount of agricultural, energy, industrial, and other product from the United States to reduce the trade imbalance between our two countries,” it said.
  • “China has agreed to start purchasing agricultural product from our farmers immediately.”
  • The two leaders also agreed to immediately start talks on structural changes with respect to forced technology transfers, intellectual property protection, non-tariff barriers, cyber intrusions and cyber theft, services and agriculture, the White House said.

(Bloomberg) Qatar to Leave OPEC as Politics Finally Rupture Oil Cartel

  • Qatar said it will leave OPEC next month, a rare example of the toxic politics of the Middle East rupturing a group that had held together for decades through war and sanctions.
  • Qatar, a member since 1961, is leaving to focus on its liquefied natural gas production, Energy Minister Saad Sherida Al-Kaabi told a news conference in Doha on Monday. He didn’t mention the political backdrop to the decision: dire relations with Saudi Arabia, which has led a blockade against his country since 2017; and a rhetorical onslaught from U.S. President Donald Trump against the cartel.
  • Qatar is OPEC’s 11th-biggest oil producer, accounting for less than 2 percent of total output, so its departure may not have a significant impact on discussions this week to cut production in conjunction with allies including Russia. Yet it sets a troubling precedent for a group that prides itself on putting shared economic interests above external politics — even extreme events like the Iran-Iraq war in the 1980s or Saddam Hussein’s 1991 invasion of Kuwait.

(Business Wire) The GEO Group Signs Contract Extension for the Continued Management of the Junee Correctional Centre in Australia

  • The GEO Group, Inc. announced that its subsidiary, The GEO Group Australia Pty Ltd has signed a five-year contract extension with the State of New South Wales, Corrective Services for the continued management and expansion of the Junee Correctional Centre.
  • GEO Australia has managed the 790-bed Centre for over 25 years since its opening in 1993. The Centre is currently undergoing a 489-bed expansion project which will bring its total capacity to 1,279 beds during 2019. The five-year agreement will be effective from April 1, 2019 through March 31, 2024, with annual revenues of approximately $51 million.
  • George C. Zoley, Chairman of the Board and Chief Executive Officer of GEO, said: “We appreciate the trust placed in our company by the State of New South Wales, which is a reflection of our long-standing partnership with the Corrective Services at the Junee Correctional Centre. We are looking forward to working with the Department of Justice to further strengthen our 25-year partnership.

(CAM Note) Moody’s upgrades the debt of Diamondback Energy

  • The unsecured debt was upgraded one notch and the outlook is stable.
  • Moody’s completed a rating review that was started nearly six months ago after Diamondback announced an acquisition for Energen Corp.
  • Moody’s noted a larger Diamondback that is financially stronger and has greater capital and operational flexibility as reasons for the debt upgrade.
30 Nov 2018


Credit markets are struggling to find footing, as the Bloomberg Barclays Corporate Bond Index opened Friday at an OAS of 135 which is the widest level of 2018. Investment grade credit has drifted wider since November 8, when the index closed at an OAS of 113. The move wider in credit over that timeframe has almost entirely been offset by rates, at least for the intermediate portion of the curve, as the 10yr Treasury has moved from 3.23% to 3.01%. Note that the front end of the yield curve has flattened substantially during the month of November and the spread between the 2yr and 5yr Treasury is down to a mere 3.3 basis points as we go to print. The investment grade corporate bond market currently has little appetite for idiosyncratic risk and we are seeing that reflected in the spreads of bonds for companies under duress, like General Electric, which continues to trade wider, seemingly day after day. BBB credit too has underperformed relative to single-A credit. Since November 8, the Corporate Index is 22 wider, while the BBB-rated portion of the index is 28 wider. The A-rated portion of the index has outperformed over that time period, having moved 17 wider.

According to Wells Fargo, IG fund flows during the week of November 22-November 28 were -$3.2 billion, which was the second largest outflow YTD. Per Wells data, YTD fund flows are +$82.148bln.

The IG primary market was fairly active this week and the primary market remains open to issuers of all stripes even in the face of widening spreads. According to Bloomberg, new corporate issuance on the week was $30.325bln while issuance for the month of November topped $84bln. YTD corporate issuance has been $1.066 trillion.



(WSJ) Bond Indexes Bend Under Weight of Treasury Debt

  • The surge in U.S. government borrowing is beginning to warp bond indexes, posing a challenge for investors looking for the best returns when interest rates are rising.
  • The problem: Treasurys tend to offer investors lower yields and produce weaker returns than other kinds of bonds, such as high-quality company debt or securities backed by mortgage payments. Yet as the government steps up borrowing to fund last year’s tax cuts, index funds end up holding more Treasurys, squeezing out the securities that pay higher rates of interest.
  • The U.S. government is borrowing $129 billion this week, up 28% from the same series of note auctions a year ago. The increased borrowing means Treasurys now amount to almost 40% of the value in the leading bond market investment benchmark—the Bloomberg Barclays U.S. aggregate index—which fund managers use to gauge their success. That is up from around 20% in 2006, before the start of the financial crisis.
  • Some analysts said investors should consider the growing weight of Treasurys in indexes before purchasing mutual funds. Actively managed bond funds have performed better than their index-tracking peers recently, a trend some analysts credit to their efforts to pare back Treasury holdings. Rising rates erode the value of outstanding bonds, because newly issued debt offers higher payouts. And Federal Reserve officials have penciled in additional increases into 2020.
  • “The value from active management is going to be more important,” said Kathleen Gaffney, director of diversified fixed income at Eaton Vance , who bought dollar-denominated corporate bonds in emerging markets because U.S. corporate yields remain low by historic measures. “You’re not going to want market risk.”
  • Through the first six months of this year, active managers topped indexes in five of 14 categories including municipal bonds and short- and intermediate taxable bonds, according to data from S&P Dow Jones Indices. That is coming off a 2017 in which actively managed funds had their best year since 2012, when active managers beat passive funds in nine of 13 categories the firm then measured.
  • Should yields continue to rise, advocates of active portfolio management say investors would be better served by a human being shielding them from the parts of the bond market most likely to suffer losses versus an index which includes all bonds, without regard to their potential risks. “Most of the stuff I own’s probably not in the agg,” said Jerry Paul, who has recently purchased preferred stocks for his ICON Flexible Bond Fund, which has returned 0.3% this year, beating the Bloomberg Barclays index.
  • Many expect to persist. The Treasury Department projected to run trillion-dollar deficits for the foreseeable future. As issuance increases, funds that use the Bloomberg Barclays aggregate index as a guidepost for portfolio composition will wind up owning increasingly large amounts of Treasury debt. Independent bond analyst David Ader predicts Treasurys will make up half of the U.S. bond market and the indexes that track it by 2028.
  • Still, because many individuals invest in bond funds to protect against losses in their stock portfolios, there are advantages to indexes that reflect the constituency of bond market borrowers instead of optimizing returns, said Josh Barrickman, who manages Vanguard Group’s bond index fund. While corporate bonds, for example, offer higher yields than Treasurys, U.S. government debt tends to post high returns during periods when investors shun risk, he said.
  • The changing composition of bond market indexes can exert a powerful force over what resides within their bond mutual funds without their becoming aware of it, according to fund managers and analysts. Treasury Department data shows that the category of investors that represents mutual funds bought about one half of the $2 trillion of U.S. government notes and bonds sold at auction last year. That is up from about one-fifth of the $2.2 trillion sold in 2010.
  • As the supply of Treasury debt rises, the government will have to spend more to pay interest. Some investors say the rising supply of bonds has also helped push yields higher, which can pressure stocks by offering investors a way to get more yield with less risk.
  • “It’s going to reflect itself as a drag on the economy and on potential equity market returns,” said Craig Bishop, a bond strategist with RBC Wealth Management.
  • Should slowing growth lead business conditions to worsen, corporations have the option of borrowing less. Not so the U.S. government. Because legally mandated spending on unemployment insurance and other safety net programs tends to rise when growth slows, wider budget deficits and more Treasury debt could ensue. That means many bond investors could face conditions where there is no alternative to holding a rising share of government debt.


(Bloomberg) Salesforce Soars as Management Mutes Market Skepticism


  • Inc. rose as much as 9.5 percent Wednesday, the most since February 2016, after third-quarter sales and a top-line beat report muted some of Wall Street’s concerns about the broader demand environment. Several analysts raised their price target on the stock, including Alliance Bernstein, who believes the report should help lift software stocks. Meanwhile, Raymond James cut their bullish target as shares “aren’t immune from broader macro trends.”


(Bloomberg) Ford Digs Further Out of Trump’s Doghouse as GM Takes Its Turn


  • Ford Motor Co. and General Motors Co. both need to overhaul their U.S. manufacturing base to cope with consumers’ drastic switch to SUVs from sedans. Only one is poised to make that adjustment without ticking off the president.
  • In a significant rework of its U.S. production plans, Ford will eliminate shifts at factories in Trump country. But it plans to retain all the 1,150 workers affected by shifting their jobs to Michigan and Kentucky plants making big SUVs or supplying transmissions to pickups. That’s fortunate not only for employees, but for Ford’s relations with a touchy White House.
  • GM, on the other hand, is caught with way too much capacity to make out-of-vogue sedans, so it has little choice but to go the more painful route of shuttering factories and firing workers. Inevitable or not, the decision has infuriated Donald Trump. He’s renewed a threat to slap auto imports with 25 percent tariffs and enlisted federal agencies to look for ways to cut the carmaker’s subsidies.
  • “Ford has been in Trump’s cross-hairs before, and this should help keep them out,” said Michelle Krebs, a senior analyst with researcher Autotrader. Ford “had their time in the barrel” in 2016, when Trump lambasted its plans to move small-car production to Mexico. The company abandoned that strategy last year and canceled a new car factory it was building there.
30 Nov 2018


Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.9 billion and year to date flows stand at -$47.4 billion.  New issuance for the week was zero and year to date HY is at $162.2 billion, which is -35% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • S. junk bonds gained for the second straight session across the risk spectrum for first time in about two weeks, shrugging off outflows from retail funds. Yields dropped and spreads tightened and the energy index gained for a second consecutive session.
  • Investors also seemed to ignore steadily declining oil prices, with oil briefly dropping below $50 in intra-day trading recently
  • Energy was the worst performing sector this month as oil continued to drag and flirt with $50
  • Outflows were negative for the week, and this was the 6th time when outflows exceeded $1b in the past 10 weeks
  • Single-Bs replaced CCCs as best-performing asset YTD, with 0.86% returns vs 0.49% for CCCs
  • Bloomberg Barclays high-yield index YTD return was at 0.03%
  • November new issue was a mere $5b, lowest monthly volume since December 2015, slowest 11th month since at least 2006
  • Supply shortage expected to continue into 2019 with UBS forecasting 15%-20% drop in issuance
  • JPMorgan expects high yield supply flat in 2019 at about $200b
  • Morgan Stanley expects supply to stay around $183b
  • GS forecasts $150b in issuance next year


(Bloomberg)  Steel Dynamics Plans to Spend $1.8 Billion to Expand Output 

  • Steel Dynamics Inc., the U.S. producer of the metal that has seen record cash flow, plans to spend as much as $1.8 billion to build a new facility that will have the capacity to produce advanced high-strength steel products.
  • The electric-arc-furnace flat roll steel mill will have an annual output capacity of about 3 million tons, the Fort Wayne-based company said in a statement Monday. Construction is expected to begin in 2020 and the facility will start operating in the second half of 2021, it said. The investment is designed “to cost effectively serve not only the southern United States, but also the underserved Mexican flat roll steel market,” the company said.
  • The steelmaker announced the investment that it said will generate 600 “well-paying” positions on the same day General Motors Co. said it could shutter four factories in the U.S. by the end of 2019. In October, Steel Dynamics reported record quarterly cash flow from operations on strong domestic demand for the metal.


(Business Wire)  Western Digital Announces CFO Transition Plan

  • Western Digital Corp. today announced that Mark Long, chief financial officer, chief strategy officer and president, Western Digital Capital, has decided he will step down from his current role to pursue opportunities as a private equity investor. Western Digital has begun a comprehensive search for a successor. To ensure a smooth leadership transition, Long will remain an active member of the company’s leadership team through June 1, 2019. Long will remain chief financial officer until his departure or until a permanent successor is appointed.
  • Long has served as Western Digital’s chief financial officer since 2016. Prior to that, he served as the company’s executive vice president and chief strategy officer since February 2013. Additionally, Long has served as president, Western Digital Capital, a strategic investment fund targeting innovative companies within the data infrastructure and broader technology industry aligned to Western Digital’s strategic plan, since February 2013.
  • “On behalf of the Western Digital Board of Directors and leadership team, I want to thank Mark for his valued partnership and tremendous contributions to the company over the years,” said Steve Milligan, Western Digital chief executive officer. “Mark has been instrumental in developing and overseeing the company’s growth strategy, including our successful acquisitions and integrations of Hitachi Global Storage Technologies and SanDisk. He helped create the foundation for Western Digital’s leadership in today’s data-driven world, and we are now well positioned to capitalize on the long-term opportunities associated with rapid growth in the volume and value of data. We wish Mark the best in his future endeavors and look forward to discussing the company’s long-term vision and strategy on Dec. 4, 2018, at our 2018 Investor Day.”


(Modern Healthcare)  Most skilled-nursing facilities penalized by CMS for readmission rates

  • The vast majority of skilled nursing facilities will receive a penalty on their Medicare payments for fiscal 2019 for poor 30-day readmission rates back to hospitals, according to new CMS
  • Of the 14,959 skilled nursing facilities subject to the CMS’ Skilled Nursing Facility Value-based Purchasing Program, 73% received a penalty while 27% got a bonus. The data also show that the SNFs on average got worse at managing readmissions the longer they were in the program.
  • The penalties, which went into effect for the first time on Oct. 1, were mandated by the Protecting Access to Medicare Act of 2014 in an effort to transition SNFs from fee-for-service to value-based payment. Under the program, SNFs can see up to a 1.6% bonus in their Medicare Part A payments or up to a 2% cut.
  • The CMS has been providing SNFs quarterly confidential feedback reports since October 2016 regarding how they are doing on the readmission measure, but fiscal year 2019 was the first time the CMS penalized providers on performance.


(Bloomberg)  Leveraged Loans Hit Rough Patch

  • The U.S. leveraged loan market is showing a few cracks. A $6.5 billion loan that helped finance the leveraged buyout of a Thomson Reuters unit is quoted at around 97.25 cents on the dollar, after being sold for just shy of 100 cents. The $5.05 billion of loans for KKR’s buyout of Envision Healthcare now quoted at 96.125 cents on the dollar, around two months after being issued at 99.75 cents.
  • These debts have weakened with the broader loan market, which on average is priced at its lowest level since 2016. And there are other signs of cooling in loans too: the percentage of new deals that had to increase pricing spiked earlier this month to the highest of the year, according to data compiled by Bloomberg. Loan offerings are getting pulled at the fastest rate since July. And U.S. leveraged-loan funds are seeing some of their biggest outflows in nearly three years.
09 Nov 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

Credit spreads look to finish the week tighter, as the Bloomberg Barclays Corporate Bond Index opened Friday at an OAS of 114 after starting the week at 117. As we go to print, the 10yr Treasury sits at 3.223%, which is 1 basis point higher relative to its close a week prior.

According to Wells Fargo, IG fund flows during the week of November 1-November 7 were +$2.7 billion with short duration funds posting a record +$3.6 billion inflow. Per Wells data, YTD fund flows are +$98.796bln.

According to Bloomberg, new corporate issuance on the week was $22bln. YTD corporate issuance has been $1.011 trillion.



(Bloomberg) Oil Teeters Near Record Losing Streak After Entering Bear Market

  • Oil extended a run of declines after falling into a bear market, heading for its longest losing streak on record.
  • Futures in New York fell for a 10th day, extending a dramatic plunge that’s dragged prices down more than 20 percent from a four-year high reached in early October. In London, Brent sank to a seven-month low below $70 a barrel. The drop comes days before the Organization of Petroleum Exporting Countries meets with partners in Abu Dhabi, having signaled it may cut output next year.
  • Oil’s decline has been exacerbated by a U.S. decision to allow eight countries to continue importing from Iran, which it slapped with sanctions earlier this week. That decision, as well as pledges by Saudi Arabia and other producers to pump more and gains in American supply and stockpiles, have turned fears of a supply crunch into talk of an oversupply.

(Bloomberg) California Wildfire Quadruples in Size, and PG&E Falls


  • A wildfire in Northern California’s Sierra Nevada foothills quadrupled in size late Thursday as winds threaten to make it spread faster. The state’s largest utility, PG&E Corp., fell 10 percent in early trading.
  • The blaze near Chico has left more than 23,000 homes and businesses without power, according to PG&E’s website. Residents in several towns were evacuated. The National Weather Service warns flames will spread rapidly as high pressure across the region has parched the air and fueled gusts of up to 65 miles per hour.
  • As of 8 p.m. Thursday, the foothills fire had grown to 20,000 acres up from 5,000 earlier in the day. Two fires have broken out in Ventura County, just north of Los Angeles, consuming about 12,000 acres, and causing residents there to flee the flames.
  • PG&E is struggling to cope with losses from deadly fires last year that could cost the utility as much as $17.32 billion in liabilities, according to a JPMorgan Chase & Co. estimate. Investors are still waiting on the state’s investigation into the Tubbs fire, the deadliest of last year’s wine country fires.


(Bloomberg) Lithium Giant Staying Nimble in Fickle Car-Battery Market


  • The world’s largest lithium producer is planning to expand production in Australia, chasing the market for a form of the metal increasingly being used by the makers of electric car batteries.
  • Albemarle Corp. will halt plans to expand its lithium carbonate production in Chile, the company said on Thursday. Instead, it will plow funding into a Western Australia project that produces lithium hydroxide, a rarer form of the metal that’s growing in use and currently sells for higher prices than the carbonate form.
  • Lithium hydroxide works better with cathodes containing higher levels of nickel, helping cars go further on a single charge. Global demand for lithium overall is expected to almost triple by 2025, according to Bloomberg NEF, as carmakers such as Tesla Inc. look to boost sales of battered-powered vehicles.
  • Lithium miners, meanwhile, have struggled to meet demand, and prices for the metal have tripled in just four years.
  • “The challenge at this point in the cycle is that lithium companies must ramp their capital spending amidst a backdrop of some uncertainty around lithium pricing,” Chris Berry, a New York-based analyst and founder of research firm House Mountain Partners LLC, said by phone on Thursday. “For Albemarle to maintain its market share with such robust lithium demand growth, the company needs to execute their capacity expansion plans perfectly.”
  • Albemarle is planning to boost its overall production of lithium across its operations in Chile, China and Australia to 225,000 tons per year in 2025 from 65,000 tons in 2017, the company said in its earnings report. In just four years, lithium has gone from being Albemarle’s least important product to representing 44.5 percent of the company’s revenue in 2017.
  • On Thursday, the Charlotte, North Carolina-based company posted mixed third quarter results that sent shares down 2 percent at 4:15 p.m. to $105.57 in New York trading. Capital expenditures were up, reaching record levels, but Albemarle missed estimates for sales.



09 Nov 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.5 billion and year to date flows stand at -$39.3 billion.  New issuance for the week was $0.9 billion and year to date HY is at $159.9 billion, which is -32% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • S. junk bond spreads narrowed as fund flows turned positive, despite oil’s fall below $60 as it entered a bear market.
  • ETF inflows did accelerate
  • WTI fell for a 10th consecutive session, the longest losing streak on record
  • Bloomberg Barclays high yield energy index returns were up a tad and almost flat at close yesterday with YTD returns at 1.256% vs 1.252% on Tuesday suggesting high yield energy bonds barely budged
  • Energy yields were little changed at 7.58% at close yesterday even as oil dropped by 1.6%
  • S. high yield continued to outperform other fixed income assets with YTD return at 1.61%
  • CCCs were still the best performers YTD beating IG, BB and single-B with returns at 3.56%
  • Investment grade is down 3.58% YTD
  • There appears to be no immediate catalyst to derail junk bonds, with supply at a 10-year low and oil losing its grip
  • Low and declining corporate default rate, steady economy and improved quality of the junk bond universe boosts sentiment
  • Number of companies rated B3 with negative outlook dropped to the lowest since 2014
  • YTD high yield supply was the lowest since 2009


(KTLA)  Prop 8: California Voters Reject Measure That Would’ve Capped Dialysis Clinics’ Profits

  • California voters on Tuesday rejected a ballot measure that would have capped dialysis clinics’ profits in an effort to improve patient care.
  • Proposition 8 would have limited profits for dialysis clinics that provide vital treatment for people whose kidneys don’t work properly.
  • The measure was the most expensive initiative on the 2018 ballot in California, generating more than $130 million in campaign contributions. A health care workers union, Service Employees International Union-United Healthcare Workers West, funded the $18 million supporting campaign. Dialysis companies contributed more than $111 million to kill the initiative.
  • The union argued Proposition 8 would stop the dialysis companies from cutting corners to make money and force them to invest more of their revenue into patient care. Supporters say the profit-hungry companies don’t adequately clean clinics and overwork staff.
  • Dialysis providers say the measure was actually a tactic to pressure the dialysis companies to let workers unionize and would have forced clinics to close. They say most California clinics provide high quality care.


(Reuters)  Dish beats profit estimates, expects more subscriber losses

  • Dish Network Corp beat Wall Street estimates for quarterly profit on Wednesday, as the U.S. satellite TV provider benefited from lower programming costs due to a blackout of Univision channels.
  • Dish shed a net 367,000 satellite subscribers during the third quarter, much higher than a consensus estimate of 232,000 net customer losses, according to research firm FactSet.
  • Dish, which has been stockpiling licenses for wireless spectrum, or airwaves that carry data, said it was on track to build an Internet of Things wireless network, and it is placing antennas on towers this year.
  • The company’s streaming video service Sling TV added just 26,000 subscribers during the quarter, below analyst expectations of 71,000 additions, according to FactSet.


(Sun Sentinel)  Prison operator Geo increased revenue, profits in third quarter

  • Prison and detention center operator The Geo Group saw its third-quarter profits increase to $39.3 million, or 33 cents a share, compared with $38.5 million, or 31 cents a share, in the year-ago quarter, according to earnings released Wednesday.
  • Revenue at the Boca Raton-based company increased 3 percent in the quarter to $583.53 million, up from $566.76 million in the third quarter of 2017, Geo said.
  • Chairman and CEO George Zoley said he remains optimistic about demand for the company’s services and its outlook for “growth opportunities.”


(Business Wire)  Zayo Announces Plans to Separate into Two Public Companies

  • Zayo Group Holdings, Inc. today announced it plans to separate into two publicly traded companies: one to focus on providing core communications infrastructure and another to leverage infrastructure to provide solutions for a broad set of enterprise customers.
  • Zayo Infrastructure, “InfraCo,” will be a unique, fiber-focused infrastructure provider with deep, dense networks and broad geographic reach throughout North America and Western Europe.
  • “EnterpriseCo” will have a strong product portfolio and customer base centered on higher bandwidth connectivity to enterprise locations, including to public cloud and SaaS providers, that will be sold both directly to enterprise customers and wholesale through a carrier focused channel.
  • “Today’s announcement is the logical next step in the evolution of Zayo,” said Dan Caruso, chairman and CEO of Zayo. “While Zayo’s business today is organized as five autonomous segments, the complexities of these businesses have made it more difficult to achieve our growth objectives. By completely separating the infrastructure and enterprise businesses, we will enable more focused execution within each business, leading to enhanced growth and unlocking value.”
  • “This transaction positions InfraCo as the largest pure-play fiber-focused communications infrastructure provider and creates an opportunity for EnterpriseCo to fully focus on our extensive enterprise customer base, solution set and business model while maintaining a strategic relationship with InfraCo,” said Caruso. “As we operate independent businesses today, we anticipate the transition to be fairly straightforward.”
  • The transaction is expected to be consummated via a pro rata taxable spin of EnterpriseCo from Zayo. Zayo’s existing NOLs are expected to be available to reduce any cash taxes owed by Zayo in conjunction with the spin-off. This structure preserves the ability for InfraCo to convert to a real estate investment trust (REIT). Consummation of the spin is subject to regulatory and Board approval. Immediately following the separation transaction, which is expected to be completed in late 2019, Zayo shareholders will own shares of both companies.
06 Nov 2018

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly

It was another week of volatility in risk assets, but the tone improved throughout, and was cemented by an above-consensus monthly employment report on Friday morning. Credit spreads are at 3-month wides as the Bloomberg Barclays Corporate Index sits at an OAS of 119. As we go to print, positive economic data has sent the 10yr Treasury to its highest level of the week, at 3.17%.

According to Wells Fargo, IG fund flows during the week of October 25-October 31 were a mere $192 million. Per Wells data, this extended MTD outflows to -$7.4bln and marks the first monthly outflow for IG credit funds since January of 2016. Even still, IG fund flows remain firmly positive YTD at +$96.150bln, with short duration funds garnering the lion share of those flows.

According to Bloomberg, new corporate issuance on the week was $17.55bln. YTD corporate issuance has been $989.109bln.


(Bloomberg) General Electric Cut by Moody’s on Weakness in Power Unit

  • General Electric’s long-term and senior unsecured rating was cut to Baa1 from A2 by Moody’s as the rating agency cites “the adverse impact on GE’s cash flows from the deteriorating performance of the Power business.”
    • Impact from power business will be considerable and could last some time
    • Weaker than expected performance of power business also due to co.’s “misjudgment of financial prospects and operational missteps”
    • Outlook stable predicated on Moody’s view that co. will be able to contend with the challenges posed by its power business

(Bloomberg) California Utilities to Reach 50% Renewable Power Target in 2020


  • Three large utilities in California are ahead of schedule to hit their targets under a law requiring them to source 33 percent of their electricity from renewables by 2020, according to a California Public Utilities Commission report.
    • All three investor-owned utilities beat the state-mandated target of 27 percent for 2017
      • PG&E: 33%
      • Edison: 32%
      • Sempra: 44%
    • Renewable power contract prices, which peaked at more than $160/MWh in 2007, fell in 2017 to an average of $47/MWh, the report found
  • NOTE: Utilities are required by California law to derive 60 percent of their electricity from renewable sources by 2030


(Bloomberg) Exxon, Chevron Surprise Wall Street as Permian Boosts Results


  • Exxon Mobil Corp. and Chevron Corp. delivered their strongest third-quarter results in four years, capping a week in which Big Oil enjoyed profits not seen since the days of $100 crude.
  • Exxon shares climbed as the American supermajor appeared to emerge from years of production setbacks after failed bets on Russia and Canada that undercut its previously gold-plated reputation among investors. Chevron’s stock also pushed higher.
  • Exxon’s oil and natural gas output surpassed expectations for the first time in 10 quarters, rebounding from a decade-low reached in the second quarter. Earnings climbed 57 percent. At rival Chevron, record production combined with higher crude prices to double profit to $4 billion. Both companies cited growth in the Permian Basin of West Texas and New Mexico as key.



02 Nov 2018

CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.2 billion and year to date flows stand at -$40.9 billion.  New issuance for the week was $0.8 billion and year to date HY is at $158.9 billion, which is -31% over the same period last year. 


(Bloomberg)  High Yield Market Highlights

  • S. junk bonds appeared to be on the mend after the October tumult, with yields declining and returns rebounding across ratings yesterday. High yield is the only positive returning global fixed income segment this year, up 1.01% at the close yesterday.
  • Heightened volatility in October caused outflows from U.S. high- yield funds
  • October saw fourth biggest outflow on record with $4.93b for week ended Oct. 10
  • Investors pulled cash in three of the last five weeks in October
  • Supply drought is a dominant theme, with issuance down more than 30% year-over-year
  • Little issuance kicked off November after a slow October
  • Junk bonds are supported by low default rates, strong technicals, lack of supply, and steady GDP growth


(Bloomberg)  Junk Bonds Spooked by Worst October Since 2008 as Yields Spike 

  • October is typically a good month for high yield, but this October is on track for the biggest loss since December 2015 as equity volatility, earnings and trade worries weigh.
  • S. high yield’s 1.81 percent drop so far this month is exceeded only by the 1.87 percent decline for global high yield, making it the second-worst performer of all the main bond market indexes. October has been positive for high-yield bonds in every year since 2008, when the market tumbled almost 16 percent in the month.
  • The equity and oil slump, VIX jump and rising concerns about trade wars, Brexit and Italy all dented risk appetite in October.
  • The average yield jumped to almost 7 percent — from about 5.5 percent at the start of this year — the highest since July 2016. CCC yields crossed the 10 percent mark for the first time since Jan. 2017. This makes it more costly for lower-quality companies to raise new funds and pay down debt.
  • While junk bond yields rose and returns plummeted, there has been no panic selling. Some investors see this as a buying opportunity. Firm credit fundamentals, low default rates and a steady economy are critical factors favoring junk bonds.


(PR Newswire)  Olin Announces Third Quarter 2018 Earnings

  • Third quarter 2018 reported net income was $195.1 million, which compares to third quarter 2017 net income of $52.7 million.  Third quarter 2018 adjusted EBITDA was $398.3 million.  Third quarter 2017 adjusted EBITDA was $265.5 million.  Sales in the third quarter 2018 were $1,872.4 millioncompared to $1,554.9 million in the third quarter 2017.
  • John E. Fischer, Chairman, President and Chief Executive Officer, said, “During the third quarter, Olin achieved the highest adjusted EBITDA level since the acquisition of the DowDuPont Chlorine Products businesses.  Olin benefited from strong operating performances by both the Chlor Alkali Products and Vinyls and Epoxy businesses as well as improved chlorine, ethylene dichloride, and other chlorine-derivatives pricing.  We also made significant progress on our de-leveraging initiatives, repaying $170 millionduring the third quarter, thereby reducing debt by $250 million during the first nine months of 2018.
  • We now believe full year 2018 adjusted EBITDA will be approximately $1.26 billionwith upside opportunities and downside risks of approximately 2%. This reflects higher than previously anticipated ethylene costs, resulting from increased ethane prices, of approximately $25 million, lower expected caustic soda pricing of approximately $45 million, and lower Winchester results due to decreased commercial ammunition demand of approximately $15 million. “
  • Despite near-term declines in caustic soda prices, Olin continues to believe that the long-term supply and demand fundamentals for caustic soda remain positive.  Long-term caustic soda demand growth from alumina, pulp and paper and inorganic chemicals is forecast to exceed long-term chlorine growth from PVC, water treatment, urethanes and refrigerants.  The combination of steady global demand growth, chlor alkali capacity reductions in North America, Europeand China over the last two years, and minimal capacity additions support a favorable caustic soda outlook.  Olin expects continued improvement in caustic soda pricing during the next several years.


(Modern Healthcare)  HCA posts strong revenue, earnings in Q3 

  • The Nashville, Tenn.-based company’s revenue jumped 7.1% to $11.5 billion during the third quarter of 2018, which ended Sept. 30, compared with $10.7 billion during the same period in 2017. Net income attributable to HCA grew 78% year over year to $759 million, from $426 million during the same period in 2017.
  • HCA’s earnings before interest, taxes, depreciation and amortization totaled about $2 billion during the quarter, compared to $1.8 billion during the same period in 2017.
  • The company’s same-facility admissions grew 3.1% during the third quarter of 2018 year over year, while same-facility emergency room visits declined 0.4% during that time. Same-facility inpatient surgeries increased 1.6% year over year, and same-facility outpatient surgeries increased 4.2% during that period.
  • HCA’s Chief Operating Officer Sam Hazen said on the earnings call that the third quarter of 2018 marked 18 consecutive quarters in which HCA has grown its same-facility admissions. He also noted that 12 of the company’s 14 divisions saw growth in both admissions and adjusted admissions.
  • Considering macro trends in HCA’s markets, the company’s growth plan, market-share gains and its experienced management team, Hazen said he expects the earnings growth rate in 2019 to be within the range of the company’s 2018 guidance for its full-year EBITDA growth rate of roughly 7%.