Category: Insight

19 May 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $0.4 billion and year to date flows stand at -$4.1 billion. New issuance for the week was $2.4 billion and year to date HY is at $110 billion.

(Reuters) Oil rises after Saudi and Russia back longer supply cut

  • Oil jumped more than 2 percent to its highest in more than three weeks, topping $52 a barrel after Saudi Arabia and Russia said that supply cuts need to last into 2018, a step toward extending an OPEC-led deal to support prices for longer than first agreed.
  • Energy ministers from the world’s two top producers said that supply cuts should be prolonged for nine months, until March 2018. That is longer than the optional six-month extension specified in the deal.
  • Oil traders were surprised by the strong wording of the announcement, though it remained to be seen whether all countries participating in the deal would agree with the Saudi-Russian stance. Some analysts said that U.S. production could still threaten to disrupt the market balance unless the cuts were deepened.

(Globe Newswire) Avis Budget Group Announces Resignation of David Wyshner, President and CFO

  • Avis Budget Group, Inc. (NASDAQ:CAR) today announced the resignation of David B. Wyshner, President and Chief Financial Officer. Mr. Wyshner, who has served as the Company’s chief financial officer since 2006 and its president since January 2016, will leave the Company in June to pursue other opportunities.
  • “During his tenure at the Company, David consistently delivered results, and was instrumental in growing our global footprint and deploying our cash flow to enhance shareholder value,” said Larry De Shon, Avis Budget Group Chief Executive Officer. “We thank David for the work he has done and his dedication to our Company, which have positively impacted our strategies and contributed to our success, and wish him all the best in the future.”
  • “I am proud of what the Company has done to drive its evolution as a leading global player in its industry,” said Mr. Wyshner. “I look forward to moving on to new opportunities. At the same time, I am immensely grateful for the opportunity to have played a role in Avis Budget Group’s development and to have worked with so many talented colleagues.”
  • The Company intends to appoint Martyn Smith, who previously served as finance director of the Company’s Avis Budget EMEA subsidiary and of Avis Europe plc, to serve as interim chief financial officer and is conducting a search to fill the CFO position on a permanent basis.

(Business Wire) Thomas J. Aaron Named Chief Financial Officer of Community Health Systems

  • Aaron joined Community Health Systems in November 2016 following a 32-year career at Deloitte & Touche LLP where he retired as Tennessee Managing Partner. He led teams for many of the firm’s largest national healthcare provider and payer clients, including Community Health Systems, most recently in 2013.
  • Aaron succeeds W. Larry Cash, who retired May 16, 2017, after 20 years of service as the Company’s Chief Financial Officer.

(Benzinga) Signs A Sprint, T-Mobile Tie-Up Is Gaining Momentum

  • A long awaited Sprint Corp merger may be closer to completion than previously anticipated.
  • Sprint’s parent company SoftBank may be starting informal deal discussions with Deutsche Telekom, T-Mobile’s parent company, according to several recent press reports.
  • Softbank Group CEO Masayoshi Son previously stated that the preferred option of a Sprint merger was with T-Mobile.
  • According to Barclays’ analyst Amir Rozwadowski, the deal will ultimately come down to whether both parent companies can close a complicated and wide bid-ask spread.
  • Based on recent Barclays’ meetings with company management, T-Mobile has expressed it wants clear operational ownership in order to make sure a potential deal does not disrupt its three-year growth plan.
  • Rozwadowski believes Softbank is more flexible to get the deal done, especially after expressing a clear preference for a deal with T-Mobile. “We believe core considerations for Sprint would include value attribution to its expected margin expansion/and cash flow improvement, and significant 2.5 GHz spectrum holdings. Given its admission that it would be a willing buyer or seller, we believe the company seems more flexible on ownership structure.”

(The Hill) Sinclair deal puts heat on FCC

  • The proposed acquisition by Sinclair Broadcasting Group of Tribune Media Company is inflaming criticism of the Federal Communications Commission (FCC), which helped pave the way for the deal by relaxing media ownership restrictions.
  • Sinclair announced earlier this month that it had reached an agreement to buy Tribune for $3.9 billion. The announcement came several weeks after the FCC voted to ease restrictions on the amount of local television stations that broadcasters can own.
  • Broadcasters are now limited to serving 39 percent of the country’s households. Last month, the FCC reinstated what’s known as the UHF discount, which makes stations that used to broadcast on ultra-high frequency count less toward the 39 percent ownership limit.
  • Without the discount, Sinclair already reaches 38 percent of U.S. households, according to an analysis from Fitch Ratings. Once the discount goes into effect, the Fitch study finds, Sinclair’s share will drop to 25 percent — giving the company more room to buy local television stations.
  • The deal with Tribune is still likely to push Sinclair over the media limit, and the company has said that it will explore ways to avoid exceeding the cap.
12 May 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$1.6 billion and year to date flows stand at -$2.4 billion. New issuance for the week was $7.1 billion and year to date HY is at $108 billion.

(Variety) AMC Entertainment Quarterly Revenues Beat Estimates, but Buying Spree Takes Bite Out of Profits

  • Earnings at the world’s largest exhibition chain fell more than 70% to $8.4 million, which the company attributed to costs associated with its purchase of Odeon Cinemas Group and Carmike Cinemas, two deals that expanded its presence in Europe and the United States. Revenue for the three-month period ending in March rose 67.6% to $1.28 billion. Analysts had projected that the company would do $1.25 billion in sales.
  • Excluding merger and acquisition costs, AMC said its net earnings increased 7.5% to $34.6 million. Box office hits such as “Beauty and the Beast” and “Logan” helped goose attendance at the chain, with admissions revenues climbing nearly 70% to $817.3 million. AMC has invested heavily in updating its menu and moving beyond popcorn and soda. It has added alcoholic beverages and more inventive snacks at many locations. The strategy appears to be working — food and beverage revenues at the chain rose 63% to $397.9 million.
  • In a statement, AMC CEO Adam Aron said the company will continue to invest in sprucing up its food offerings and in outfitting theaters with recliner seats. He also predicted that the theater chain’s acquisitions would result in certain cost synergies.
  • “We are only just beginning to unlock the growth potential of our recent acquisitions,” Aron said. “The initial integration efforts of creating a transformed AMC have been done quickly and have been very smooth.”

(CNBC) Mortgage applications rise 2% as more buyers hit the spring market

  • Total mortgage application volume increased 2.4 percent on a seasonally adjusted basis last week from the previous week. Volume is still nearly 14 percent below year-ago levels because of weaker refinancing, according to the Mortgage Bankers Association .
  • Even as buyers complain of high home prices and limited listings, mortgage applications to purchase a home gained 2 percent for the week and are 6 percent higher than a year ago.
  • “Continuing strength in the job market and improving consumer confidence drove overall purchase applications to increase last week,” said MBA economist Joel Kan. “The index for purchase applications reached its highest level since the beginning of October 2015, which was the week prior to the implementation of the federal government’s ‘know before you owe’ rule.”

(Business Wire) AES Reports First Quarter 2017 Financial Results; Reaffirms 2017 Guidance and Long-Term Expectations

  • AES reported financial results for the three months ended March 31, 2017. Compared with last year, these results primarily reflect higher margins at the Company’s: Mexico, Central America and the Caribbean (MCAC) Strategic Business Unit (SBU). The positive contributions were partially offset by lower margins at the Company’s Europe SBU, due to the restructuring of the Power Purchase Agreement at Maritza in Bulgaria in the second quarter of 2016.
  • Consolidated Net Cash Provided by Operating Activities for the first quarter of 2017 was $703 million, an increase of $63 million compared to the first quarter of 2016. The increase was primarily driven by higher margins, as well as lower tax. First quarter 2017 Consolidated Free Cash Flow increased $56 million to $546 million compared to the first quarter of 2016.
  • “During the first quarter we made meaningful progress on our objectives for 2017, including restructuring our 531 MW Alto Maipo hydroelectric project in Chile, prepaying $300 million in Parent debt and reshaping our portfolio by exiting 3.7 GW of merchant coal-fired generation in Kazakhstan and Ohio,” said Andrés Gluski, AES President and Chief Executive Officer. “We secured final permits for our 1.4 GW Southland repowering project in California and agreed to acquire 386 MW of wind generation in Brazil. Along with our 3.4 GW currently under construction and expected to come on-line through 2019, we expect these projects to be significant contributors to our future growth.”
  • “Based on our first quarter results and our future outlook, we are reaffirming our 2017 guidance for all metrics, as well as our 8% to 10% average annual growth rate through 2020,” said Tom O’Flynn, AES Executive Vice President and Chief Financial Officer. “Our strong cash flow and continued Parent debt paydown keep us on track to achieve investment grade credit statistics.”

(Houston Business Journal) Calpine Corp. reportedly considers selling itself

  • People familiar with the matter told the Wall Street Journal that the company is working with investment bankers at Lazard Ltd. (NYSE: LAZ). A variety of private equity firms have expressed interest in Calpine, per the WSJ. However, the process is in the early stages, and there’s no guarantee a deal will be reached.
05 May 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended May 3, investment grade funds posted a net inflow of $1.051bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $49.087bn. Per Bloomberg, with one deal pending on Friday morning, investment grade corporate issuance for the week is expected to come in at $37.525bn, while YTD volume has now topped $514bn. IG corporate bond issuance is now up 5% year over year.

(Bloomberg) U.S. Job Gains Rebound; Unemployment Falls to Pre-Crisis Low

  • U.S. payroll gains rebounded in April by more than forecast and the jobless rate unexpectedly fell to 4.4 percent, signaling that the labor market remains healthy and should support continued increases in consumer spending.
  • The 211,000 increase followed a 79,000 advance in March that was lower than previously estimated, a Labor Department report showed Friday. The median forecast in a Bloomberg survey of economists called for a 190,000 gain. While the unemployment rate is now the lowest since May 2007, wages were a soft spot in the report, climbing 2.5 percent from a year earlier.
  • The brighter figures follow a weaker-than-expected reading in March, when payrolls were partly depressed by a snowstorm that slammed the Northeast during the survey week. Strengthening business sentiment might be translating into hiring, and the data should keep Federal Reserve policy makers on track to raise interest rates in the coming months after officials declared the first-quarter slowdown to be temporary.

(Fitch Ratings) Fitch Rates Eli Lilly’s Notes Offering ‘A’; Outlook Stable

  • Fitch Ratings has assigned an ‘A’ rating to Eli Lilly & Co. Inc.’s (Lilly) senior unsecured notes offering. The company intends to use the net proceeds for general corporate purposes including the refinancing of existing borrowings. The Rating Outlook is Stable. Lilly had roughly $10.2 billion of debt outstanding at March 31, 2017.
    • –Lilly is facing increasing but relatively manageable patent expiries, with roughly 26% of total sales at risk through 2019, excluding Alimta. Nearly 30% of those sales comes from Forteo, a biologic, which is expected to experience relatively lesser sales decline than a traditional small molecule drug once its patent expires in December 2018.
    • –Fitch expects Lilly will generate low- to mid-single-digit organic revenue growth during 2017-2019 with the patent expiries offset by continued strength in established and new products.
    • –Lilly needs to rebuild its late-stage pipeline following recent approvals and a few setbacks in development. We think this is achievable through advancing mid-stage development candidates and rolling in acquired/partnered products.
    • –Lilly’s leaner cost structure and improving product sales mix should support margin expansion in 2017.
    • –Fitch forecasts that Lilly will generate solid free cash flow of $1 billion (FCF; cash flow from operations minus capital expenditures and dividend payments) in 2017.
    • –The ‘A’ rating incorporates moderate share repurchases, targeted acquisitions and incremental dividend increases through the forecast period.

(TheStreet) Apple Can Return $300 Billion to Shareholders Even Without a Tax Holiday

  • As a sign of Apple’s “strong confidence in our future,” CEO Tim Cook pledged to boost its capital returns to shareholders through March 2019 from the previously-announced $250 billion to $300 billion, during the company’s first-quarter earnings call after the close Tuesday.
  • Apple reported $256.8 billion in cash and equivalents in the quarter, with $239.6 billion of it outside the U.S.
  • “With Apple’s cash pile growing to over $250 billion, questions regarding repatriation tax policies and buybacks return,” said Moody’s Investors Service analyst Gerald Granovsky in an emailed statement about Apple’s cash dilemma. “Expansion of the shareholder return program by $50 billion puts more pressure on the company to raise debt absent repatriation.”
  • For Apple and other blue chip tech companies, paying low single-digit interest on debt to fund moves is much cheaper than repatriating cash at a 35% corporate tax rate.
  • The company has increased its leverage in recent years to cover shareholder returns and other expenses, even as its cash balance has topped a quarter of a trillion dollars.
  • Apple issued $11 billion in debt during the second fiscal quarter, and reported long-term debt of $84.5 billion. The growth in debt over the last half decade is noteworthy. In the second fiscal quarter of 2015, Apple’s long term debt was $40.1 billion — less than half its current total. In the second fiscal quarter of 2013, according to FactSet, Apple had no long-term debt.
  • President Trump supports a 15% corporate tax rate, and Secretary of the Treasury Steven Mnuchin said in late April that the administration is in talks on a proposal. “We’re working with the House and Senate on that, but I will say it will be a very competitive rate that will bring back trillions of dollars,” Mnuchin said at a White House briefing.

(WSJ) Southern Seeks $3.7 Billion From Toshiba for Georgia Nuclear Plant

  • The chief executive of Southern Co. SO on Wednesday said the utility will need $3.7 billion and cooperation from Toshiba Corp. to complete a nuclear power plant in Georgia that was being built by bankrupt Toshiba unit Westinghouse Electric Co.
  • But even if it obtains those commitments, Southern isn’t sure it can finish the half-built Georgia reactors, Thomas A. Fanning, Southern’s chairman and chief executive, said in an interview with The Wall Street Journal.
  • “We are working with Toshiba to receive complete assurance as to the $3.7 billion guarantee that they owe us, whether we finish the project or not,” said Mr. Fanning.
  • Toshiba has said it has about 650 billion yen ($5.8 billion) in parent-company guarantees made on Westinghouse’s behalf, including guarantees to make payments that would be required if Westinghouse can’t complete the nuclear-reactor projects. Toshiba has said it plans to take write-downs to account for these guarantees when it reports results for the year ended March 2017. It hasn’t released those results yet but says it is likely to report a net loss of about ¥1 trillion for that year.

(Conference Call, CAM Notes) Union Pacific 2017Q1 Recap

  • Union Pacific reported results that beat consensus estimates across the board. The operating environment saw an improvement this quarter as Agricultural products, Coal, Industrial Products, and Intermodal saw positive volume with Coal seeing a 16% increase in carloads over Q1 2016. With these improved results and expected U.S. growth, 2017 is shaping up to be a better year than 2016; however, many of the industries showing strength are vulnerable to market conditions. UNP is expecting single digit volume growth, pricing slightly above inflation, and productivity savings of $350-400mm to help lead the company to a solid year (unchanged). Politically, the company could see a significant boast by a lowering of the corporate tax rate as railroads tend to be among the largest tax payers, and they have a possible headwind if the US were to withdraw from NAFTA.
  • The company reiterated their “less than 2.0x” leverage target. With dividends and share repurchases outpacing FCF, UNP is expecting EBITDA growth to help them remain below this target.

(Bloomberg) Pay-TV Users Are Bailing Faster Than Ever, Clouding Media Stocks

  • U.S. cable and satellite-TV providers suffered their worst first quarter of subscriber losses in history, raising fresh concerns that cord-cutting will accelerate and drag down media stocks.
  • Charter Communications Inc., Dish Network Corp., AT&T Inc.’s DirecTV and Verizon Communications Inc. combined to lose almost half a million video subscribers in the period, as more consumers spurned the cost and clutter of traditional pay-TV packages for cheaper online alternatives. Only Comcast Corp. added customers.
  • The results indicate that consumers may be growing more aware of on-demand streaming services like Netflix and Amazon and the increased depth their content offerings — and that may be spurring more cord-cutting in 2017. Major pay-TV operators lost 1.4 million subscribers last year, according to Bloomberg Intelligence.
  • Consumers are also getting more knowledgeable about online live-TV services as well. At least a half dozen companies, including Hulu, AT&T, Dish, Sony Corp. and Google’s YouTube are convinced they can lure people back to live TV packages by offering a slimmer selection of channels at a lower cost than the average cable package. They’ve also all tried to improve upon the presentation of on-demand programs.
  • At Charter, which has been busy working to integrate the acquisitions of Time Warner Cable and Bright House Networks, executives are seeing a shift in market share from satellite providers DirecTV to Dish to cable operators, according to Chief Executive Officer Tom Rutledge.
  • “There is a general decline in the marketplace that is mostly price-driven, and I think that those trends are unlikely to change in the near term but not to particularly accelerate,” Rutledge said on a conference call Tuesday. Shares of Charter fell as much as 3.2 percent to $333.20 in New York Tuesday, the biggest intraday decline in three months.
  • The Stamford, Connecticut-based company, backed by billionaire John Malone, is expected to rebound as customers sign up for new packages at new prices. Rutledge also said he’s confident that Charter can also differentiate its service offerings from over-the-top video providers that have become so popular with consumers.
  • “None of them have a product that is better than ours that we can see in the marketplace,” said Rutledge. “So, we expect to succeed in the marketplace going forward.”
  • One bright spot for Charter in the first quarter was its internet business. After all, to subscribe to online video services that have become increasingly popular around the world, you need fast a broadband connection.
  • The company added 428,000 residential internet subscribers in the quarter on a pro forma basis, compared with 520,000 a year earlier. Three analysts surveyed by Bloomberg predicted a gain of 388,000 customers, on average.
  • The company is also planning to integrate Netflix Inc.’s service into its user interface and is in talks with YouTube to do the same, just as Comcast has done recently.

(Bloomberg) Here’s Why Skinny TV is Still an Experiment for Companies

  • Companies like Dish Network Corp., Sling TV LLC, AT&T Inc., YouTube and Verizon Communications Inc. have been trying to pull together “skinny” cable packages that would charge a reasonable price for just the channels customers really watch, without all the niche programming. Hulu LLC is the latest to offer a “skinny” package, unveiling plans for a $40-a-month service, Hulu with Live TV, on Wednesday. That makes at least seven contenders on the market or planning to enter, but providers are still trying to figure out how to streamline their offerings while making a profit.
  • Take AT&T’s DirecTV Now package, introduced late last year and starting at $35 a month. The basic package, called “Live a Little,” features 19 television networks that regularly average at least 1 million viewers—a pretty big audience on cable. Network owners traditionally charge distributors a monthly fee for each subscriber—depending on the size and demographics of their audiences. If you added up the monthly charges for those 19 networks, you’d get $23 a month, according to estimates from JPMorgan Chase & Co.
  • So AT&T should be able to make a pretty good profit with a $35 subscription, right? Wrong. An additional $11 a month goes to pay for 33 more channels that you may or may not want but that network owners push distributors to include in the bundle. If AT&T wants to offer Walt Disney Co.’s ESPN in its streaming package, Disney offers discounts to ensure it also buys the streaming rights for ESPN2, Disney XD and Disney Junior. The list of channels start to pile up pretty quickly.
  • When you add that $11 to the $23 AT&T pays for more popular channels, AT&T walks away with less than $1 in profit. This puts companies that want to offer a “skinny bundle” in a bind. Raise prices much more than $35 and their streaming services won’t be that competitive against traditional cable. On the other hand, if they leave out some networks to pad profits or cut prices, they may not be as attractive to viewers who want to be able to watch ESPN, TNT, FX and HGTV. DirecTV Now made one big sacrifice, introducing its service without CBS—the most-watched network—after failing to come to terms on a price.
  • That’s why companies continue to tinker with new “skinny” bundle packages. The right channels at the right price point make a big difference to the bottom line.
05 May 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$0.3 billion and year to date flows stand at -$0.8 billion. New issuance for the week was $3.9 billion and year to date HY is at $101 billion.

(New York Post) Almost 500K drop pay TV in Q1

  • Almost half a million subscribers stopped paying for cable, satellite and other pay TV formats in the first quarter
  • Charter Communications, which is integrating Time Warner Cable and Bright House Networks, lost 100,000 TV subscribers in the first quarter, on top of 105,000 in the prior quarter.
  • Charter, backed by John Malone’s Liberty Broadband, has said new pricing has led to customer departures, though it added 428,000 broadband subscribers.
  • The picture at Charlie Ergen’s satellite service Dish is even bleaker. The satellite provider lost 143,000 TV subscribers versus Street estimates for a loss of 72,000.
  • AT&T, which operates DirecTV and U-Verse, said its satellite TV service DirecTV was flat, while its U-Verse service lost 233,000.
  • Only Comcast managed to eke out subscriber growth, adding 32,000 TV accounts.

(Business Wire) Frontier Communications Reports 2017 First Quarter Results

  • Frontier Communications Corporation reported its first quarter 2017 results, and announced that the Board of Directors has revised the Company’s capital allocation strategy, which includes a reduction in the quarterly dividend to $0.04 per share, to enhance financial flexibility and achieve a targeted leverage ratio of 3.5x by year-end 2021, down from the current ratio of 4.39x.
  • Dan McCarthy, President and CEO, stated, “During the quarter, we continued to realize our targeted efficiencies and synergies, and I am also pleased to have achieved our third consecutive quarter of improved FiOS gross additions in the California, Texas and Florida (CTF) markets. We are executing on a number of initiatives with the goal of enhancing customer experience, reducing churn, stabilizing revenues and generating cash flow.
  • “Our Board regularly reviews the Company’s long-term capital allocation strategy, and it has determined to reduce the dividend at this time to provide additional financial flexibility, while still returning a meaningful cash dividend to shareholders. As we continue to execute on our strategy to deliver on the full potential of our strong assets and generate additional cash flow, we will optimize our capital allocation to ensure we strike a balance between investing in the business, paying down debt and returning capital to shareholders,” said McCarthy.

(Business Wire) Community Health Systems, Inc. Announces First Quarter 2017 Results

  • Net operating revenues for the three months ended March 31, 2017, totaled $4.486 billion, a 10.3 percent decrease, compared with $4.999 billion for the same period in 2016.
  • During the three months ended March 31, 2017, the Company recorded a non-cash expense totaling $250 million related to impairment charges to reduce the value of long-lived assets, primarily allocated goodwill, at hospitals that the Company has identified for sale. The impairment charges do not have an impact on the calculation of the Company’s financial covenants under the Company’s Credit Facility.
  • Commenting on the results, Wayne T. Smith, chairman and chief executive officer of Community Health Systems, Inc., said, “We continue to make good progress on our strategic and operational initiatives, and we are pleased to see these efforts reflected in our first quarter results. We are focused on performance improvements that we believe will yield additional efficiencies as we move through 2017. At the same time, we are making progress with our portfolio rationalization strategy as we work to create a stronger, more sustainable company for the future and further reduce our debt.”

(Globe Newswire) Avis Budget Group Reports First Quarter 2017 Results

  • For the quarter, the Company reported revenue of $1.8 billion and a net loss of $107 million, or $1.25 per share. The Company reported an Adjusted EBITDA loss of $27 million and an adjusted net loss of $81 million, or $0.94 per diluted share, in the quarter.
  • “Our first quarter results reflect higher-than-expected fleet costs, continued pricing pressures and a shift of Easter traffic to the second quarter,” said Larry De Shon, Avis Budget Group Chief Executive Officer. “We have taken meaningful actions to reduce costs by more than $50 million to mitigate the effects of weak vehicle residual values. We are optimistic that our results will be stronger over the balance of the year as used-car values began to improve near the end of the quarter and our strategic initiatives continue to gain momentum.”
  • Revenue declined 2% in first quarter 2017 primarily due to a 5% decline in pricing partially offset by a 3% increase in rental days. Our first quarter net loss was $107 million, and our Adjusted EBITDA loss was $27 million. Results were impacted by lower pricing and higher per-unit fleet costs in the Americas, and by the shift in Easter from March last year to April this year.

(Business Wire) The GEO Group Reports First Quarter 2017 Results

  • GEO reported first quarter 2017 Normalized Funds From Operations of $58.1 million compared to $48.7 million for the first quarter 2016. GEO reported first quarter 2017 Net Operating Income of $142.4 million compared to $136.3 million for the first quarter 2016.
  • George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “We are pleased with our strong first quarter results, which were driven by robust financial and operational performance across our diversified platform of real estate, management and programmatic services. Our diversified platform has allowed us to provide cost-effective, high quality services for our government partners while delivering industry-leading, evidence-based rehabilitation programs to the men and women who have been entrusted to our care. We’re also pleased to have been able to confirm our split-adjusted Normalized FFO and AFFO guidance for the full-year despite our recent equity offering of 10.4 million split-adjusted shares in March of this year. We remain focused on expanding the delivery of our services and programs and on the effective allocation of capital to continue to enhance value for our shareholders.”
  • GEO reported total revenues for the first quarter 2017 of $550.6 million up from $510.2 million for the first quarter 2016. First quarter 2017 revenues reflect $57.2 million in construction revenues associated with the development of the 1,300-bed Ravenhall Facility in Australia compared to $40.8 million in construction revenues for the first quarter 2016.
28 Apr 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $0.8 billion and year to date flows stand at -$0.5 billion. New issuance for the week was $4.2 billion and year to date HY is at $97 billion.

(Modern Healthcare) Some hospitals want to end mandatory bundled pay programs

  • Several hospitals have called on the CMS to turn bundled-payment initiatives for cardiac and orthopedic care into voluntary programs, as they don’t have the financial resources to invest in the changes.
  • The bundled-payment initiatives pose a serious hardship for safety net hospitals that rely mostly on the Medicare, Medicaid and disproportionate-share hospital payments, according to the Greater New York Hospital Association.
  • “Medicare and Medicaid rates no longer cover an adequate level of operating and capital costs, and the resulting lack of margins for safety net hospitals does not allow for capital investment,” the trade group said in an April 19 comment letter.
  • Pennsylvania-based Geisinger Health System said it is against making the models voluntary, as some hospitals may game the system by selectively referring or transferring complex patients to providers not participating in the model.
  • The American Hospital Association said it supported the models’ overall goal to make providers more accountable for coordinating patients’ care. However, it has voiced concerns in the past over the CMS’ pace of rolling out the models. The AHA supports an implementation delay through Jan. 1, 2018. However, the agency should not delay the models beyond that, the group said.


  • “Reflecting our increased business investment over the past few years and the ongoing execution of our Value Creation strategy, PulteGroup delivered another quarter of significant operating and financial gains that drove a 17% increase in earnings to $0.28 per share,” said Ryan Marshall, President and CEO of PulteGroup. “Consistent with our focus on delivering superior returns over the housing cycle, we continue to realize strong operating margins, improve our asset efficiency and return excess funds to our shareholders.”
  • “Buyer interest during the spring selling season of 2017 has been high and points to the ongoing strength in recovery for the housing industry,” added Marshall. “Strong buyer demand continues to be supported by an improving economy and resulting employment and wage gains, high consumer confidence, a low inventory of new and existing homes, and the powerful demographic forces of Millennials and Baby Boomers. Given the strength of our land pipeline and our disciplined investment practices, PulteGroup is well positioned to grow its market presence and improve its financial performance within this operating environment.”
  • Home sale revenues for the first quarter totaled $1.6 billion, an increase of 14% over the prior year. Higher revenues for the quarter were driven by a 7% increase in closings to 4,225 homes, in combination with a 6% increase in average selling price to $375,000.
  • PulteGroup’s backlog at quarter end totaled 9,323 homes valued at $3.8 billion, compared with prior year backlog of 8,755 homes valued at $3.4 billion. The average sales price in backlog of $408,000 is up 6% over the prior year and reflects the ongoing shift in both the mix of homes sold toward more move-up product and toward higher prices within the buyer category.

(Reuters) Trump’s plan to slash business taxes seen as ‘guidepost’

  • President Donald Trump unveiled a one-page plan proposing deep U.S. tax cuts, many for businesses, that would make the federal deficit balloon if enacted, drawing a cautious welcome from fiscal conservatives and financial markets.
  • Trump’s package fell far short of the kind of comprehensive tax reform that both parties in Washington have sought for years
  • Investors, who had been awaiting tax-plan details for months, largely shrugged off the news, with many saying it was still short on specifics and faced a long road to enactment.
  • House Speaker Paul Ryan, Senate Majority Leader Mitch McConnell and the top Republicans on the congressional tax-writing committees welcomed the Trump proposals, while leaving space for details to change as legislation evolves.
  • “The principles outlined by the Trump administration today will serve as critical guideposts” as Congress and the administration work on tax changes, they said in a statement.

(PR Newswire) Graphic Packaging Holding Company Reports First Quarter 2017 Results

  • Graphic Packaging reported Net Income for first quarter 2017 of $37.0 million. This compares to first quarter 2016 Net Income of $57.5 million.
  • “Our first quarter Adjusted EBITDA was lower as expected at $161 million compared to $193 million in the prior year period. Net sales were up 2.7%, reflecting recent acquisitions and stable core volumes, consistent with the trends we experienced in 2016. Operating efficiencies improved during the quarter and we successfully upgraded two headboxes on the number six paper machine at our West Monroe, Louisiana mill” said President and CEO Michael Doss. “The quarter was negatively impacted by accelerating commodity input costs, primarily recycled fiber, and the planned downtime costs associated with the upgrade of the two headboxes.”
  • “We are executing price increases to offset the unprecedented recycled fiber input cost inflation we are experiencing and expect margins to improve from our pricing actions during the second half of 2017, and in 2018. Our focus on meeting cash flow commitments, growing cash flow, and returning more of it to stockholders over time has not changed.”
28 Apr 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended April 26, investment grade funds posted a net inflow of $4.699bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $48.036bn. Per Bloomberg, investment grade corporate issuance for the week was $22.4bn, while volume for the month of April was $78.45bn. IG corporate bond issuance started the year at a robust pace but that has now somewhat abated, still, issuance is slightly outpacing last year and is up 1% year over year.

(Bloomberg, Conference Call) Masco Corporation Reports First Quarter 2017 Results

  • Masco Corporation (NYSE: MAS), one of the world’s leading manufacturers of branded home improvement and building products, reported strong net sales and operating profit growth in the first quarter of 2017.
  • “Our strong operating performance continued in the first quarter of 2017 as our leading brands coupled with our innovative products and programs drove demand with consumers and pros alike, resulting in profitable growth across our portfolio,” said Masco President and CEO, Keith Allman.
  • Conference Call Highlights:
    • Masco has no exposure to Canadian lumber tariffs
    • The company is seeing some cost inflation; however, it takes two quarters to flow through the financial statements
    • The company is seeing strong demand in their Repair & Remodeling products across all product lines and price points. R&R accounts for 83% of total sales (unchanged)
    • Masco is still focusing on bolt-on strategies in either their plumbing or decorative architecture segments, which has been unchanged over the past several quarters
      • The company looked at the paint assets divested from the Valspar/Sherwin-Williams transaction, but they weren’t a good strategic fit
    • Masco returned $124mm to its shareholders through dividends and share repurchases for the quarter

(Bloomberg) Comcast Leaps to a Record as ‘Get Out’ Helps Film Unit Shine

  • Comcast Corp.’s foray into Hollywood is paying off, with box-office hits “Get Out” and “Fifty Shades Darker” boosting first-quarter profits and sending shares to a record.
  • The shares rose as much 3.9 percent to $40.29 in New York Thursday, the highest price since at least 1983.
  • The results offer the latest proof of Comcast’s ascent to the heights of the American entertainment industry, a trajectory that seemed unlikely when the Philadelphia-based company bought NBCUniversal in 2011. Comcast is showing it can compete head-on with Walt Disney Co. for TV audiences, moviegoers and theme-park tourists.
  • Comcast executives attributed the turnaround largely to the company’s new video platform, called X1, which makes it easier to search for shows and movies, as well as YouTube and Netflix, from their cable set-top box. X1 is in about half of Comcast homes.
  • At the same time, the company is continuing to add residential high-speed internet subscribers. Comcast signed up 397,000 new broadband customers in the quarter, shy of the average prediction of 400,000 from three analysts. It signed up 403,000 broadband subscribers in the same quarter a year ago.

(Bloomberg) Microsoft Momentum Slows on Weaker Sales of Surface Tablets

  • Satya Nadella’s plan to reshape Microsoft Corp. as a cloud-computing company hit a snag in the third quarter, when lackluster sales of Surface tablets and weaker demand for corporate services kept revenue growth in check.
  • Adjusted sales in the period that ended in March rose to $23.56 billion, falling slightly short of analysts’ average estimate. The miss was enough to give investors pause — the software maker’s shares slipped 1.9 percent following the report, after rising to an all-time high at Thursday’s close in New York.
  • Even as some non-cloud businesses underperformed, the company posted another quarter of brisk demand for internet-based versions of Office software and its Azure service for running and storing customers’ data and applications. Azure sales rose 93 percent, while commercial Office 365 — cloud-based versions of Word, Excel and other productivity software — increased 45 percent. Microsoft spent last year pouring billions into data centers to run these services and is now signing up customers to fill them. Meanwhile, the personal-computer market, a drag on Microsoft results for the past several years, has begun to stabilize.

(WSJ) Southern’s Georgia Power Objects to Westinghouse Bankruptcy Loan

  • Georgia Power Co. has taken issue with Westinghouse Electric Co.’s proposed $800 million bankruptcy loan, saying the financing could threaten the construction of the first new nuclear reactors to be built in the U.S. in decades.
  • Westinghouse filed for chapter 11 bankruptcy at the end of March and wants to borrow money to keep its other businesses healthy, while it contends with the fallout of nuclear construction projects that are years behind schedule and billions of dollars over budget.
  • With a Friday deadline looming for Georgia Power to decide whether to continue construction at the Vogtle Electric Generating Plant, it and other plant owners are protesting Westinghouse’s efforts to pledge intellectual property as collateral for the loan deal.
  • If Westinghouse’s bankruptcy loan goes through as planned, the company’s lenders would be in position to “foreclose on the intellectual property, which could seriously disrupt or even potentially halt construction,” lawyers for Georgia Power, the largest subsidiary of Southern Co., warned in a court filing.
  • Based on Westinghouse’s AP1000 nuclear power plant design, the new Vogtle reactors are the first of what is supposed to be a new generation of commercial nuclear plants to be built in the U.S.
  • U.S. Commerce Secretary Wilbur Ross told The Wall Street Journal this week that the fate of Westinghouse’s nuclear business is a matter of national security. Asked if he would consider using public funds to assist Westinghouse, Mr. Ross said he believed the company’s bankruptcy funding was “adequate” for the immediate future. Any change to the financing, however, could change that assessment.

(FBN) Crown Castle International Corp. Makes a Big Bet on Small Cells

  • Crown Castle exceeded the high end of management’s guidance ranges on many metrics, including revenue and AFFO profits.
    • Site rental revenue showed 4% organic year-over-year growth, with the remaining increases coming from new site acquisitions.
    • Small-cell revenue jumped 41% higher and now accounts for 15% of Crown Castle’s total sales. That’s up from 11% in the year-ago quarter.
    • Crown Castle is emphasizing its small-cell operations in a big way, backed by large capital investments. Sixty-one percent of this quarter’s discretionary capital expenses, or $151 million, were funneled into construction and infrastructure improvements in the small-cell segment. That’s up from 43% or $79 million in the first quarter of 2016.
    • Crown Castle is planning to double its network of small-cell stations over the next 28 to 24 months. The network model of small wireless stations supported by direct fiber-optic backbone connections promises to match the traditional cell tower market in terms of long-term revenue footprint.

(WSJ) Coke to Cut 20% of Corporate Workers as It Battles Soda Slump

  • Coca-Cola Co. executives said Tuesday they plan to eliminate roughly 20% of corporate staff, as the beverage giant battles a slump in soda sales and expands a long-running cost-cutting program.
  • James Quincey, a company veteran who will take over as chief executive from Muhtar Kent next week, said the Atlanta-based company will cut 1,200 jobs to run a “more focused, lean corporate center.”
  • Coke’s beverage volumes were flat in the first quarter globally, dragged down by the macroeconomic conditions in some Latin American markets and the shift of the Easter holiday into the second quarter. Soda volumes world-wide fell 1%.
  • Mr. Kent said the company remains on track to meet its revenue and profit targets for the year.
  • The beverage giant has been aiming to cut sugar from its products and diversify beyond soda as more countries consider special taxes on high-calorie drinks to combat rising obesity and diabetes, and as consumers switch to healthier beverages.
  • On Tuesday, Mr. Quincey said the company is adjusting its growth model to meet people’s changing tastes and preferences.

(Bloomberg) Spirits Maker Castle Said to Eye Sale Amid Takeover Interest

  • Castle Brands Inc., a producer of whiskey, vodka and other spirits, is exploring a sale and may draw interest from potential buyers including Corona-maker Constellation Brands Inc. and Sazerac Co., according to people familiar with the matter.
  • The New York-based company is working with advisers at Perella Weinberg Partners on a potential sale, the people said, asking not to be identified as the information is private. Castle Brands may also attract bigger rivals, such as Diageo Plc, the world’s largest distiller, and Pernod Ricard SA, the people said. Heaven Hill Distilleries Inc. may also consider a bid, the people said. Castle Brands had a market value of about $260 million at the close of trading on Tuesday.
  • Sales of distilled spirits in the U.S. may outperform the 3.7 percent annual growth rate they’ve maintained since 2007 on the back of reduced regulatory restrictions on product availability under the Donald Trump administration and new emphasis on luxury and super-premium products, according to a report from Bloomberg Intelligence.

(Bloomberg) Entergy Sees ‘Strong’ Power Demand by Refiners in Rest of 2017

  • Entergy CFO Drew Marsh cites wider crack spreads and end to turnarounds for forecast, commenting on 1Q earnings call.
    • Says “premature” to lower 2017 forecast after 1Q EPS miss; adds no change to spending plan if federal taxes cut
    • CEO Leo Denault says co. may propose smaller peaker, renewables in New Orleans
    • Seeking to lower CO2 emissions regardless of President Trump’s executive order
    • Co. says all steps on track for Indian point closing; litigation ended
21 Apr 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$21 million and year to date flows stand at -$1.3 billion. New issuance for the week was $1.4 billion and year to date HY is at $93 billion.

(Company Release) GEO Group Awarded Contract

  • GEO Group has been awarded a contract by U.S. Immigration and Customs Enforcement (“ICE”) for the development and operation of a new $110 million, company-owned 1,000-bed Detention Facility to be located in Conroe, Texas
  • GEO expects to design, finance, build, and operate the company-owned Facility under a ten-year contract with ICE, inclusive of renewal option periods. The 1,000-bed Facility is scheduled for completion in the fourth quarter of 2018 and is expected to generate approximately $44 million in annualized revenues and returns on investment consistent with GEO’s company-owned facilities.
  • “We are very appreciative of the continued confidence placed in our company by U.S. Immigration and Customs Enforcement,” said George C. Zoley, GEO’s Chairman and Chief Executive Officer.

(Fierce Cable) Sinclair, 120 Sports launching new linear sports network

  • Sinclair Broadcast Group, Silver Chalice and 120 Sports are launching a new multiplatform sports network with linear broadcast and digital offerings.
  • The companies will merge 120 Sports’ live studio operations, Silver Chalice’s Campus Insiders’ live collegiate games and Sinclair’s American Sports Network’s (ASN) distribution and live collegiate games. The companies intend to use the professional and collegiate rights from 120 Sports and Silver Chalice to increase access to post-game highlights, news, original long-form programming and full game archives provided by various partners.
  • “With this incomparable set of strategic partners, we are evolving ASN into a vastly improved network with access to exclusive content and a combined linear and premium OTT offering that is the model for the future of television,” said Chris Ripley, president and CEO of Sinclair, in a statement.
  • “Our recent focus has been on expanding our business with new digital multicast networks that leverage our broadcast spectrum and household reach,” said Ripley in a statement. “Much of the multicast market today focuses on classic TV and movie content, with little aimed at audiences for whom fresh and relevant pop culture content is important. With the launch of TBD, we aim to pair the very best premium digital-first content with the unmatched branding power of traditional television.”

(Business Wire) HCA Previews 2017 First Quarter Results

  • HCA anticipates revenues for the first quarter of 2017 to approximate $10.623 billion compared to $10.260 billion in the first quarter of 2016. Net income attributable to HCA Holdings, Inc. for the first quarter is expected to approximate $659 million, or $1.74 per diluted share, compared to $694 million, or $1.69 per diluted share, in the first quarter of 2016. Adjusted EBITDA for the first quarter of 2017 is expected to approximate $2.005 billion compared to $2.003 billion in the previous year’s first quarter.
  • Same facility admissions for the first quarter of 2017 increased 1.2 percent, while same facility equivalent admissions increased 1.6 percent when compared to the first quarter of 2016. Same facility emergency room visits for the first quarter of 2017 increased 1.1 percent from the prior year’s first quarter.
  • Results for the first quarter of 2017 were affected by changes in payer mix and the loss of one day when compared to the first quarter of 2016. Same facility Medicare admissions comprised 48.1 percent of the first quarter 2017 admissions, compared to 47.0 percent in the prior year’s first quarter. In the first quarter of 2017, same facility managed care/health exchange admissions comprised 27.4 percent of admissions, compared to 28.6 percent in the prior year’s first quarter.
  • Same facility revenue per equivalent admission is expected to increase approximately 1.7 percent in the first quarter of 2017 compared to the prior year’s first quarter.

(CNBC) US housing starts total 1.215M in March vs. 1.25M starts expected

  • U.S. homebuilding fell in March as the construction of single-family homes in the Midwest recorded its biggest decline in three years, likely reflecting bad weather.
  • Housing starts declined 6.8 percent to a seasonally adjusted annual rate of 1.22 million units, the Commerce Department said on Tuesday. February’s starts were revised up to a 1.30 million-unit pace from the previously reported 1.29 million-rate.
  • Economists polled by Reuters had forecast groundbreaking activity falling to a 1.25 million-unit pace last month. Homebuilding was up 9.2 percent compared to March 2016.
  • Construction in February was boosted by unseasonably warm temperatures. But temperatures dropped in March and a storm lashed the Northeast and Midwest regions, which could have accounted for the drop last month in homebuilding.
  • Single-family homebuilding, which accounts for the largest share of the residential housing market, fell 6.2 percent to a 821,000 unit-pace last month. Single-family starts in the Midwest declined 35 percent, the largest drop since January 2014, to their lowest level since August 2015.
  • Pointing to underlying strength in the housing market, building permits increased 3.6 percent, driven by a 13.8 percent surge in the multi-family segment.
  • A tightening labor market, which is generating steady wage growth is underpinning the housing market. The sector, however, remains constrained by a dearth of properties available for sale.
14 Apr 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$0.5 billion and year to date flows stand at -$0.6 billion. New issuance for the week was $5.0 billion and year to date HY is at $91.6 billion.

(Company Report) Frontier Communications Expands Broadband in Wisconsin

  • Frontier Communications announced that it has made enhanced broadband service available to an additional 8,100 households in Wisconsin. Frontier is leveraging the FCC’s Connect America Fund (CAF) program to bring broadband to approximately 5,000 households in CAF-eligible census blocks while expanding its overall service and reach to approximately 3,100 more households throughout Wisconsin.
  • “Through ongoing network investments, Frontier is providing broadband and faster speeds to residents,” John Van Ooyen, Frontier Director of Operations said. “We have been aggressively deploying and upgrading our broadband service and look forward to serving more residents.”
  • The deployments are made possible through a combination of Frontier’s capital investment and the CAF. The FCC established the CAF in 2011 to facilitate broadband deployment to the millions of Americans living in rural areas without access to broadband infrastructure. As of 2016, Frontier began receiving approximately $30 million a year from the CAF to expand and upgrade the company’s network to 77,000 locations in Wisconsin by the end of 2020.

(Fierce Cable) Charter sued for selling personal customer data without consent

  • According to the St. Louis Record, which obtained a copy of the Eastern District of Missouri court complaint filed on April 4, subscriber “A. Michael” said that between 2011 and 2013, Charter sold information such as names and addresses to unknown companies without customer consent.
  • The plaintiffs are alleging that Charter violated Missouri’s Merchandising Practices Act. Michael claims he was not provided with a copy of Charter’s privacy policy, which is required under that law. The complaint also said Charter failed to obtain written consent to sell the information or provide an opt-out provision.
  • Just as Comcast, AT&T and Verizon stated in similar messaging, Charter said the recent overturning by the Republican-led Congress of Obama-era FCC rules regulating ISP privacy does not change its position.
  • “Protecting the privacy of our consumers is one of our most important responsibilities as a broadband provider,” Charter said. “Recent activity by Congress does not change, or weaken, Charter’s commitment to the protection of our customers’ online privacy, or our rigorous privacy practices and policies. To be clear it also does not change the way in which Charter collects, uses or shares customer information.”

(New York Times) Trump Administration to Pay Health Subsidies Disputed by House

  • The Trump administration says it is willing to continue paying subsidies to health insurance companies under the Affordable Care Act even though House Republicans say the payments are illegal because Congress never authorized them.
  • The statement sends a small but potentially significant signal to insurers, encouraging them to stay in the market.
  • The Affordable Care Act requires insurers to reduce deductibles and other out-of-pocket costs for certain low-income consumers. The “cost-sharing” subsidies, which total $7 billion a year, compensate insurers for these discounts.
  • House Republicans sued the Obama administration, saying that the spending — in the absence of an appropriations law — was unconstitutional. A Federal District Court judge agreed and ordered a halt to the payments, but suspended her order to allow the government to appeal.
  • The Trump administration has not clearly indicated its position on the appeal. Asked to clarify, the Department of Health and Human Services sent a written statement on Monday: “The precedent is that while the lawsuit is being litigated, the cost-sharing subsidies will be funded. It would be fair for you to report that there has been no policy change in the current administration.”

(Moody’s) Moody’s upgrades DaVita to Ba2; outlook is stable

  • Moody’s Investors Service upgraded the ratings of DaVita, Inc. including the Corporate Family Rating to Ba2 from Ba3 and the Probability of Default Rating to Ba2-PD from Ba3-PD. Moody’s also upgraded DaVita’s senior secured credit facilities to Baa3 from Ba1 and its senior unsecured notes to Ba3 from B1. Lastly, Moody’s affirmed DaVita’s Speculative Grade Liquidity Rating of SGL-1. The outlook is stable.
  • The upgrade of DaVita’s Corporate Family Rating to Ba2 reflects Moody’s expectation that the company will benefit from US dialysis patient population growth of approximately 4% and stabilization of its integrated care business. Moody’s expects that DaVita will maintain adjusted debt to EBITDA in the mid-to-high 3 times range even in the face of several business uncertainties relating to biosimilars and the availability of charitable premium assistance.
13 Apr 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: Per Bloomberg, investment grade corporate issuance for the holiday shortened week was $11bn. Investment grade corporate issuance so far for the month of April is $31.1bn.

(Forbes) Defying Critics, Apple Continues To Gain On PC Rivals

  • If you read enough tech news, you “know” that Apple is blowing it with the Mac. For months now, the headlines have been clear: “How Apple Alienated Mac Loyalists,” Bloomberg wrote back in December. And just yesterday on FORBES, Ewan Spence reported on a Laptop Mag report about Apple’s dwindling customer satisfaction ranking in “Apple Losing Out As Consumers Reject New MacBook Pro.” With this kind of drumbeat, it wouldn’t be surprising to learn Apple is indeed losing market share. Except that it isn’t. On the contrary, the two firms that track PC sales both agree Apple is gaining share in the PC market — as it has nearly every quarter for the past several years.
  • Here are the figures for Q1 of 2017: Gartner says Apple sales were up 4.5% over a year ago and market share rose from 6.3% to 6.8% worldwide. That puts Apple in Gartner’s top 5 ahead of flagging Acer. Apple’s total is just 7% behind fourth-place Asus in shipments, suggesting the Mac maker could leapfrog it as well soon. IDC has slightly different figures, with Apple’s Mac total rising 4.1% and share growing from 6.7% to 7.0%. In Gartner’s math, Apple is already fourth. Both agree Apple delivered a bit over 4.2 million computers, a figure which Apple always clarifies by offering a precise number with earnings. (Those are due in a few weeks.)
  • Notably, Gartner thinks the PC market contracted by 2.4% over 2016 while IDC sees it growing by a mild 0.6%. Part of that difference is methodology: Gartner doesn’t include Chromebooks in its numbers but does include 2-in-1s like the Surface (iPad Pros? nope). IDC includes Chromebooks, which it credited for at least part of the overall increase, but excludes all detachable tablets — so that means Surface and iPad Pro are out.
  • But no matter how you slice and dice the data, it’s good news for Apple, which saw 4%+ unit growth against a flat or shrinking PC landscape. While Apple remains a small slice of the market, it helps to have some perspective on how that slice has grown. Back in 2010, the PC market was a robust 351 million units for the year (per Gartner). Apple wasn’t in the top 5, but searching through its earnings reports yields a total of 14.4 million Macs that year. That was good for just over 4% of the PC market.

(Moody’s) Moody’s says AT&T’s $1.6 billion acquisition of Straight Path is positive

  • Moody’s Investors Service, (“Moody’s”) said AT&T Inc.’s (Baa1, review for downgrade) planned acquisition of Straight Path is positive. AT&T announced yesterday a definitive agreement to purchase Straight Path Communications for $1.25 billion in stock plus certain liabilities of Straight Path that values the transaction at approximately $1.6 billion. Straight Path is one of the largest holders of wireless spectrum licenses in the 28 GHz and 39 GHz bands, which AT&T intends to deploy in conjunction with its proposed 5G wireless architecture.
  • We view this transaction as a strategic positive as it gives AT&T access to key infrastructure elements to pursue its 5G wireless capabilities and keeps AT&T on pace with Verizon in this effort. The relatively small purchase price will result in a very large spectrum position for AT&T, at least on par with Verizon’s 5G holdings following its 2016 acquisition of XO Communications.
  • We believe that 5G wireless services are unlikely to reach scaled deployment for at least 3 years. Carriers have articulated plans to deploy 5G as a fixed wireless solution initially, with more advanced mobile applications to follow. We think the technology will be competitive with traditional broadband services, but we think the economics of a fixed 5G architecture may not be competitive with cable broadband’s embedded cost structure. Therefore, we think that wireless carriers must offer additional functionality with 5G to differentiate it from traditional broadband in order to drive the inevitably higher price points that will lead to a profitable business.
  • Despite its large pending acquisition of Time Warner, AT&T continues to assemble assets that support its core wireless business. In addition to the Straight Path transaction, AT&T announced in January that it will acquire FiberTower, a holder of 24 GHz and 39 GHz licenses for an undisclosed amount. We view these deals as strategic positives, but not material to the near term (0 to 3 years) financial performance. However, these small strategic asset purchases are essential to AT&T remaining competitive and perpetuating its market share.

(Bloomberg Gadfly) Walmart Fights Amazon With Cheap When People Want Easy

  • Wal-Mart Stores Inc. on Wednesday unveiled a new discount program to entice customers to pick up online orders from its stores. The idea is: If it’s cheaper for Walmart to get stuff to its 5,000 stores, rather than millions of individual households, than why not pass along part of that discount? It has the extra benefit of getting customers back into stores to buy more.
  • In an era where Inc. has trained shoppers to be so lazy that they can order cardboard boxes and packing tape an hour before they are ready to pack up their goods and move to another apartment, it’s unclear consumers are going to want to work that hard just to save Walmart, and themselves, a buck or two.
  • For many of Walmart’s low-income customers, every penny counts. But the retailer has said one reason it bought last year was that Walmart’s online customers tended to be wealthier shoppers who would spend more for the higher-end brands could offer.
  • It can’t hurt for Walmart to try the discount program out — testing and learning about what its customers want. But it will likely realize that instead of trying to figure out how to make things easier for Walmart, it should worry more about making things easier for people to shop with the retailer. If not, any advantage Walmart is building online will have a short shelf life.
07 Apr 2017
IG Note 20170407 Image

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended April 5th, investment grade funds posted a net inflow of $4.3bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $43.39bn through April 5th. Per Bloomberg, investment grade corporate issuance through Thursday was $20.1bn with 19 issuers pricing 37 tranches on the week. Investment grade corporate issuance is slightly outpacing 2016 with 2017 corporate issuance up 3% year-to-date. Volume is expected to be lower next week with Easter/Passover holidays.

(Bloomberg) Comcast Jumps Into Wireless With $45 Service Undercutting Rivals

  • Comcast Corp. unveiled a wireless service that offers unlimited data on Verizon Communications Inc.’s network for less than nearly every other competitor and said the venture will be profitable once it reaches hundreds of thousands of subscribers.
  • While the pricing plans have some strings attached and are available only to Comcast’s internet and TV customers, the initial $45 unlimited offer is the lowest among the top U.S. wireless carriers and is likely to further escalate a price war that has ravaged the industry. Shares of the cable giant rose the most in more than two months.
  • “The more products you add, the lower the churn,” said Greg Butz, president of Comcast Mobile, using the industry term for monthly subscriber defections.
  • Comcast’s entry into wireless comes at a crucial moment for the cable giant. AT&T has moved aggressively onto its turf, offering low-cost TV packages that can be watched on-the-go and don’t count toward monthly data limits. And advances in wireless 5G technology could make surfing the web on phones as fast and reliable as high-speed internet connections at home — a service that has been a major growth area for Comcast.
  • Depending on its success in wireless, Comcast could get more ambitious and pursue an acquisition of a wireless carrier such as T-Mobile US Inc., according to some analysts. For now, Comcast says that selling wireless through Verizon’s network is the long-term strategy.
    • Unlimited Plans by Carrier (Source: Bloomberg)

IG Note 20170407 Image

(Bloomberg) Monsanto Gets Boost as Takeover by Bayer Looks More Likely

  • Monsanto Co., the world’s largest seed company, is getting a boost from increased optimism that Bayer’s $66 billion takeover of the company will go through, as similarly huge transactions between competitors inch toward the finish line.
  • Shares of St. Louis-based Monsanto climbed for a third straight day on Wednesday.
  • The Bayer-Monsanto combination has more than a 90 percent likelihood of completion, analysts at Citi Research said in a report Wednesday. That outlook comes after Dow Chemical Co.’s $77 billion bid to merge with DuPont Co. cleared antitrust hurdles in the European Union last week, and China National Chemical Corp. just received a green light on its $43 billion acquisition of Swiss pesticide maker Syngenta from the U.S. and the European Union.
  • Monsanto Chief Executive Officer Hugh Grant reiterated Wednesday in a call with analysts that a finished deal is expected by year-end. Bayer is planning to place regulatory filings with the European Commission this quarter, and there’s progress with a second round of inquiries with the U.S. Justice Department, he said. Those procedures signal that the deal is progressing, said William Selesky, an analyst at Argus Research Corp. in New York.
  • Monsanto’s shares are also up on speculation that the agricultural economy may be better than initially thought. The company on Wednesday reported record fiscal second-quarter earnings amid signs that U.S. farmers are preparing to sow record acreage with soybeans this year.

(Bloomberg) Mexican Beer Boom Sends Shares of Constellation Brands Soaring

  • The growing U.S. thirst for imported Mexican beer help send Constellation Brands Inc.’s stock on its biggest rally in three years, even as simmering border tensions threaten to undercut demand.
  • The company, which sells Corona, Modelo and other top Mexican brands,posted a 17 percent gain in beer sales last quarter. Constellation’s Ballast Point Brewing & Spirits, which it acquired for $1 billion in 2015, also helped boost revenue.
  • In the wake of the growth, Constellation delivered an annual forecast that beat analysts’ estimates. It also raised its quarterly dividend by about 30 percent. The bullish outlook helped allay concerns that the Trump administration will hurt Mexican importers by imposing a border tax or ripping up the North American Free Trade Agreement. Because of its heavy reliance on Mexican beer, Constellation has been seen as one of the most vulnerable companies to policy changes.
  • “Our beer business continues to be a powerhouse for growth,” Chief Executive Officer Rob Sands said in a statement. Constellation was the “No. 1 growth contributor to the U.S. beer industry for the year,” he said.
  • The company’s wine and spirit sales aren’t growing as quickly as beer. They climbed 6 percent last quarter, helped by the acquisition of the Meiomi and Prisoner brands.

(Bloomberg, Company Press Release) QVC Group to Become Asset-Backed Stock

  • Liberty Interactive Corporation (“Liberty Interactive”) (Nasdaq: QVCA, QVCB, LVNTA, LVNTB) and General Communication, Inc. (“GCI”) (Nasdaq: GNCMA) today announced that they have entered into a definitive agreement (the “Agreement”) whereby Liberty Interactive will acquire GCI through a reorganization in which certain Liberty Ventures Group (“Liberty Ventures”) assets and liabilities will be contributed to GCI in exchange for a controlling interest in GCI.
  • “We are pleased to announce this transaction with GCI,” said Greg Maffei, Liberty Interactive President and CEO. “GCI is the largest communications provider in Alaska, generates solid cash flow with upside potential and is a strong fit with the largest businesses in Liberty Ventures. This transaction will ultimately create a standalone Liberty Ventures, reducing the tracking stock discount and enabling an asset-backed QVC Group.”
  • Liberty Interactive believes an asset-backed QVC Group will provide the following benefits:
    • Establish leading pure play discovery based retail and eCommerce company
      • Liberty Interactive expected to be renamed QVC Group, Inc.
    • Make QVC Group eligible for possible inclusion in stock indices through elimination of tracking stock structure
    • Reduce the tracking stock discount
    • Increase near-term and annual liquidity through reattribution (discussed below) of approximately $329 million(1) of cash and approximately $130 million annual free cash flow from tax savings related to exchangeable bonds that will grow
      • Cash can be used for investments, stock repurchases and debt reduction
    • Establish a strong currency that will be a more effective tool for management compensation and retention and for potential future acquisitions
    • Maintain strong ability and liquidity to service all debt

(Bloomberg) Plenty of Beauty in U.S. Jobs Data Beneath Ugly Headline Number

  • For the March U.S. employment report, with its ugly headline payrolls number, it’s what’s inside that counts.
  • While the gain of 98,000 jobs in a survey of businesses and government agencies was the weakest since May and below all analysts’ forecasts, many accompanying details showed a solid labor market. The jobless rate, derived from a separate survey of households, fell to the lowest in almost a decade even as workforce participation was unchanged, while a measure of underemployment reached a fresh post-recession low, boding well for further wage increases.
  • The March data from the Labor Department on Friday also were challenged by weather anomalies — a storm in the Northeast during the survey week and more seasonable temperatures after two warmer months — that had economists bracing for at least some slowdown in payrolls from a strong start to the year. The reassuring figures elsewhere in the report keep the Federal Reserve on track to continue plans for two more interest-rate increases this year as the labor market continues to tighten.
  • The two-month revisions to payrolls subtracted 38,000 jobs, leaving the average so far in 2017 at 178,000. That’s in line with the 187,000 monthly average for all of last year.
  • Whether the tight job market triggers the long-awaited wage gains in this almost-eight-year-old economic expansion remains a puzzle. Average hourly earnings increased 2.7 percent in March from a year earlier, just a touch above the average since the start of 2016. That, more than weaker-than-expected employment, might merit more attention in the months ahead.

(Bloomberg) Oil Climbs After U.S. Strike Against Syria Roils Global Markets

  • Crude headed for its second weekly gain after briefly spiking in reaction to the first military strike undertaken by President Donald Trump’s administration.
  • Futures surged more than 2 percent to the highest in a month in early trading Friday after a U.S. cruise-missile strike against Syria. Gains eased after a weak jobs report fueled concern about the strength of the U.S. economy. Russia’sdeal with OPEC to cut crude supply hasn’t delivered as much as expected, according to Deputy Prime Minister Arkady Dvorkovich. OPEC ministers will gather in Vienna on May 25 to decide whether to extend the accord.