Category: Weekly Insights

21 Jul 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $1.9 billion and year to date flows stand at -$5.7 billion. New issuance for the week was $3.5 billion and year to date HY is at $149 billion.

(PR Newswire) Valeant Agrees To Sell Obagi Medical Products Business

  • Valeant Pharmaceuticals International, Inc. announced that certain affiliates of the Company have entered into an agreement to sell its Obagi Medical Products business for $190 million in cash to Haitong International Zhonghua Finance Acquisition Fund I, L.P. Limited partners of the Fund include industry veterans in other geographic markets, such as China Regenerative Medicine International Limited.
  • “The sale of Obagi marks additional progress in our efforts to streamline our operations and reduce debt,” Joseph C. Papa, chairman and CEO, Valeant. “As we continue to transform Valeant, we will remain focused on the core businesses that will drive high value for our shareholders.”
  • Obagi Medical Products is a global specialty pharmaceutical company founded by leading skin care experts in 1988. Obagi products are designed to help minimize the appearance of premature skin aging, skin damage, hyperpigmentation, acne and sun damage and are primarily available through dermatologists, plastic surgeons, medical spas and other skin care professionals.
  • Valeant will use proceeds from the sale to permanently repay term loan debt under its Senior Secured Credit Facility. The transaction is expected to close in the second half of 2017, subject to customary closing conditions, including receipt of applicable regulatory approvals.

(Reuters) Buffett, Malone explore investment in Sprint

  • Warren Buffett’s Berkshire Hathaway Inc and John Malone’s Liberty Media Corp are exploring an investment of between $10 billion and $20 billion in U.S. wireless carrier Sprint Corp, people familiar with the matter said.
  • Masayoshi Son, the chief executive of Japan’s SoftBank Group Corp, which controls Sprint, met Buffett and Malone separately this week at an annual gathering of business and media moguls in Sun Valley, Idaho, the sources said on Friday, confirming a report in The Wall Street Journal. Sprint CEO Marcelo Claure is also involved in the negotiations, the sources said.
  • Berkshire Hathaway is considering an investment of up to $20 billion in Sprint, while the amount that Liberty Media is looking to invest is not yet known, the sources said. Talks are in the early stages and could still fall apart, the people added.

(New York Times) Health Care Overhaul Collapses as Two Republican Senators Defect

  • Two more Republican senators declared on Monday night that they would oppose the bill to repeal the Affordable Care Act
  • The announcement by the senators, Mike Lee of Utah and Jerry Moran of Kansas, left their leaders at least two votes short of the number needed to begin debate on their bill to dismantle the health law. Two other Republican senators, Rand Paul of Kentucky and Susan Collins of Maine, had already said they would not support a procedural step to begin debate.
  • With four votes against the bill, Republican leaders now have two options.
  • They can try to rewrite it in a way that can secure 50 Republican votes, a seeming impossibility at this point, given the complaints by the defecting senators. Or they can work with Democrats on a narrower measure to fix the flaws in the Affordable Care Act that both parties acknowledge.
  • Senator Mitch McConnell, the Republican leader, conceded Monday night that the effort to repeal and immediately replace the Affordable Care Act will not be successful. He outlined plans to vote now on a measure to repeal the Affordable Care Act, with it taking effect later. That has almost no chance to pass, however, since it could leave millions without insurance and leave insurance markets in turmoil.

(CNET) T-Mobile shakes off rival unlimited plans as growth soars

  • The nation’s third-largest wireless carrier said it added 1.3 million net new customers in the second quarter, helped largely by the 786,000 new phone customers on a post-paid plan, or who pay at the end of the month.
  • The numbers underscore the fact that despite the rival carriers throwing themselves at you for your business, T-Mobile continues to win over new customers. The heightened pressure has resulted in more deals for consumers, including Sprint offering a year of service for free(excluding taxes and fees), and its prepaid arm Virgin Mobile going with an all-iPhone model with a rate of $1 for the first year of service. AT&T is throwing its DirecTV Now streaming service into its unlimited plan for $10 extra. Likewise, it was the first full quarter that Verizon offered its unlimited plan.
  • T-Mobile, conversely, has been relatively tame and quietly raised the price of its One Plus unlimited plan by $10, matching the price of Verizon’s $80 unlimited data plan.
  • Unlike in previous quarters, T-Mobile is the first of the big carriers to report results, so we won’t know for sure how well it fared relative to its competitors. The company has consistently outstripped its rivals in subscriber growth, leading the industry for 14 straight quarters.
14 Jul 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

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

(WSJ) Visa Takes War on Cash to Restaurants

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

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

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

(Bloomberg) Implications of Tax Policy Changes on IG Industrials

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

(WSJ) Corporate Bond Markets Asleep at the Wheel

  • There’s a fine line in financial markets between resilience and complacency. Corporate bonds are sitting right on it.
  • Global government bonds have been shaken as central banks, most notably the European Central Bank, have signaled that the clock is ticking on ultra-loose monetary policy. Ten-year German bond yields have risen about 0.3 percentage point from their late-June lows, pushing up U.S. Treasury yields too.
  • Yet corporate bonds haven’t even blinked. Indeed, the yield spread on European and U.S. investment-grade bonds versus underlying government debt has actually compressed since the turmoil started, Bank of America Merrill Lynch indexes show. Yields have risen, just not by as much as on government bonds. At 0.99 percentage point in Europe and 1.12 points in the U.S., investment-grade spreads are close to their tightest level since the global financial crisis.
  • And credit conditions may be shifting. Activist investors are making waves in Europe: perhaps the best example is Dan Loeb at hedge fund Third Point targeting consumer giant Nestlé , pitting shareholder interests against those of bondholders. The company promised to double its leverage ratio to fund stock buybacks, yet spreads on its bonds barely reacted. Better earnings prospects should support corporate bonds; but the real benefit will accrue to shareholders, not bondholders. Spreads do offer some protection against falling bond prices, but little against a deterioration in credit quality.
  • Corporate bonds have benefited greatly from central-bank support and benign credit conditions. Shifting tides mean relying on those factors persisting looks risky.
14 Jul 2017
High Yield Weekly, Weekly Insights CAM 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were -$1.4 billion and year to date flows stand at -$6.1 billion. New issuance for the week was $0.4 billion and year to date HY is at $145 billion.

(Reuters) Fed’s Williams still sees rate hike, asset unwinding this year

  • A top U.S. central banker on Tuesday said he still expected one more rise in interest rates from the Federal Reserve this year and for it to start unwinding its massive balance sheet in the next few months.
  • Answering audience questions at an economics event in Sydney, San Francisco Federal Reserve Bank President John Williams said he believed a recent softening in U.S. inflation was transitory and that inflation would pick up to around 2 percent over the coming year.
  • Williams emphasized that if inflation did not accelerate as expected, that would argue for a much slower pace of rate rises than currently projected.
  • He also noted that raising rates and trimming the balance sheet were complimentary forms of tightening and his projections for policy took that into account.

(Wall Street Journal) Frontier’s Big Bets on Landlines Falter

  • The once small phone company amassed $17 billion in debt by scooping up networks across the country from Verizon Communications Inc. and AT&T Inc. It was a contrarian strategy that Frontier could generate steady revenue from residential internet and video services even as wireless use exploded.
  • Instead, Frontier has been losing customers and scrambling to cover looming debt payments.
  • Frontier’s troubles multiplied in spring 2016 after it closed a $10.5 billion deal for phone and internet lines from Verizon. The move nearly doubled Frontier’s revenue and gave it millions of new customers in California, Texas and Florida. They included 1.6 million subscribers on Fios, a fiber-optic service that appeared lucrative but hid some snags below the surface.
  • “This last acquisition was largely about acquiring fiber,” a strategy the company still supports, Frontier finance chief Perley McBride said. “It’s just integration that didn’t go well. When you double in size and you don’t do it well, it’s sort of up front and center.”
  • Mr. McBride said he doesn’t expect revenue growth anytime soon from the consumer markets acquired from Verizon last year. That is a reversal from the forecast of his predecessor, John Jureller, who in 2015 called the revenue trends “very positive.”
  • “Cable companies are beating the pants off Frontier,” said Jonathan Chaplin, an analyst for New Street Research, noting that companies like Charter Communications Inc. have invested more heavily in marketing, network equipment and customer service in the past three years.

(Reuters) U.S. mortgage activity posts biggest weekly drop since December

  • U.S. mortgage application activity recorded its steepest drop since December as interest rates on 30-year fixed-rate home loans climbed to their highest level in nearly two months, Mortgage Bankers Association data released on Wednesday showed.
  • The Washington-based group said its seasonally adjusted index for mortgage applications fell to 391.9 in the week ended July 7, down 7.4 percent from the prior week which marked its biggest decline since a 12.1 percent fall in the Dec. 23 week.

(Washington Post) Siemens and AES team up on industrial-size batteries

  • Transnational engineering giant Siemens is taking aggressive steps to expand into the ¬alternative energy market through a new partnership with AES, an Arlington-based power company that operates in 17 countries.
  • The two firms said in a Tuesday regulatory filing that they are forming a new D.C.-based joint venture called Fluence, which will sell industrial-scale batteries to large businesses.
  • Fluence will compete against established players such as Elon Musk’s Tesla, which has built out a line of business in industrial power storage alongside its electric cars.
  • “Our ultimate aim is to accelerate adoption of the electricity network of the future,” AES chief executive Andres Gluski said, “and we think energy storage will be a very big part of that.”
  • Gluski declined to say exactly how much the two companies are investing at the outset, but said the venture will be “fully funded for the next five years.”

(Business Wire) Dynegy Reaches Agreement to Sell Three Power Generating Assets

  • Dynegy Inc. has reached agreement to sell three of its generating plants for approximately $300 million. Combined with the previously announced LS Power transaction, a total of approximately $780 million in aggregate sales proceeds will be used primarily for debt reduction.
  • Dynegy reached an agreement to sell its Lee Energy Facility, a 625 MW (summer capacity rating) gas-fueled peaking asset in the PJM ComEd region to an affiliate of Rockland Capital.
  • Dynegy will receive $180 million in cash and avoid the incremental capital investment necessary to convert the plant to dual fuel status in order to meet PJM capacity performance obligations. The sale allows the Company to crystallize value in the ComEd region and generate additional cash proceeds for debt repayment.
  • Dynegy has also signed a purchase and sales agreement with Starwood Energy Group Global for two assets totaling $119 million. The combined 310 MW (summer rating) of assets to be sold include two intermediate gas-fueled plants located in Dighton and Milford, Massachusetts. The Company anticipates allocating the cash proceeds to debt reduction.
30 Jun 2017
Investment Grade Weekly, Weekly Insights CAM 0 comment

CAM Investment Grade Weekly Insights

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

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

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

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

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

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

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

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

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

  • FDA designated Pfizer’s drug as orphan treatment for acute myeloid leukemia.
    • FDA awarded designation to the treatment, which has generic name glasdegib, on June 28.
    • Orphan drugs are entitled to 7 years market exclusivity if approved by FDA for rare disease.
30 Jun 2017
High Yield Weekly, Weekly Insights CAM 0 comment

CAM High Yield Weekly Insights

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

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

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

(CNBC) Report Arconic supplied flammable panels to Grenfell Tower

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

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

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

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

  • Waymo, the self-driving car unit of Alphabet Inc., has reached an agreement for Avis Budget Group Inc. to manage its fleet of autonomous vehicles. It’s the first such deal in a field that’s still fledgling but exploding with partnerships. Avis shares surged.
  • The rental car firm will service and store Waymo’s Chrysler Pacifica minivans in Phoenix, where the parent of Google is testing a ride-hailing service with volunteer members of the public. Waymo will own the vehicles and pay Avis for its service, an arrangement that is set for multiple years but not exclusive. The companies would not share financial terms.
  • Avis gives Waymo a potential asset that rivals like the major automakers and Uber Technologies Inc already have: a sprawling network of traditional cars and customers that could be transformed into an autonomous transport service over time. Avis owns Zipcar, the on-demand rental service with over one million members, largely in urban centers. The new deal is limited to Waymo’s vehicles in Phoenix, where it started its first pilot service in April after nearly a decade of research.
  • Yet Waymo could spread its self-driving systems into other cars over time. Zipcar was part of Avis’ appeal, said Waymo Chief Executive Officer John Krafcik. “One of the wonderful things about partnerships like this is that they are open,” he said.
  • This partnership is the first major one involving oversight of driverless car fleets, a business opening that could help the technology spread. It’s a symbolic win for Avis, which now has the aide of Alphabet, a pioneer in the field that is willing to heave large sums into the unproven tech. Sales at the car rental company have slipped, facing pressure from dips in used vehicle prices, with first quarter revenue falling 2.2 percent to $1.84 billion.
23 Jun 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

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

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

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

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

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

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

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

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

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

(Bloomberg) Dow-DuPont Wins U.S. Antitrust Nod to Create Chemicals Giant
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(Bloomberg) Committee Approves Extension of Nuclear Production Tax Credit
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16 Jun 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

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

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

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

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

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

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

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

(Bloomberg) Committee Approves Extension of Nuclear Production Tax Credit

  • House Ways and Means votes to approve legislation sought by the nuclear industry power that would extend an unused tax credit for new nuclear reactors.
    • H.R. 1551 extends Nuclear Production Tax credit past current sunset date of 2021
    • Bill also tweaks legislation to allow nonprofit public power co-owners of plants and other partners to use the credit by allocating their pro-rated share of the credit to private partners
    • Legislation is seen as beneficial to Southern Co. and Scana Corp., which have reactors under construction that could qualify for the credit
    • NOTE: Under current law, 1.8-cents-per-kilowatt-hour credit is capped at 6,000 megawatts and only available to nuclear power plants placed in service before January 2021
16 Jun 2017
High Yield Weekly, Weekly Insights CAM 0 comment

CAM High Yield Weekly Insights

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

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

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

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

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

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

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

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

  • Frontier Communications Corporation announced that it has commenced tender offers to purchase for cash certain series of its senior notes up to an amount such that the maximum aggregate consideration (excluding accrued interest) paid by the Company in the Tender Offers does not exceed $800,000,000, subject to the Acceptance Priority Levels and the Acceptance Sublimits.
  • The Tender Offers are intended to address maturities and reduce the Company’s current overall interest expense. The Tender Offers will be funded by the Company from borrowings under a new term loan B facility under its senior credit agreement, which the Company expects to enter into prior to the Early Settlement Date.
09 Jun 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

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

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

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

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

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

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

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

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

  • If a Sprint Corp. merger with T-Mobile US Inc. happens, would-be lenders might be stuck on the sidelines.
  • In early-stage discussions between the two wireless carriers, an all-stock deal that would avoid the need for financing has emerged as a potential option, according to people familiar with the matter. Deutsche Telekom AG, the majority owner of T-Mobile, and SoftBank Group Corp., which holds about 83 percent of Sprint, still haven’t decided if they will even attempt a deal, said the people, who asked not to be identified because the negotiations are private.
  • An all-stock offer would let Deutsche Telekom avoid paying a premium for Sprint while still making a compelling proposal for investors because of the long-term upside from cost savings and competitive advantages.
  • T-Mobile has an enterprise value of more than $80 billion, compared with about $70 billion for Sprint. Such an enormous combination would typically involve billions of dollars in financing, so a stock-for-stock merger might be disappointing for Wall Street banks, which make millions of dollars from lending fees on megadeals.
  • One of the proposals that’s been informally considered would involve Sprint and T-Mobile setting an exchange ratio that would give Deutsche Telekom a slightly higher percentage of the company than SoftBank, the people said. Neither company would own more than 50 percent of the new combination.
09 Jun 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

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

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

  • 2017 wide/tight: 122/111
  • 2016 wide/tight: 215 (a new wide since Jan. 2012)/122
  • 2015 wide/tight: 171/122
  • 2014 wide/tight: 137/97
  • All time wide/tight back to 1989: 555 (Dec. 2008)/54 (March 1997)

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

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

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

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

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

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

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

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

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

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