Category: Weekly Insights

24 Feb 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended February 22nd, taxable bond funds posted a net inflow of $3.987bn. The weekly average inflow thus far in 2017 remains just north of $4bn per week. Per Bloomberg, investment grade corporate issuance through Thursday was $13.925bn. February issuance stands at $75bn, while year-to-date investment grade issuance has now topped $231bn, up about 21% year-over-year.

(Bloomberg) Fitch Upgrades Pioneer Natural Resources to ‘BBB’

  • The upgrade reflects Fitch’s view that the company will be able to execute its medium-term growth targets given its competitive full-cycle breakeven oil price, favorable hedge position and policy, and strong liquidity position, while reducing gross debt and maintaining a leverage profile generally consistent with or better than similarly rated North American (N.A.) exploration and production (E&P) peers. Fitch’s base case currently forecasts that in 2019 Pioneer’s core Permian production will exceed 300 thousand boe per day (mboepd), gross debt/EBITDA will be below 1x, and liquidity will remain strong.

(Bloomberg) Merck Takes $1.9B Writedown as Hepatitis C Market Shrinks

  • Merck & Co., one of the U.S.’s biggest drugmakers, will write down most of what it paid for a promising, experimental hepatitis C drug in 2014, partly because of the extreme success of other new therapies has left a shrinking market.
  • In a filing Thursday, Merck said it would take a $2.9 billion charge, or $1.9 billion after taxes, on uprifosbuvir, which it bought in 2014 in its $3.9 billion acquisition of Idenix Pharmaceuticals Inc. and is still in clinical trials. Merck said it now values the drug at $240 million.
  • The market for treatments for hepatitis C, a virus that attacks the liver and can lead to cirrhosis or liver cancer, has been declining recently, with fewer patients to treat following major breakthroughs in science that brought to market highly effective, fast-working cures.

(Bloomberg) HP’s Earnings Show the PC Market Is Finally Starting to Recover

  • Prior to HP Inc’s January quarter earnings report, there were already plenty of signs that the hard-luck PC market was beginning to stabilize. Shipment estimates from major research firms, as well as earnings reports from the likes of Microsoft, Intel, AMD, Seagate and Western Digital, pointed to a market whose sales declines were narrowing considerably from the steep levels seen during the first half of 2016.
  • HP’s numbers went beyond that, however. They suggest the steady arrival of compelling new hardware and form factors, together with an aging installed base and favorable annual comparisons, is positioning the PC industry to deliver positive growth over the near-term.
  • HP Inc., which contains the former Hewlett-Packard’s PC and printing businesses, reported fiscal first quarter revenue of $12.68 billion (up 4% annually) and adjusted EPS of $0.38. The former trounced a consensus analyst estimate of $11.83 billion, while the latter slightly beat a $0.37 consensus.
  • HP also guided for second quarter EPS of $0.37 to $0.40, in line with a $0.38 pre-earnings consensus. Fiscal 2017 (ends in October) EPS guidance of $1.55 to $1.65 was reiterated.
  • Shares rose 8.6% to $17.60 on Thursday, hitting their highest levels since the old HP broke up in late 2015.
17 Feb 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $0.9 billion and year to date flows stand at $5.6 billion. New issuance for the week was $5.1 billion and year to date HY is at $36.6 billion.

(Business Wire) Mediacom Communications Completes New Term Loan

  • The $1.37 billion proceeds from the financing transactions were used to repay all of Mediacom LLC’s previously outstanding indebtedness
  • “We are very pleased with today’s completed transactions, which reduce MCCC’s interest expense to an all-time low, while extending the maturities of our debt arrangements,” stated Mark E. Stephan, MCCC’s Executive Vice President and Chief Financial Officer. “Mediacom’s quality reputation in the financial community fueled robust lender demand that allowed us to upsize and tighten the pricing on the institutional term loans. Our balance sheet has never been stronger, and with an industry-leading average cost of debt now below 4%, our ability to generate free cash flow has strengthened even further.”

(New York Times) Michael Flynn Resigns as National Security Adviser

  • Michael T. Flynn, the national security adviser, resigned after it was revealed that he had misled Vice President Mike Pence and other top White House officials about his conversations with the Russian ambassador to the United States
  • Mr. Flynn, who served in the job for less than a month, said he had given “incomplete information” regarding a telephone call he had with the ambassador in late December about American sanctions against Russia, weeks before President Trump’s inauguration. Mr. Flynn previously had denied that he had any substantive conversations with Ambassador Sergey I. Kislyak, and Mr. Pence repeated that claim in television interviews as recently as this month

(Bloomberg) Fed Chair Yellen Testifies to Congress

  • Yellen’s comments lifted the odds for a rate hike at the March meeting four points to 34 percent. While futures traders still see less than 50 percent odds for three increases this year, President Donald Trump’s vow to pursue pro-growth policies could push the Fed to pick up the pace. Inflation data Tuesday from China to American showed accelerating price gains at factories, bolstering the case for tightening before a reading on U.S. consumer price data Wednesday.
  • “Waiting too long to remove accommodation would be unwise, potentially requiring the FOMC to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession,” Yellen said

(PR Newswire) Huntsman Announces Financial Results

  • Peter R. Huntsman, our President and CEO, commented: “At the beginning of 2016, we announced our intent to generate more than $350 million of free cash flow. We delivered a record $686 million of free cash flow in 2016, including $117 million during the fourth quarter. We used this cash, together with proceeds from the sale of our European surfactants business, to repay $560 million in debt, significantly strengthening our balance sheet.
  • “We are also delivering on our commitment to separate the TiO2 business through the spin-off of Venator. We continue to make steady progress with the IRS to allow Huntsman to retain a 40% economic interest in Venator.”
  • Post the financial report, Huntsman did receive a private letter ruling from the IRS allowing the company to retain a 40% economic interest in the tax-free spinoff of Venator Materials

(PR Newswire) Equinix Reports Full Year Results

  • Revenues from continuing operations of $3,612 million, a 33% increase over the previous year; an organic and constant currency growth rate of greater than 14%
  • Adjusted EBITDA of $1,657 million, a 46% adjusted EBITDA margin
  • “2016 was a pivotal year for Equinix. We continued to capture the shift to the cloud, expand our global reach and scale, grow interconnection, and deliver record bookings and increasing shareholder returns. We are operating at the intersection of some of the greatest technology trends in our lifetime, and the digital transformation driven by cloud services is shifting compute, storage and networking to the edge, which plays into our dense ecosystems and global scale. We look forward to a busy 2017 as weintegrate our acquisitions, grow our global platform, enhance our portfolio of services and increase our reach and relevance to the cloud-enabled enterprise,” said Steve Smith, President and CEO.

(Globe Newswire) Avis Budget Group Reports Financial Results

  • For the year, the Company reported revenue of $8.7 billion, an increase of 2% compared with 2015. The Company reported full-year Adjusted EBITDA of $838 million and free cash flow of $472 million in 2016
  • “While our fourth quarter results reflect softer-than-expected volume and pricing, as well as currency movements having a $7 million adverse impact on Adjusted EBITDA compared to what we had anticipated, we are enthusiastic about our prospects for 2017 and beyond,” said Larry De Shon, Avis Budget Group Chief Executive Officer. “Our strategic initiatives are already beginning to deliver meaningful benefits, and we continue to expect that our efforts will drive substantial long-term margin growth.”
17 Feb 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended February 15th, investment grade funds posted a net inflow of $3.054bn. The total year-to-date net inflow into investment grade funds ended the week at $20.342bn. Per Bloomberg, investment grade corporate issuance through Thursday was $25.05bn. Year-to-date investment grade issuance has now topped $218bn, up over 60% from this point last year.

(Bloomberg) 600 MHz Spectrum Auction Highlights Telco Demand Shift

  • The 600 MHz auction’s assignment phase will end no later than March 30, 24 days after it begins, as the spectrum sale nears a close. Carriers including AT&T, T-Mobile and Verizon and others such as Dish and Comcast bid $19.6 billion for the licenses in the forward portion of the auction and now will compete for their exact frequency allocations in the assignment phase of the auction.
  • Once bidding ends, the FCC will announce the winners and down payments will then be due within 10 days.
  • Broadcasters including 21st Century Fox, Gray TV, Tribune and Sinclair won’t receive proceeds at least until payments are made by forward auction bidders. Broadcasters will be paid out when license applications from winning forward auction bidders are approved on a rolling, per-license basis.

(Press Release, Conference Call) Masco reported 4Q and full year results

  • Masco has around $600mm in cash over in Europe and other jurisdictions
  • 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)
  • 2016 Revenue influenced by:
    • Decreased by $68mm (1% of revenue) due to currency translation.
      • Currency translation is expected to affect sales by $100mm during 2017
    • Decreased by $21mm (.3% of revenue) due to warranty reserve increase in their Milgard window business in Q3
  • 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
    • One change, in their comment, was that they are also looking at other areas, but the focus is still on plumbing and decorative architecture
  • Masco returned $585mm to its shareholders through dividends and share repurchases during 2016 (compared to $546mm in FCF)

(Bloomberg) Ford’s Dozing Engineers Side With Google in Full Autonomy Push

  • As Ford Motor Co. has been developing self-driving cars, the U.S. automaker has started noticing a problem during test drives: Engineers monitoring the robot rides are dozing off.
  • Company researchers have tried to roust the engineers with bells, buzzers, warning lights, vibrating seats and shaking steering wheels.
  • BMW, Mercedes-Benz and Volkswagen AG’s Audi plan to roll out semi-autonomous cars starting next year that require drivers to take over with as little as 10 seconds notice.
  • Ford plans to skip that level altogether. The automaker has aligned with Alphabet Inc.’s Waymo, which made similar discoveries related to human inattention while researching Google’s driverless car.
10 Feb 2017

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $1.0 billion and year to date flows stand at $4.0 billion. New issuance for the week was $9.3 billion and year to date HY is at $31.5 billion.

(Reuters) Tax reforms might impact U.S. bond market

  • US corporate tax reform proposals are causing consternation among bond market players, who fear their implementation will drastically reduce issuance levels
  • President Donald Trump has plans to cut corporate tax rates, allow repatriation of cash stuck in overseas accounts, and eliminate companies’ ability to deduct debt interest expenses from tax – actions some think would hugely reduce companies’ current reliance on debt
  • “The elimination of tax deductibility will not be the death knell for the corporate bond market all of a sudden,” said Matthew Minnetian, a portfolio manager at Alliance Bernstein
  • “I’d be very surprised to see capital structures change overnight, and if you look at the cost of debt versus the return on equity, the cost of debt is still very low.”

(New York Times) Trump Says Health Law Replacement May Not Be Ready Until 2018

  • President Trump said in an interview that aired on Sunday that a replacement health care law was not likely to be ready until either the end of this year or in 2018, a major shift from promises by both him and Republican leaders to repeal and replace the law as soon as possible
  • “Maybe it’ll take till sometime into next year, but we’re certainly going to be in the process,” Mr. Trump said during an interview with Bill O’Reilly of Fox News, after Mr. O’Reilly asked the president whether Americans could “expect a new health care plan rolled out by the Trump administration this year.”
  • “It statutorily takes awhile to get,” Mr. Trump said. “We’re going to be putting it in fairly soon, I think that, yes, I would like to say by the end of the year at least the rudiments but we should have something within the year and the following year.”

(Fierce Wireless) Mobile video to grow almost 900% by 2021, Cisco predicts

  • Worldwide consumption of mobile video will grow nearly ninefold from 2016 to 2021, Cisco predicted, and will account for 78% of all mobile traffic by the end of that time period, up from 60% last year
  • “With the proliferation of IoT, live mobile video, augmented and virtual reality applications, and more innovative experiences for consumers and business users alike, 5G technology will have significant relevance not just for mobility but rather for networking as a whole,” said Doug Webster, Cisco’s vice president of service provider marketing. “As a result, broader and more extensive architectural transformations involving programmability and automation will also be needed to support the capabilities 5G enables, and to address not just today’s demands but also the extensive possibilities on the horizon.”

(Globe Newswire) CoreCivic Reports Fourth Quarter and Full Year 2016 Results

  • “The final quarter of 2016 was exceptionally busy, with many significant accomplishments of which we are proud. During the quarter we formally launched the CoreCivic brand which more appropriately reflects the range of solutions we can provide, substantially completed the expansion of our Red Rock Correctional Center, entered into two new contracts with Immigration and Customs Enforcement to help address their emergent bed capacity needs, and extended our contract with the Federal Bureau of Prisons at our McRae Correctional Facility, to name a few of those accomplishments,” said Damon T. Hininger, CoreCivic’s President and Chief Executive Officer. “We see many opportunities to work with new and existing partners to deliver real estate solutions that address each partner’s unique needs, and we have the expertise and flexibility to deliver those solutions in an innovative and cost-effective manner.”
  • Revenue of $464.1 million for 4Q increased 3.6% from the prior year quarter
  • Total revenue of $1.85 billion in 2016 versus $1.79 billion in 2015

(Bloomberg) Junk May Slam Into $1 Trillion Wall as Maturities Hit Record

  • A record $1 trillion of junk debt will mature by 2021, leaving high-risk companies to hunt for new cash at a time when markets are likely to be less welcoming, according to Moody’s Investors Service
  • Speculative-grade companies have $1.06 trillion of debt maturing between 2017 and 2021, with the bulk of it, $933 billion, coming due after 2019, Moody’s said Wednesday in a report
  • More than 30 percent of the high-yield bonds coming due are rated Caa1 or below by Moody’s, at least seven levels below investment grade. More than 8 percent of leveraged loans are rated Caa1 or below, up from 5.8 percent in the equivalent 2016 study. The telecommunications sector has the most debt coming due over the next five years with $81 billion

(Bloomberg) OPEC Keeps Its Promise About Crude Oil Cuts, IEA Says

  • OPEC achieved the best compliance rate in its history at the outset of an accord to clear the oil glut
  • The Organization of Petroleum Exporting Countries implemented 90 percent of promised output cuts in January
03 Feb 2017

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 $3.0 billion. New issuance for the week was $3.9 billion and year to date HY is at $21.6 billion.

(New York Times) Trump Fires Acting Attorney General

  • President Trump fired his acting attorney general on Monday night, removing her as the nation’s top law enforcement officer after she defiantly refused to defend his executive order closing the nation’s borders to refugees and people from predominantly Muslim countries
  • The president replaced Ms. Yates with Dana J. Boente, the United States attorney for the Eastern District of Virginia, saying that he would serve as attorney general until Congress acts to confirm Senator Jeff Sessions of Alabama
  • Ms. Yates’s order was a remarkable rebuke by a government official to a sitting president. Ms. Yates’s decision had effectively overruled a finding by the Justice Department’s Office of Legal Counsel, which had already approved the executive order “with respect to form and legality.”

(Company Release) Huntsman’s Pori, Finland Facility Experiences Fire

  • A fire started at Huntsman Corporation’s titanium dioxide manufacturing facility in Pori, Finland. All Huntsman associates at the site have been accounted for and there were no injuries. The fire brigade responded quickly and extinguished the fire.
  • Pori has a capacity of 130,000 metric tons, which represents approximately 15% of Huntsman’s total titanium dioxide capacity and approximately 10% of total European demand. The site is insured for property damage as well as earnings losses.

(The Hollywood Reporter) Charter Preparing to Claim Fox News Breached Carriage Deal

  • The legal fight over Charter Communications’ television carriage contracts is expanding and will soon involve deals made by other cable and satellite companies. Charter has told a New York judge about its intention to sue Fox News over the “most favored nations” provision of its distribution agreement.
  • Fox News has asserted breach of contract and fraud in the way Charter told regulators and shareholders of being the acquiring company only to hold up TWC’s contracts as surviving. Charter looks to dismiss Fox News’ fraud claim and is arguing that it is customary for a bigger operator, with more customers, to pay lower rates

(TMoNews) T-Mobile named No. 1 in Customer Service Satisfaction by Nielsen

  • T-Mobile’s customer service has been named the best in the wireless industry.
  • Nielsen Mobile Insights gave T-Mobile the top spot in Customer Service Satisfaction at the end of 2016, with Verizon, AT&T, and then Sprint following. T-Mobile beat out its competition in the Likelihood to Recommend, Net Promoter Score, and Overall Customer Satisfaction categories, too.
  • T-Mobile has been named No. 1 in customer satisfaction by Nielsen Mobile Insights before, and John Legere and Co. are pretty pleased to win it again. Here’s the CEO’s statement on the news:
    “We have the best damn care team in the business – at this point, that’s not even up for debate. But like everyone else at this company, our care team takes ‘we won’t stop’ pretty literally. They’ve got their sights on being the #1 care team in any industry, anywhere – not just wireless. That was so 2016.”

(Bloomberg) Weatherford Surges on Plans to Sell Assets And Be More ‘Boring’

  • Weatherford rose the most in more than two months after announcing plans to pair up with the world’s biggest onshore driller and sell assets for as much as $2 billion
  • Weatherford’s interim Chief Executive Officer Krishna Shivram is working on multiple fronts to revitalize the troubled oilfield service company as the oil industry begins to dig out from the worst downturn in a generation. He plans to sell Weatherford’s U.S. onshore fracking business and its land-rigs unit to cut debt and streamline its service offerings, shed more workers and boost sales through an alliance with Nabors Industries Ltd
  • “You will see a new, revitalized Weatherford with disciplined growth and improved returns, with no surprises and better predictability,” Shivram told analysts and investors Thursday on a conference call

(Business Wire) HCA Reports Fourth Quarter 2016 Results

  • Revenues in the fourth quarter totaled $10.641 billion, compared to $10.249 billion in the fourth quarter of 2015
  • Adjusted EBITDA for the fourth quarter of 2016 increased 3.6 percent to $2.206 billion compared to $2.131 billion in the prior year period
  • Fourth quarter same facility revenue growth of 3.4 percent was driven by an increase of 1.5 percent in same facility equivalent admissions and an increase of 1.9 percent in same facility revenue per equivalent admission in the fourth quarter of 2016
03 Feb 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended February 1st, investment grade funds posted a net inflow of $2.657bn. The total year-to-date net inflow into investment grade funds ended the week at $12.355bn. Per Bloomberg, investment grade corporate issuance through Thursday was $45.8bn. For the month of January, new issuance came in at $178.45bn, one of the largest months on record.

(Conference Call, CAM Notes) Simon Property Group Reports Full Year 2016 Earnings

  • Conference Call Highlights:
    • SPG currently has 434 department store spaces in their portfolio
      • 1 current vacancy
    • Also of the recently announced department store closures, 1 was in their portfolio
    • SPG says they saw more stores closings in 2015 than 2016 (non-department)
    • On Traffic:
      • Gift cards sales were up 14% which, SPG believes, is a good indicator of traffic
      • Premium Outlet traffic (counted by cars entering parking lot) was up 1.5% YoY
    • David Simon stated on the call that they believe retailers are spending a lot of capital on internet sales, “and between that and the promotions required to get them to buy online between the cost of shipping and the returns, it’s not a great model for them.”
    • Mall & Premium outlets catering to foreign buyers were negatively affected by the strong dollar during the quarter (same as last)
    • Retail centers outside of tourist oriented malls were stable during the quarter
    • As far as development pipeline:
      • Redevelopment expansion projects are happening at 29 properties for approximately $1.1bn (their share)
      • Five outlets are currently under construction (all open in 2017):
      • Domestic: Norfolk, VA
      • The Clarksville Premium Outlet (D.C.) opened in late October and, “had the strongest open of any premium outlet in a long time.”
      • Internationally: France, South Korea, Malaysia and Canada.
      • One new mall is currently under construction: The Shops of Clearfork (Fort Worth) which is anchored by Niemen is to open in the fall of 2017
      • Brickell City Centre (Miami) opened in the 4th quarter

(Bloomberg) Apple, Microsoft Borrow Now Instead of Waiting for Tax Reform

  • This year, tax reform could give U.S. companies access to hundreds of billions of dollars they have stashed overseas. Many corporations can’t wait that long.
  • Apple Inc. and Microsoft Corp. combined sold $27 billion of debt this week to fund their daily operations, repay maturing debt, and buy back shares. Those bond sales might be unnecessary if new tax laws come this year, because under President Donald Trump’s proposed plan, companies could pay a one-time 10 percent levy to bring back money held overseas, less than a third of the current rate.
  • Whenever companies can bring back cash, corporate bond issuance will likely drop, by as much as $150 billion a year, Bank of America Corp. estimated in November. That’s equal to more than 10 percent of the U.S. investment-grade debt issued last year, according to data compiled by Bloomberg. The companies with the most overseas cash tend to be in the technology and pharmaceutical industries.
  • The U.S. last saw a tax holiday under a 2004 law. As part of that legislation, companies were allowed to bring back foreign earnings for one tax year at essentially a rate of 5.25 percent if they reinvested the funds in programs like worker hiring or capital investments. Although that holiday had a time frame of a single tax year, a program like the House Republicans’ could be implemented almost immediately, and last at least 10 years, Mills said.
  • For now, companies don’t mind heading back to the debt markets, considering the low yields and minimal volatility, said Dave Novosel, a bond analyst at research firm Gimme Credit.
  • “Markets are still pretty good. Why not take advantage of it?,” Novosel said. “A month from now, or two months from now, things might not be as good depending on what happens with Trump and Congress.”
27 Jan 2017

CAM High Yield Weekly Insights

 

Fund Flows & Issuance: According to Wells Fargo, flows week to date were $0.7 billion and year to date flows stand at $1.5 billion. New issuance for the week was $9 billion and year to date HY is at $17.6 billion.

(Globe Newswire) Pinnacle Foods Inc. Launches Proposed Refinancing

  • On the heels of a strong finish to 2016, Pinnacle Foods intends to launch a refinancing of its outstanding indebtedness under its senior secured credit facilities
  • The proposed refinancing is expected to result in interest expense comparable to or slightly below 2016, despite the impact of the rising interest rate environment on the Company’s floating rate debt. It is also expected to improve the Company’s debt maturity profile

(Washington Post) Trump signs executive order on the Affordable Care Act

  • President Trump signed an executive order giving federal agencies broad powers to unwind regulations created under the Affordable Care Act
  • The executive order, signed in the Oval Office as one of the new president’s first actions, directs agencies to grant relief to all constituencies affected by the sprawling 2010 health-care law: consumers, insurers, hospitals, doctors, pharmaceutical companies, states and others

(Press Release) Northern California County Selects Zayo for School District Connectivity

  • The Office of Education for a northern California county has selected Zayo Group Holdings, Inc. for a dark fiber network that will connect 28 school districts. The 183-mile network includes 173 miles of network in place or already under construction and 10 miles of new build, which will be leveraged for follow-on tenants
  • “Dark fiber is a highly scalable, cost-effective solution that provides the county with dedicated, high-capacity infrastructure,” said Dave Jones, executive vice president of Dark Fiber Solutions at Zayo. “They appreciate the flexibility of a solution they can manage themselves to meet the dynamic, long-terms needs of the county.”

(PR Newswire) Royal Caribbean Reports Over 25% Increase In Earnings And Anticipates Fifth Consecutive Year Of Double Digit Earnings Growth In 2017

  • The company’s booked position for 2017 is better than last year’s record high, and at higher rates. Strength from North American consumers is driving exceptionally positive trends for North American and European products
  • “Our global portfolio of products is demonstrating strength across virtually all key markets, positioning us to deliver strong yield growth in 2017,” said Jason T. Liberty, chief financial officer. “Strong topline growth combined with continued focus on cost management will generate another year of record setting results. Even with significant pressure from FX and fuel, we will deliver another stellar year.”

(Bloomberg) United Rentals to Acquire Competitor NES in $965 Million Deal

  • United Rentals Inc. agreed to buy NES Rentals Holdings II for $965 million to bolster its equipment-leasing operations in regions such as the U.S. East Coast and Midwest
  • Buying NES, which generated sales last year of $369 million, “will augment our revenue, earnings, Ebitda, free cash flow and overall scale,”Michael Kneeland, chief executive officer of United Rentals, said in the statement

(Bloomberg) Spectrum Brands Reports 1Q Results

  • 1Q net sales $1.21b, est. $1.22b (range $1.21b-$1.25b)
  • 1Q gross margin 37.1%, est. 36.6%
  • Sees FY17 free cash flow $575m to $590m, est. $567.6m

(Bloomberg) Verizon Exploring Possible Combination With Charter

  • A combination of Verizon and Charter would follow several recent industry mega-mergers, including Charter’s acquisition of Time Warner Cable and Bright House Networks, which made the Stamford, Connecticut-based company, partly owned by billionaire John Malone, the second-largest cable operator in the U.S. behind Comcast. Verizon, while facing a slowdown in its core wireless business, is the No. 1 mobile carrier and No. 2 telecommunications provider

(Bloomberg) Dialysis Provider Donation Disclosure Rule Blocked

  • A federal rule requiring kidney dialysis providers such as U.S. Renal Care Inc. and DaVita Inc. to disclose their donations to charities that provide premium assistance for dialysis patients can’t be enforced by the HHS
  • Judge Amos L. Mazzant of the U.S. District Court for the Eastern District of Texas entered a preliminary injunction against the rule Jan. 25, finding the Department of Health and Human Services didn’t follow the proper rulemaking procedure when implementing the rule. The court further said the rule, if implemented, would harm dialysis patients by leaving them with no insurance coverage for their treatment
  • Dialysis providers generally receive more reimbursement for dialysis treatments covered by private insurance, including plans on Affordable Care Act exchanges, than by Medicare or Medicaid plans. Providers said the HHS rule was flawed because it had the effect of allowing private insurers to refuse to cover patients once they learned that the patients received premium assistance from those charitable donations
27 Jan 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended January 25th, investment grade funds posted a net inflow of $1.589bn. The total year-to-date net inflow into investment grade funds ended the week at $9.697bn. Per Bloomberg, investment grade corporate issuance through Thursday was ~$25bn. Thus far, $146.8bn of investment grade corporate bonds have been issued in January.

(WSJ) Apple Sues Qualcomm Over Licensing Practices

  • The suit, filed Friday in federal district court in the Southern District of California, claims that Qualcomm leveraged its monopoly position as a manufacturer of baseband chips, a critical component used in cellphones, to seek “onerous, unreasonable and costly” terms for patents, and that Qualcomm blocked Apple’s ability to choose another supplier for chipsets.
  • The complaint seeks $1 billion in rebate payments that Apple says Qualcomm has withheld as retribution for Apple’s participation in an investigation by South Korea’s antitrust regulator.
  • Apple said in a statement that it sued Qualcomm “after years of disagreement over what constitutes a fair and reasonable royalty.”

(Bloomberg) Ford Seen as ‘Canary’ With Record Leases Spurring Used Glut

  • A glut of used vehicles has started to depress prices. That trend will intensify as Americans will return 3.36 million leased cars and trucks this year, another jump after a 33 percent surge in 2016, according to J.D. Power. The fallout has already begun, with Ford Motor Co. shaving $300 million from its financial-services arm’s profit forecast for this year.
  • “Ford is the canary in the coal mine,” said Maryann Keller, a former Wall Street analyst who’s now an auto industry consultant in Stamford, Connecticut.
  • This drag may be hitting the rest of the industry, too. A National Automobile Dealers Association index of used-vehicle prices declined each of the last six months of last year. When auto lenders lease out vehicles, they charge the customer a monthly payment and make an assumption of the car or truck’s value when it will be returned for resale. If vehicles are depreciating more than expected, losses can pile up.
  • “We haven’t seen anything that suggests that what’s happening to our portfolio is different from what’s happening across the industry,” Bob Shanks, Ford’s chief financial officer, told analysts in November.
  • Another way automakers could cope is by expanding their offerings of certified pre-owned vehicles — used cars with extended warranties — to try to bolster prices.
  • The question for auto companies is whether pulling those levers will offset any losses from overlooking the true cost of using hefty incentives and discounted leases to boost new-vehicle sales.

(Bloomberg) Dow Sees DuPont Merger Closing in 1H, CEO Says on Conf. Call

  • Dow Chemical says DuPont merger could be a “2Q close”; confident that company can solve EU antitrust concerns, CEO Andrew Liveris said during conf. call.
  • Says other jurisdictions will “fall in line” after EU
  • Sees Trump using executive orders to lift regulatory burdens
  • Sees DOW benefiting from infrastructure plan, Keystone Pipeline decision
  • DOW is a big U.S. exporter, so Trump border tax “big positive”
  • Sees Trump lifting regulatory burdens in 30-60 days
  • Sees new plant delays maintaining ethylene operating rates
20 Jan 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 $7.2 billion and year to date HY is at $8.6 billion.

(Food Business News) B&G Foods ready to make another Green Giant-size acquisition

  • B&G doubled its corporate infrastructure with the Green Giant deal and “set ourselves to really continue an acquisition path in a big way,” said Bob Cantwell, chief executive officer and president
  • “We still believe that the right answer for B&G is to get bigger managing smaller things. That really differentiates ourselves against everybody else, but certainly, be ready to buy more things like Green Giant of that size, $500-plus million, because we’re certainly capable of doing that.”
  • “If there’s an acquisition out there that really fits B&G, we’re going to be ready. We’re ready for it today. We’d prefer a little time just to absorb everything we have, but we’re not going to lose out on an acquisition that’s an absolute fit for B&G today.”

(Washington Post) Trump vows ‘insurance for everybody’ in Obamacare replacement plan

  • President-elect Donald Trump said in a weekend interview that he is nearing completion of a plan to replace President Obama’s signature health-care law with the goal of “insurance for everybody,” while also vowing to force drug companies to negotiate directly with the government on prices in Medicare and Medicaid
  • In addition to his replacement plan for the ACA, also known as Obamacare, Trump said he will target pharmaceutical companies over drug prices. “They’re politically protected, but not anymore”
  • “We’re going to have insurance for everybody,” Trump said. “There was a philosophy in some circles that if you can’t pay for it, you don’t get it. That’s not going to happen with us.” People covered under the law “can expect to have great health care
  • Trump said his plan for replacing most aspects of Obama’s health-care law is all but finished. Although he was coy about its details — “lower numbers, much lower deductibles” — he said he is ready to unveil it alongside Ryan and Senate Majority Leader Mitch McConnell (R-Ky.)
  • “It’s very much formulated down to the final strokes. We haven’t put it in quite yet but we’re going to be doing it soon,” Trump said. He noted that he is waiting for his nominee for secretary of health and human services, Rep. Tom Price (R-Ga.), to be confirmed

(Broadcasting & Cable) Spectrum Auction: TV’s New Exit Price Plummets to $10B

  • That is a huge drop from the previous round and sounds like a number wireless operators might be able to love, or at least meet, so long as the average price in the top markets also meets the second prong for closing the auction successfully. It is a far cry from the $86 billion broadcaster asking price when the auction began, though that was for much more spectrum
  • That $10 billion is how much the government will have to pay—actually it will be wireless companies if/when the auction finally closes for good—to move broadcasters off 84 MHz of spectrum so it can offer it to forward auction bidders for wireless broadband. That is down from the $43 billion broadcasters wanted for 108 MHz in stage 3 of the auction

(Bloomberg) IEA Sees Significant Gains in U.S. Shale Oil as Prices Rise

  • Oil-price gains will trigger a “significant” increase in U.S. shale output as OPEC and other producers rein in supply, according to the head of the International Energy Agency
  • “U.S. shale-oil production will definitely react strongly,” said Executive Director Fatih Birol. “At $50, $55, we’ve already seen a lot of activity,” Birol said. “U.S. oil production will continue to increase in significant terms.”
  • The oil industry is becoming more cost-efficient and a “big chunk” of global output is now profitable at $50 to $55 a barrel, citing Brazil, Mexico and China as countries that will also boost production. There’ll be “lots more” supply in late 2017 or early 2018, he said
  • Oil prices have risen about 20 percent since the Organization of Petroleum Exporting Countries reached a deal to curtail supply last year. The Nov. 30 agreement prompted a surge in activity in the U.S. — not an OPEC member — where oil and gas producers increased drilling the most since April 2014

(Business Wire) Mediacom Communications Makes Iowa First Gigabit State in the Nation

  • Nearly 1 million households in the more than 300 Iowa communities passed by Mediacom’s fiber-rich digital network will be able to enjoy download speeds that are up to 40 times faster than the minimum broadband definition set by the Federal Communications Commission
  • “In addition to enhancing speeds for residential and small business customers today, the Gigasphere platform we have deployed also lays the groundwork for offering multi-Gig services in the future,” said Mediacom’s Chief Technology Officer, JR Walden. “This next generation technology is an excellent complement to the Gigabit+ Fiber SolutionsTM that Mediacom Business has been offering local businesses in our markets for many years.”
20 Jan 2017

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended January 18th, investment grade funds posted a net inflow of $1.893bn. The total year-to-date net inflow into investment grade funds ended the week at $8.108bn. Per Bloomberg, investment grade corporate issuance through Thursday was ~$29bn. Thus far, $121.8bn of investment grade corporate bonds have been issued in January, besting consensus estimates of $112bn.

(Press Release) IBM Reports 2016 Fourth-Quarter and Full-Year Results

  • Highlights
    • Diluted EPS from continuing operations: GAAP of $4.73; Operating (non-GAAP) of $5.01
    • Revenue from continuing operations of $21.8 billion
    • Strategic imperatives revenue for full-year 2016 of $32.8 billion up 13 percent (up 14 percent adjusting for currency) represents 41 percent of IBM revenue
    • Cloud revenue of $13.7 billion for full-year 2016, up 35 percent
      • Cloud as-a-service annual exit run rate of $8.6 billion at year end, up 61 percent year to year (up 63 percent adjusting for currency)
    • 2017 EPS Expectations: GAAP of at least $11.95; Operating (non-GAAP) of at least $13.80
  • “In 2016, our strategic imperatives grew to represent more than 40 percent of our total revenue and we have established ourselves as the industry’s leading cognitive solutions and cloud platform company,” said Ginni Rometty, IBM chairman, president and chief executive officer. “IBM Watson is the world’s leading AI platform for business, and emerging solutions such as IBM Blockchain are enabling new levels of trust in transactions of every kind. More and more clients are choosing the IBM Cloud because of its differentiated capabilities, which are helping to transform industries, such as financial services, airlines and retail.”

(NYT) Morgan Stanley Nearly Doubled Profit From Year Earlier Fourth Quarter

  • Morgan Stanley roared in the fourth quarter, but it also exposed the limits of animal spirits. The bank led by James Gorman almost doubled its profit in the period from a year earlier to $1.7 billion. As at rivals, though, return on equity remains subpar.
  • Some banking businesses do not fare well when too much hangs in the balance, as occurred with an OPEC meeting, an Italian constitutional referendum and the American election late last year. Fees from new stock sales, for example, fell 5 percent from the third quarter at Morgan Stanley, 19 percent at JPMorgan Chase and 34 percent at Bank of America.
  • Trading desks ought to have been reaping the benefit from market mood swings. They certainly performed better in last year’s final quarter than during the same span in 2015. Morgan Stanley’s fixed-income, currency and commodities dealers raked in, at $1.5 billion, nearly three times as much revenue.
  • Profitability also remains subdued. With annualized return on equity of 8.7 percent in the fourth quarter, Mr. Gorman is inching toward his 2017 goal of 9 percent to 11 percent. For now, Morgan Stanley keeps failing to cover its cost of capital, generally assumed to be 10 percent for large banks.
  • Business may pick up in time, but that story has been told for years. What could power earnings is largely beyond Wall Street’s control: more and faster interest-rate increases from the Federal Reserve and financial rule changes from Washington.
  • Morgan Stanley is well placed to benefit from both. It is growing its lending business and its mostly domestic wealth-management unit accounts for an increasing share of the company’s profit. With a capital ratio of 16.8 percent, the bank holds more excess than rivals and thus has plenty to return to shareholders if regulators allow.

(Bloomberg) Key Republicans at Tom Price Hearing Still Wary on Health Law Repeal

  • A hearing on President-elect Donald Trump’s choice for health secretary became an arena Wednesday for key Republicans to stress their opposition to overturning the current health law without a clear replacement.
  • The panel was considering the selection of Rep. Tom Price (R., Ga.), but much of the session focused on GOP plans for undoing the health law. Sens. Lamar Alexander (R., Tenn.) and Susan Collins (R., Me.) pointedly told Mr. Price their concerns about an initial Republican strategy of repealing the law without an agreed alternative in hand.
  • Mr. Alexander, who chairs the Senate Health, Education, Labor and Pensions Committee, warned that the fragile insurance market in his state means he cannot support anything that would trigger further disruption. He finished on a similar note, telling Mr. Price he was confident he had secured his agreement.
  • “What I heard from you, I believe I’m correct about this, is that while we intend to repair the damage of Obamacare and that will eventually mean repealing parts of it—major parts of it—that won’t become effective until there are practical, concrete alternatives in place to give Americans access to health care,” he said.
  • The GOP-controlled Senate and House have taken their first procedural steps toward repealing the ACA, passing a budget that directs lawmakers to start drafting legislation to dismantle much of the law. But Republicans’ 52-48 Senate majority offers little room for defections as they move ahead.

(Bloomberg Intelligence) Dakota Access Still Has Path to Completion Despite Corps’ Review

  • The Dakota Access Pipeline project may be delayed by a new Army Corps environmental review, but that isn’t likely to stop the project from being completed.
  • The pipeline lost a court bid to block the Army Corps from preparing an environmental impact statement on the lake crossing, opening up the project to a period of public comment and review ending Feb. 20.
  • While publication of the EIS notice somewhat hems in the incoming Trump administration, the new president’s appointees may still withdraw it or reverse course.
  • In the interim, the federal district court in Washington could also agree with Dakota Access that the easement was actually granted in July, negating the EIS process completely.
  • If the EIS process is allowed to go to completion, that process may last as long as six months.