CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Lipper, for the week ended March 29th, investment grade funds posted a net inflow of $3.966bn. Per Lipper data, the year-to-date net inflow into investment grade funds was $39.090bn through March 29th. Per Barclays, investment grade corporate issuance through Thursday was $21.25bn. For the month of March, $128.57bn in investment grade deals priced. This compares to $128.58bn in March of 2016. Q12017 was the largest IG corporate issuance quarter on record at $397bn. Dealers on the street are expecting issuance to abate somewhat in the April, which stands to reason given earnings blackout periods.

(Bloomberg) DuPont, FMC to Swap Crop Protection and Health & Nutrition Units

• DuPont agrees divest its Crop Protection business, including certain R&D capabilities, and to buy FMC’s Health & Nutrition business.
  
  • Deal includes $1.6b to DD to reflect difference in value ($1.2b cash, $425m working capital)
  • Sale satisfies DD’s EC commitments regarding Dow merger
  • FMC buying DD’s Cereal Broadleaf Herbicides, Chewing Insecticides portfolios, including Rynaxypyr, Cyazypyr, Indoxacarb; assets being divested generated 2016 rev. ~$1.4b
  • DD buying FMC’s Health & Nutrition business, which generated 2016 rev. >$700m from 2 main segments: texturants as food ingredients, pharmaceutical excipients
  • FMC sees immediately accretive to adj. EPS on closing; will update outlook on earnings call scheduled for May 2
  • DD/FMC deal close due in 4Q, subject to DD/DOW merger, regulatory approvals
  • DOW/DD extend outside date of deal to Aug. 31; see deal closing between Aug. 1 and Sept. 1
  • Material Science Company now expected to be first spin-off
  • Evercore, Goldman advising DD
  • Dyal, Citi advising FMC; Citi provided financing advice, committed debt facilities

(Bloomberg) Union Pacific Rattles Its Cash Coffer With $1 Billion Debt Issue

• Union Pacific’s $500 million debt offering of 10-year and $500 million of 30-year bonds has the use of proceeds earmarked for general corporate purposes, including refinancing maturities, working capital and buybacks. The rail operator has about $500 million of maturities in 2017. The incremental $500 million of debt may put adjusted debt-to-Ebitda at about 1.8x, assuming the company meets consensus 2017 Ebitda. This level of leverage is below its 2x target and in-line with single A rated peer Canadian National.

(Bloomberg) Oil Set for Biggest Weekly Gain in 2017 as OPEC Eyes Extension

• Oil headed for its biggest weekly increase this year amid speculation OPEC will extend its deal to curb output and ease a global glut.
• Futures are up 4.7 percent in New York this week, climbing back above $50 a barrel after Kuwait Oil Minister Issam Almarzooq reiterated support for prolonging a six-month deal to trim supply past June. Still, prices are down 6.5 percent this quarter, their biggest three-month loss since late 2015, as U.S. crude stockpiles continue to pile up.
• The latest comments from Kuwait’s oil minister are bolstering confidence in OPEC’s commitment to drain swollen stockpiles ahead of the group’s next formal ministerial meeting on May 25 in Vienna. Five producers from the Organization of Petroleum Exporting Countries joined with non-member Oman on Sunday to voice support for an extension. Optimism over the cuts had wavered recently amid a surge in U.S. supply, with the nation boosting crude output last week to the highest in more than a year.
• “OPEC is fully aware that running down the crude overhang will take more than six months, so a rollover of the deal is still the most likely outcome,” said Amrita Sen, chief oil analyst at Energy Aspects Ltd. “Overall balances are heading in the right direction, but only crude stock draws will help prices break out of the current range-bound trading.”