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 -$4.3 billion. New issuance for the week was $6.0 billion and year to date HY is at $116 billion.

(Bloomberg) Clariant to Buy Huntsman for $6.4 Billion as M&A Surges

• Clariant AG agreed to buy Huntsman Corp. in an all-stock deal valuing the U.S. company at about $6.4 billion, extending a record run in transactions in the global chemicals industry.
• The chances another offer for Clariant emerges are “high,” given it’s the No. 1 target in the sector, a Baader Helvea analyst said in a note, adding that the planned combination with Huntsman comes across as a defensive move.
• An agreement between Huntsman and Clariant adds to an already historic level of deals in the industry as CEOs seek to bolster tepid sales growth. Global chemical companies have more than $300 billion in M&A planned, according to a report by AT Kearney published in March. That level is more than twice the previous all-time high set at the end of 2015, according to the management consulting firm.
• “We never felt or saw ourselves as a takeover candidate,” Clariant CEO Hariolf Kottmann said on the call. “It would be very surprising to me if there were another company who could match or even top the value we are creating by merging these two companies together or that could tell a more convincing story to the market.”

(Modern Healthcare) Trump budget proposal would slash Medicaid

• President Donald Trump’s budget proposal reflects the same $800 billion cut to Medicaid over a decade that was in the bill which last month passed the House. The Congressional Budget Office estimates that could lead to 10 million people losing healthcare insurance over 10 years.
• According to the Associated Press, the White House will also implement a federal order that allows states to impose work requirements on people who receive Medicaid and food stamps.
• By cutting Medicaid, Trump is rejecting the calls of some Senate Republicans who asked him not to stop expansion of Medicaid, which funneled billions into cash-strapped states. Even the most ardent opponents of the Affordable Care Act held out their hands when the federal government offered to subsidize the cost of expanding eligibility for Medicaid.
• “I would think that the health care bill is our best policy statement on Medicaid going forward,” said Rep. Greg Walden (R-Ore.), chairman of the House Energy and Commerce Committee, which has jurisdiction over the program.

(Bloomberg) Shale Is Just a Scapegoat for Weaker Oil Prices

• When the Organization of the Petroleum Exporting Countries gathers in Vienna this week, members and non-OPEC oil producers are likely to extend the production cuts put in place in November as a way to shore up prices, which have been choppy this month. Whatever the final details look like, a mix of oil-bullish policy and jawboning are likely to be on the menu.
• Oil prices have risen on trend since April 2016, but came under pressure in early May, and analysts once again pointed to U.S. shale oil production as the culprit. And while shale is a big deal, there wasn’t a major change in output that triggered the significant oil market selloff starting May 2. After all, the shale story has been playing out for some time, and oil rig counts are up around 125 percent since May 2016.
• The focus on the supply side of the market to explain this recent selloff was misguided because this time, it was demand that engendered concerns: The April Chinese Manufacturing Caixin PMI, which was released late on May 1, fell to the slowest pace in seven months.
• China is the critical marginal swing player for oil demand growth and consumption, and the weak Chinese manufacturing PMI — and its implications for oil demand growth — initiated the selloff in WTI crude oil prices that started with a close below a critical trendline that had been in place since April 2016. Although oil prices have risen since the early May selloff, they remain under pressure — and traders will be taking their cues from the action in Vienna this week.

(Bloomberg) MGM Said to Drop $1.3 Billion Bid for Sands Pennsylvania Casino

• MGM Resorts International dropped its $1.3 billion bid to acquire a casino in Bethlehem, Pennsylvania, according to a person familiar with the situation.
• The parties appeared close to a deal just weeks ago. MGM approached casino owner Las Vegas Sands Corp. in March and was performing due diligence on the property, according to the person, who asked not to be identified because the discussions were private. Sands sent a letter to employees of the casino informing them of the possible sale and halted work on an expansion.
• It wasn’t immediately clear what derailed the sale, but lawmakers in Pennsylvania are considering legislation that would allow slot machines in bars, an expansion that has eaten into the business of traditional casinos in other states such as Illinois.
• The deal would have allowed Las Vegas-based MGM to accelerate its expansion in the eastern U.S. through the company’s publicly traded real estate investment trust, MGM Growth Properties, which made the initial approach. Last year, MGM bought out its 50 percent partner in the Borgata casino in Atlantic City, New Jersey, and opened a resort in Maryland. Another casino is planned for Massachusetts next year.
• Las Vegas-based Sands, the world’s largest casino company, would have parted with an asset that doesn’t fit its focus on large international meeting and convention destinations.