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.