CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at -$7.3 billion. New issuance for the week was $4.3 billion and year to date HY is at $229 billion, which is up 22% over the same period last year.

(Bloomberg) US Issuers to Look to European High-Yield Bond Market in 2018

• Banks are anticipating more U.S. companies to tap the European market in a bid to diversify funding and capitalize on the region’s low interest rates in light of ongoing U.S. rate hikes.
• “U.S.-based issuers with a desire for euro- or sterling-denominated debt liabilities are increasingly interested in issuing directly in euros or sterling given the relatively low interest rate and tight spread environment that continues to prevail in Europe,” said Mathias Blumschein, co-head of high-yield debt capital markets at ING Groep NV. The economics of issuing in dollars and swapping back into euros have become less attractive, he said.
• Bond sales from Diversey Inc, Aramark and Netflix Inc have helped take year-to-date European issuance of high-yield bonds by U.S. firms to a record 11.0 billion euros-equivalent, according to data compiled by Bloomberg. This has already eclipsed the previous highest full-year total of 9.7 billion euros-equivalent in 2016, the data show.

(Pittsburgh Post-Gazette) Arconic Reports Earnings and Announces CEO

• Arconic shares tumbled 10 percent Monday after the company reported a third-quarter earnings miss, raised its full-year sales estimate and named a veteran General Electric executive CEO.
• The aluminum and titanium parts maker said third-quarter profit fell 28 percent to $119 million, or 22 cents per share, vs. earnings of $166 million, or 33 cents per share, in the year ago quarter. Sales totaled $3.24 billion, up 3 percent from year-ago levels.
• Arconic said Charles “Chip” Blankenship, 51, will take over as CEO, effective Jan. 15. Mr. Blankenship formerly led GE’s commercial engine operations and was the president and CEO of its appliance business before the unit was sold to Haier Co. last year. He will also become a member of Arconic’s board.
• Arconic said it now expects to report sales of $12.6 billion to $12.8 billion for the year, up from its previous forecast of $12.3 billion to $12.7 billion. The company affirmed its full-year guidance that adjusted earnings will be $1.15 to $1.20 per share.
• Arconic was formed in November when Alcoa broke into two companies. The mining, refining and smelting businesses maintained the Alcoa name while the businesses that make aluminum and titanium parts for the aerospace, automotive and other industries became Arconic.

(PR Newswire) International Paper and Graphic Packaging Create Leading Consumer Packaging Platform

• International Paper has signed a definitive agreement to contribute its North America Consumer Packaging business to Graphic Packaging in a transaction valued at $1.8 billion. IP plans to use $660 million in cash proceeds from a loan being assumed by Graphic Packaging to pay down existing debt. IP will also receive a 20.5% ownership interest valued at $1.14 billion in a subsidiary of Graphic Packaging that will hold the assets for the combined business. The transaction is expected to close in early 2018, subject to the receipt of regulatory approval and certain other closing conditions.
• “After evaluating a range of strategic options, we believe this transaction represents excellent value for IP’s shareholders,” said International Paper Chairman and CEO Mark Sutton. “Investing in Graphic Packaging gives IP the opportunity to benefit from a much stronger value-creation consumer packaging platform, while allowing us to remain focused on growing value in our core businesses. Our North America Consumer Packaging business has a talented team, very good assets and great customers, and I am confident of the results the combined business will achieve.”
• International Paper’s North America Consumer Packaging business is a leading producer and converter of solid bleached board used in a variety of fiber-based foodservice products such as hot and cold cups, cartons, paper plates, food containers and liquid packaging. The transaction includes 3,900 Coated Paperboard and Foodservice employees located at 10 locations in the United States and United Kingdom.

(Tech Crunch) Netflix is raising $1.6B in debt as its content costs balloon

• Netflix raised a very large lump of debt for the typical laundry list of uses though, the timing comes as its content costs may hit as much as $8 billion next year.
• The announcement comes off a strong earnings report last week, where Netflix once again beat expectations for its subscriber growth. The company also said it expects to spend between $7 billion and $8 billion on original content in 2018, up from around $6 billion on original content this year. To be sure, original content — and racking up those Emmy awards — is critical to Netflix’s future as it looks to convert those high-quality shows into new subscribers.
• Original content is also going to be increasingly critical as it grows internationally, where it’s acquiring the majority of its new subscribers. Netflix said it would raise its prices earlier this year, and that may temper some expectations for domestic growth. The company’s future may rest on making sure that original content is strong, and also expanding into internationally-oriented original content like its original show 3%. (That show is quite good, by the way, and does a good job of demonstrating that internationally-focused content could perform well domestically as well.)