High Yield Weekly Insight 11/17/2017

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$5.0 billion and year to date flows stand at -$15.3 billion. New issuance for the week was $6.2 billion and year to date HY is at $243 billion, which is up 20% over the same period last year.

 (Bloomberg) Lows Are in for High Yield Spreads as Cycle Moves in Double Time

•  High yield’s 326-bp option-adjusted spread (OAS) of Oct. 24 may mark the lows of this cycle amid muted fundamental gains and low absolute yields. That spread compares with the 323-bp nadir of the last tightening cycle that ended in 2014. The current tightening cycle has been almost twice as rapid as the last.
• A nascent correction in high yield, which saw OAS widen 53 bps from multiyear lows in late October, may have room to run. The progression of the rally from early 2016 wides to today’s levels echoes the prior 2011-14 cycle, albeit at twice the pace. The first leg of the correction from the June 2014 lows pushed spreads back above 400 bps and reached 552 bps within six months, mostly mirroring the early stages of the oil-price unwind. Catalysts for a continued selloff are less explicit this go-round.
• Spread-widening from the Oct. 24 tights has been paced by weakness in communications and non-cyclicals, while energy has led after trailing for much of 2017. Bonds from Frontier and CenturyLink in wirelines, and those of Community Health in healthcare, have shown some of the steepest losses. The two sectors represent about 33% of the overall high yield index.
• Leverage has shown modest improvement vs. year-ago levels, lower by about a quarter turn, though it remains high in historic terms. That contrasts with the spread move from early 2016 that dropped OAS to prior-cycle lows. Further, the pace of improvement in fundamentals — from leverage to interest coverage — has flattened as oil prices have normalized, with leverage across most sectors actually near flat to higher over the last year. 

(PR Newswire) Suburban Propane Announces Financial Results

• Adjusted EBITDA increased $20.0 million, or 9.0%, to $243.0 million in fiscal 2017 from $223.0 million in the prior year. Net income for fiscal 2017 was $38.0 million, compared to $14.4 million in fiscal 2016. Revenues for fiscal 2017 of $1,187.9 million increased $141.8 million, or 13.6%, compared to the prior year, primarily due to higher retail selling prices associated with higher wholesale costs, combined with higher volumes sold. Retail propane gallons sold in fiscal 2017 increased 6.0 million gallons, or 1.4%, to 420.8 million gallons.
• In announcing these results, President and Chief Executive Officer Michael A. Stivala said, “Fiscal 2017 presented another challenging operating environment as a result of the impact on customer demand arising from the unprecedented, second consecutive record warm winter heating season, as well as the devastating effects of the two Category 4 hurricanes.  Through it all, the resiliency of our people, and our preparedness coming into the year, contributed to a meaningful improvement in our operating performance; including a 9% increase in Adjusted EBITDA compared to the prior year.”
• Concluding his remarks, Mr. Stivala said, “As we enter fiscal 2018, one of our goals will be to focus on restoring our balance sheet strength to best position the business for long-term profitable growth.  With the previously announced reduction in our annualized distribution rate, we have reduced our annual cash requirements to a level that provides added downside protection in the event of a sustained period of warm weather and, with an improvement in weather, should provide enhanced flexibility to reduce debt and make investments in line with our strategic initiatives.  We have adapted our business model to the recent warm weather trends, as evidenced by the improvement in earnings for fiscal 2017 and, as we enter a new heating season, our people are prepared to continue providing the highest level of service quality and total value to our customers in each market we serve.”  

(Financial Times) Altice to pull back on acquisitions and focus on cutting debt 

• Altice has promised to get its debt under control after ruling out more blockbuster takeovers and expensive content rights after an alarming collapse in its share price over the past two weeks.
• Dennis Okhuijsen, chief financial officer, told investors at the Morgan Stanley Technology, Media & Telecom Conference that the telecom company would now focus its efforts on deleveraging the business. “We are very focused on no M&A and to go back to the basics,” he said. “We take deleveraging very seriously,” he added, raising the prospect of non-core asset sales, including its mobile masts.   Mr. Okhuijsen also ruled out spending more money on content.
• Altice shares have fallen sharply since it issued a poorly received trading statement two weeks ago. Michel Combes, chief executive, resigned last week as part of a management shake-up that saw founder Patrick Drahi take the reins of the company.
• The collapse in the shares has called its aggressive acquisition strategy into question only months after it was linked with a $185bn bid for US cable company Charter Communications.

(Environment Analyst) Construction boom fuels AECOM 

• AECOM has reported a year of revenue growth, record orders and free cash flow in its latest financial results. However, the strong performance of its construction services offset a decline in design and consulting.
• AECOM’s full year revenue of $18.2bn for the twelve months ending 30 September 2017 was 4.6% up on the prior year, boosted by a particularly strong fourth quarter which saw revenue up 12% year-on-year to $4.9bn. Organic growth of 3% for the twelve month period was boosted by a further $270m contribution from acquisitions.
• Net income jumped 158% to $421m. As a result the firm was able to reduce its debt by 9.9%. Although still a substantial figure at $3.1bn, AECOM’s debt has now fallen by $1.4bn since the closing of the URS acquisition in Q4 2014.