CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.0 billion and year to date flows stand at -$17.0 billion.  New issuance for the week was $11.4 billion and year to date HY is at $267 billion, which is up 26% over the same period last year. 

(Bloomberg)  High Yield Corporates Stalled as Monthly Returns Again Flat

• High yield corporate bonds, much like their high grade counterparts, continue to move sideways in 4Q to a U.S. Congress undertaking tax reform for stimulus clues. Communications sector spreads moved wider for the year, while miners and other basic industries remain the best performers for 2017.
• High yield corporates continue to lack direction with the Bloomberg Barclays U.S. High Yield Index total returns almost flat for November and 4Q, much like the investment grade counterpart. Corporate bond gains stalled as interest rates rose under the Federal Reserve’s less accommodative bias, while credit spreads near their tightest in three years exhausted momentum to narrow further, awaiting cues from a Congress debating tax reform.
• High yield gained a solid 7.2% year-to-date in line with the five year average. CCC rated debt has led gains, with 10% in total returns as stronger commodity prices and refinancing-friendly interest rates have benefited distressed issuers.
• Corporate junk spreads retraced early November trends to end just 6 bps wider for the month as gauged by the Bloomberg Barclays U.S. High Yield index OAS to Treasuries. Communications, the most indebted sector at 20% of the index struggled again, averaging spreads that were 41 bps wider for the month. It’s now the only sector trading at wider spreads than at the start of 2017. At the other end, metals and mining issuers led basic industries sector spreads to 150 bps tighter for the year on rising commodity prices.
• Bonds of Frontier Communications, among the largest issuers in the sector, averaged almost 8% total return losses in November as the company continues to struggle with high debt loads following the acquisition of Verizon assets early last year. Frontier returns have fallen 13% year-to-date.

(Wall Street Journal)  Cineworld to Buy Regal in $3.6 Billion Movie Theater Deal

• British movie theater operator Cineworld Group PLC has agreed to buy American counterpart Regal Entertainment Group for $3.6 billion, creating the world’s second-largest cinema operator.
• Cineworld said the deal would give it a meaningful footprint in the U.S.—the biggest box office market—and create a company with more than 9,000 screens.
• It added that the combined group’s scale will help it mitigate any volatility in particular markets and match the global nature of rivals, including industry leader AMC Entertainment Holdings Inc.

(Business Wire)  DAVITA SELLS DAVITA MEDICAL GROUP TO OPTUM FOR ABOUT $4.9B CASH 

• Optum, a leading health services company, and DaVita Medical Group, one of the nation’s leading independent medical groups and a subsidiary of DaVita Inc. are combining. The agreement, entered into on December 5, 2017, calls for Optum to acquire DaVita Medical Group for approximately $4.9 billion in cash. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.
• DaVita Medical Group will join with Optum’s physician-led primary, specialty, in-home, urgent- and surgery-care delivery services business. The combination will improve care quality, cost and patient satisfaction through integrated ambulatory care delivery systems enabled by information technology and supportive clinical services. Optum’s data, analytics, technologies and clinical expertise will help DaVita Medical Group physicians deliver even higher quality care more effectively to the patients they serve. With medical groups in California, Colorado, Florida, Nevada, New Mexico and Washington, DaVita Medical Group will expand the market reach of Optum’s strategic care delivery portfolio, including Surgical Care Affiliates, MedExpress and HouseCalls. Patients will further benefit from the sharing of best practices across both organizations.
• “I am so proud of the DaVita Medical Group accomplishments, including our excellent clinical outcomes as reflected in our star ratings performance, our strong emphasis on growing physician leaders, our teammate engagement and advancing the care model,” said Kent Thiry, chairman and CEO of DaVita Inc.
• “Combining DaVita Medical Group and Optum advances our shared goal of supporting physicians in delivering exceptional patient care in innovative and efficient ways while working with more than 300 health care payers across Optum in ways that better meet the needs of their members,” said Larry C. Renfro, CEO of Optum.

(Reuters)  Toshiba, Western Digital aiming to settle chip dispute next week

• Toshiba Corp and Western Digital Corp have agreed in principle to settle a dispute over the Japanese firm’s plans to sell its $18 billion chip unit and aim to have a final agreement in place next week, sources familiar with the matter said.
• The board of the embattled Japanese conglomerate approved a framework for a settlement on Wednesday, one of the sources said.
• The potential for Western Digital – Toshiba’s partner in its main semiconductor plant and jilted suitor in the auction – to block a deal has been seen as the main obstacle to the planned sale of the unit to a Bain Capital-led consortium.
• The settlement under discussion calls for Western Digital to drop arbitration claims seeking to stop the sale in exchange for Toshiba allowing it to invest in a new production line for advanced flash memory chips that is slated to start next year, two sources said.