High Yield Weekly Insights 01/12/2018

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.2 billion and year to date flows stand at $2.2 billion.  New issuance for the week was $4.1 billion.

The high yield market is strong out of the gate in 2018. 

 (Bloomberg)  High-Yield Bond Spread at Lowest Since 2007 After Five-Day Rally

• S. high-yield bond spreads hit a post-financial crisis low amid investor euphoria stoked by rising equity and commodity markets. Spreads have fallen for five consecutive sessions, the longest winning streak since February 2017, according to data compiled by Bloomberg.
• Bloomberg Barclays High Yield index spread dropped to 320bps, lowest since July 2007, down 23bps since Jan. 1
• Index compression already exceeds JPMorgan’s projected 20bps of HY spread tightening this year
• BAML predicts HY spread will go as low as 290bps by yearend
• Strong equities, low volatility, firm energy prices are driving the junk bond rally, helped by steady economic growth, low corporate default rates

(Bloomberg)  One-Tenth of High-Yield Communications Bonds Are Distressed

• Led by Frontier, about 9.7% of the market value of high yield communications bonds are distressed, according to analysis by Bloomberg Intelligence analysts Stephen Flynn and Philip Brendel.
• Largest portion belongs to Frontier, with almost $10b in market value of distressed notes, analysts say
• Other large issuers: Windstream with $2.8b principal, iHeart with ~$10b and Intelsat $6b
• While Windstream scrapped its dividend last year, Frontier continues to pay cash dividends on common stock, which Flynn and Brendel call “an odd combination” alongside its distressed debt
• iHeart’s junior creditors will likely be fighting for scraps, as their influence in negotiations is likely minimal; pricing on unsecured debt could be “extremely volatile”

(RTT News)  Sunoco Announces $1.75 Bln Private Offering Of Senior Notes

• Sunoco LP announced a private offering of senior notes due 2023, senior notes due 2026 and senior notes due 2028 in an aggregate principal amount of $1.75 billion. Sunoco Finance Corp., a wholly owned direct subsidiary of Sunoco, will serve as co-issuer of the notes.
• Sunoco said it intends to use the net proceeds from the offering, together with the consideration it receives from its previously announced sale of certain company-operated retail fuel outlets to 7-Eleven, Inc., to redeem in full its 5.500 percent senior notes due 2020 at a call premium of 102.750 percent plus accrued and unpaid interest.
• The company will also redeem each of its 6.250 percent senior notes due 2021 as well as 6.375 percent senior notes due 2023 at a make-whole premium plus accrued and unpaid interest.
• In addition, Sunoco intends to repay in full and terminate its existing senior secured term loan agreement, repay a portion of the outstanding borrowings under its existing $1.5 billion revolving credit facility, pay all closing costs and taxes in connection with the 7-Eleven Transaction, redeem all of its outstanding Series A Preferred Units, and also fund the repurchase of a portion of its outstanding common units.

(CAM Note)  Sunoco ended up pricing $2.2 billion in notes across 5, 8, and 10 year maturities.

(Reuters)  Drahi hits Altice reset button to court wary investors

• Altice founder Patrick Drahi is reshaping his telecoms and cable group for the second time in as many months by splitting its U.S. and European operations, hoping to end a drastic downward share-price spiral.
• Heavily indebted Altice said it would spin off its U.S. arm, which owns the country’s fourth-biggest cable operator, to existing investors, and would prioritize efforts to turn around its European operations including French telecoms operator SFR.
• Altice USA will pay a parting dividend of $1.5 billion to the European arm, to be named Altice Europe. Divestments of non-core assets, some of which are already under way, should also help to pay down debt, Altice said on Tuesday.
• “We’re very focused on the operating story, specifically in France and Portugal,” Dexter Goei, Altice Chief Executive, told reporters during a call. “Over the medium and longer term, I‘m certain this question will be asked again and maybe we’ll have a different response.”
• The two companies will be led by separate management teams with Franco-Israeli billionaire Drahi retaining control of both and garnering a large share of the dividend as well as of a $2 billion share buyback planned by Altice USA.
• Dennis Okhuijsen, Altice’s current chief financial officer, will become CEO of Altice Europe and Dexter Goei will continue to serve as chief executive of Altice USA.
• Altice has grown rapidly through acquisitions in the United States and Europe, helped by cheap debt that has risen to around $60 billion — more than five times its annual core operating profit.
• In the United States, Drahi spent $28 billion in 2015 to buy cable companies Suddenlink and Cablevision, and even flirted with a $185 billion bid for cable giant Charter.