High Yield Weekly 01/26/2018

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.3 billion and year to date flows stand at -$0.3 billion.  New issuance for the week was $7.5 billion and year to date HY is at $18.6 billion, which is up 16% over the same period last year. 

(Bloomberg)  High Yield Market

• Issuance kicked off the week with T-Mobile driving by with $2.5b 2-part senior notes offering and pricing at the tight end of talk; received orders of more than $5.5b
• Recent new issues have been seeing big orders
  • Extraction Oil & Gas saw orders of more than $2b, that is, 4 times the size of the original offering
  • IRB Holding priced at the tight end of talk to fund the buyout of Buffalo Wild Wings, with orders of ~$1.5b
  • Earlier, Noble Holding got orders more than $2b and increased the size of the offering to $750m from $500; Olin Corp saw orders of more than $2b; and Nabors Industries about $3b, 5 times the size of the offering

• Strong equities with stocks setting new highs, and oil near 37-mo. high bolster junk bonds leading to lower risk premium
• High yield continued to be backed by an overall supportive environment: Moody’s Liquidity Stress Indicator kicked off 2018 with a new low of 2.5%, suggesting junk issuers were backed by steady economic growth and buoyant credit markets as investors scramble for yield
• Corporate default rates declined, another critical factor for high yield
• Steady economy, declining default rates, low volatility, steady oil prices and stocks augur well for high yield

(PR Newswire)  Steel Dynamics Reports Financial Results

• Company records for 2017: company-wide safety performance, steel shipments of 9.7 million tons, net sales of $9.5 billion, operating income of $1.1 billion, and EBITDA of $1.4 billion
• “The performance of the entire Steel Dynamics team was exceptional this year,” said Mark D. Millett, President and Chief Executive Officer.  “We performed at the top of our industry, both operationally and financially, and most importantly, we did it safely.  Based on our strong cash flow generation from operations of $740 millionin 2017, we maintained near-record liquidity of over $2.2 billion, while simultaneously investing in our company through organic growth, a sustained positive dividend profile and the continuation of our share repurchase program.  We have a firm foundation for our continued growth.”
• “In spite of the continuation of elevated levels of steel imports, which were over 15 percent higher than in 2016,” continued Millett, “the domestic steel industry benefited in 2017 from an improvement in underlying demand, as the automotive sector remained strong, and the construction and energy sectors continued to improve.  Our steel operations achieved record annual operating income of $1.1 billion.  Supported by improved domestic steel utilization, the metals recycling team maintained volume, increased metal spread and reduced costs throughout the year.”

(Reuters)  Advisory group ISS recommends that Cineworld investors oppose Regal deal

• Influential advisory group Institutional Shareholder Services has recommended that investors in Cineworld oppose the company’s $3.6 billion reverse takeover of U.S. rival Regal Entertainment.
• ISS told clients in a report that a vote against the deal and its associated rights issue “is warranted based on the significant financial and operation risks related to the transaction.”

(Politico)  Trump nominee Powell overwhelmingly confirmed as Fed chair

• The Senate on Tuesday confirmed Jerome Powell, the president’s pick to chair the world’s most important central bank, in a bipartisan 84-13 vote.
• But the Fed might not be radically different with Powell at the helm. The Fed under Powell will likely continue its path of steady interest rate increases — three are projected for 2018 — and cautious removal of its decade long extraordinary support for the U.S. economy.
• Powell joined the Fed board in 2012 as an Obama appointee, and since then he has worked with Yellen and her predecessor, Ben Bernanke, to craft the central bank’s monetary and regulatory policy in the wake of the 2008 financial crisis.
• “The best way to sustain the recovery, I believe, is to continue on this path of gradual interest rate increases,” Powell said at his confirmation hearing in November.
• Powell will probably be more interested in specific regulatory policy details than any Fed chair in history, making his relationship with newly minted Fed regulatory czar Randal Quarles a key one. Powell and Quarles are good friends who have known each other for decades, but Quarles seems slightly more inclined to loosen regulation than his soon-to-be boss.