High Yield Weekly 02/09/2018

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.6 billion and year to date flows stand at -$6.0 billion.  New issuance for the week was $3.6 billion and year to date HY is at $27.8 billion, which is flat over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Recent spread widening for high yield markets should see at least a short-term reversal to tighter levels before potentially taking a leg higher. Flows remain unsupportive and absolute levels tight, but the 34-bp widening over the seven trading sessions through Feb. 6 looks overdone. Renewed equity uncertainty may push spreads toward 360 bps.
• Equity market pressures over the last week have translated into spread widening in high yield, eliminating year-to-date returns for the asset class. The market had been up as much as 0.53% as of Jan. 26, before rates and spread pressures took hold, leaving high yield lower by 0.35% as of Feb. 6. Basic materials and energy have seen the greatest weakness, though energy remains the best performer on a total return basis for 2018.
• Fixed income exchange-traded funds have attracted a net $12 billion in 2018, about 1.5% as a share of AUM, with inflows favoring shorter duration and less risky assets. U.S. Treasury ETFs saw a spike of demand through the recent bout of volatility, adding a net $2 billion in February for a total of $3.2 billion year-to-date, about 4% of assets under management. A weakening dollar boosted demand for emerging market debt with EM sovereign and corporate ETFs attracting net inflows of $3.4 billion, about 6% of AUM.
• By contrast, flows into ETFs pegged to high grade U.S. corporate bonds remain flat for the year with investors reassessing valuations amid the tightest credit spreads in a decade, while almost $3.2 billion has fled U.S. high yield, 6% of AUM, including $2 billion in the past two weeks.

(Bloomberg)  Sprint Is Said to Seek Looser Terms on $4 Billion Term Loan

• Sprint Corp. has approached lenders seeking relaxed terms on the credit agreement governing its $4 billion term loan B, according to people with knowledge of the matter.
• The company is seeking the release of liens on some properties
• Investors are being offered a 5 basis-point fee to agree to the changes
• JPMorgan launched the amendment process for Sprint
• A representative for JPMorgan declined to comment, while Sprint didn’t immediately have comment

(Reuters)  Teva Pharmaceutical warns on 2018 profits citing US market, Copaxone

• Teva Pharmaceutical on Thursday said 2018 results would be weaker than expected due to difficult conditions in the U.S. generics market and fierce competition facing its branded multiple sclerosis drug.
• Teva, the world’s largest generic drugmaker, is facing price erosion, increased competition and a consolidating customer base, particularly in the United States.
• It also has a hefty debt load that company executives said would be tackled in the near term.
• CEO Kare Schultz attributed half of the expected revenue decline in 2018 to its multiple sclerosis blockbuster Copaxone, which began to face competition last year.
• Persistent price pressure in the U.S. generics market, lower revenue following the sale of several businesses and expected competition to its ProAir inhaler in the second half of 2018 also hurt its outlook, he said on an earnings call.
• Schultz said Teva would no longer comment on expected price developments, noting such estimates were leading to steeper declines.

(Business Wire)  Zayo Group Holdings, Inc. Reports Financial Results

• Second quarter operating income increased by $8.6 million and net income decreased by $11.7 million over the previous quarter primarily due to the provision for income taxes. Income tax expense increased by $17.5 million in the second quarter, largely due to the impact from tax reform under the Tax Cut and Jobs Act of 2017 of $44.1 million partially offset by a $28.5 million release of a valuation allowance on deferred tax assets for certain foreign subsidiaries. During the three months ended December 31, 2017, capital expenditures were $193.4 million.
• As of December 31, 2017, the Company had $280.8 million of cash and $442.0 million available under its revolving credit facility.
• On November 26, 2017, the Company entered into a definitive agreement to acquire Spread Networks, LLC, a privately owned telecommunications provider that owns and operates a 825-mile, high-fiber count long haul route connecting New York and Chicago, for $127.0 million in cash. The all-cash transaction is expected to be funded with cash on hand and debt and is expected to close in the first calendar quarter of 2018.
• On January 18, 2018, the Company completed the CAD $31.0 million (or $24.9 million) cash acquisition of Vancouver-based Optic Zoo Networks. Optic Zoo Networks owns and operates high-capacity fiber in Vancouver and has achieved a significant penetration of customers, with a focus on the digital media sector.
• On January 28, 2018, the Company entered into an agreement to acquire substantially all of the assets of Neutral Path Communications and Near North Partners for $31.5 million. Neutral Path is a long haul infrastructure provider, operating a fiber network in the Midwest. The transaction will add 452 owned plus additional leased route miles to the Company’s extensive North American network, including a unique, high-count fiber route from Minneapolis to Omaha.