High Yield Weekly 02/16/2018

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$7.1 billion and year to date flows stand at -$13.2 billion.  New issuance for the week was $1.7 billion and year to date HY is at $29.7 billion, which is -16% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Junk bond yields dropped the most in three months, and CCC yields saw the biggest drop in more than five weeks yesterday as equity volatility fell for a fifth session yesterday; VIX is down 34% in five days.
• It was as if high yield investors were making up for the lost week. Junk spreads tightened across ratings
• Recent turbulence in equity markets across the globe took its toll on junk bonds the past week as nervous and confused investors pulled out cash from junk bond funds
• Oil prices rebounded from near a seven-week low last week and have crossed the $60 milestone after falling below that
• Issuance was on pause this week as issuers waited for the volatility to settle down
• Overall, high yield continued to operate in a supportive environment:
• The default rate should move lower in 2018 amid a growing economy and improving credit conditions in the commodity sector, Moody’s John Puchalla wrote in note
• Moody’s Liquidity Stress Indicator was at 2.7% in January, still close to all-time low of 2.5% in December, suggesting junk issuers were backed by steady economic growth and buoyant credit markets Moody’s notes that the U.S. speculative-grade default rate would end the year at 2.2%
• Corporate earnings have been robust and economic growth was synchronized across the globe
• Strong global economy and declining default rates augur well for the high yield market

(New York Times)  Trump Tells Lawmakers He’s Mulling Limits on Imported Steel

• President Trump suggested on Tuesday that the United States was likely to impose restrictions on imported metals, reviving the prospects for a continuing investigation whose future has been called into question amid months of pushback and delays.
• Despite Mr. Trump’s support for the steel measure, he gave no indication of potential timing, Senator Ron Wyden added. “I didn’t feel that a decision had been made.”
• Meeting with a bipartisan group of lawmakers, the president said such restrictions would help save struggling steel companies from foreign competitors that “dump” low-priced metal on American markets. “What we’re talking about is tariffs and/or quotas,” Mr. Trump said.
• The White House had billed the meeting as a listening session to let lawmakers air concerns about pending actions on aluminum and steel imports, as well as  Trump’s infrastructure plan that was proposed on Mondayand current trade measures like the renegotiation of the North American Free Trade Agreement.
• In April, the president began twin investigations into imports of steel and aluminum under the little used Section 232 of a 1962 trade law, which permits sweeping restrictions to protect national security. Supporters of the action say American metal makers badly need the assistance to survive and continue producing planes, armored vehicles and other products for the military.
• But the measure also has plenty of critics, who fear that such restrictions amount to a protectionist grab by metal makers and will raise prices for steel and aluminum. They argue that because the metals are widely used to make other products, other industries — including automobile manufacturers and food packagers — would suffer.

(Moody’s)  Lamar’s ratings are unchanged following the upsize of the term loan B

• Lamar Advertising Company’s ratings are unchanged following the upsize of the proposed senior secured term loan B by its subsidiary, Lamar Media Corporation, to $600 million from $400 million. Leverage is projected to be unchanged at 4.0x following the transaction. The proceeds are expected to be used to refinance its $500 million 5 7/8% senior subordinated note due 2022, pay transaction related expenses, with the remaining proceeds used to partially paydown its outstanding revolver balance. The revolver balance as of Q3 2017 was $90 million, but it was drawn in Q4 2017 to help fund several modest sized transactions.
• While the upsize does not impact the ratings, a refinancing of the existing $535 million senior subordinated notes due 2023 (callable in May 2018) with additional secured or senior unsecured debt could result in a downgrade of the existing senior secured or senior unsecured debt ratings.

(CAM Note)  S&P did raise the senior unsecured ratings of Lamar to BB from BB- on the back of the refinancing

(Bloomberg)  Continental Resources Raised to Investment Grade by S&P

• S&P raises corporate credit rating to BBB- from BB+, outlook stable.
• Sees the company’s production growing at a double-digit rate in 2018 and 2019
• Expects the company to maintain funds from operations to debt ratio above 30% with neutral free operating cash flow in next 2-3 years