High Yield Weekly 02/23/2018

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.3 billion and year to date flows stand at -$14.7 billion. New issuance for the week was $4.8 billion and year to date HY is at $34.5 billion, which is -7% over the same period last year.

(Bloomberg) High Yield Market Highlights

• Junk bond yields were at two-week lows across ratings amid lackluster stocks and a drop in VIX. Oil was steady and well above the $60 mark bolstering junk bonds.
• However, the recent turbulence in equity volatility amid fears of an accelerated pace in rate hike following strong economic data, took its toll on junk bonds forcing JPMorgan to lower its spread and returns forecast for 2018
• Spread forecast was revised to +375bps from +390 and returns to 4.60% from 5.5% earlier
• High yield still offers 5.6% return from here
• It is still likely to outperform most fixed income asset classes, JPMorgan wrote
• Recall that the recent turmoil caused the yield to rise to a 14-mo. high and the 10Y treasury yield jumped 30bps by the end of January to 2.70 and 52bps YTD to close at 2.92% yesterday
• High yield was back to business this week with yields steadily declining and issuance gaining traction
• While issuance was slow and cautious this month, four more deals for $1.5b priced yesterday, taking the WTD total to $4.85b and MTD to $10.725b
• Investors seem to return to junk bonds as retail funds report a modest inflow of $160m at close on Tuesday
• Investor interest in junk bonds was also evident in the primary market with a CCC- credit, Weatherford International, driving by and pricing at talk even amid wobbly stocks
• Earlier in the week, Sprint had orders of ~$3.75b and increased the size of the offering by $500m to price at the tight end of talk; talk tightened 25bps from the initial whisper of 8% area

(CNBC) Fed minutes: All signs pointing to more rate hikes ahead

• FOMC members said they have revised upward the economic projections they made at the previous meeting in December.
• The January meeting was the last one for Chair Janet Yellen, who had guided the Fed through the first rate normalization steps a decade after the financial crisis.
• Markets already were on edge after the January Fed meeting, during which the committee said it expected that “further gradual adjustments” in monetary policy.

(Forbes) Rite Aid’s PBM Becomes More Attractive Under Albertsons

• Whether Rite Aid keeps its pharmacy benefit manager or decides to sell it one day, the PBM’s potential value could take off under the umbrella of the large grocery store chain Albertsons.
• Even before this week’s announcement that Albertsons would buy Rite Aid, the pharmacy chain’s executives were talking up the PBM EnvisionRxOptions as the “growth engine” for the entire company. Those optimistic statements came in early January even as Rite Aid began the process of transferring hundreds of drugstores to Walgreens Boots Alliance, turning the chain into a regional player with only 2,500 or so drugstores.
• But Rite Aid’s sale to Albertsons will make the drugstore chain and its PBM a national player again . The combination of Albertsons and Rite Aid will create a chain with 4,345 pharmacies in stores spanning across 38 states and Washington, D.C.
• Processing more prescriptions helps pharmacies as well as PBMs like EnvisionRx. PBMs are the middlemen between drug makers and patients when it comes to buying prescription drugs and getting discounts for their customers. Having a high prescription count helps PBMs gain leverage on behalf of their clients who are employers and government health programs such as Medicare’s part D drug benefit coverage for seniors.
• In the past two years, Wall Street analysts and other observers of Rite Aid were worried EnvisionRx would lose employer clients and scale amid noise surrounding the uncertainty of its sale to Walgreens. That deal went from an outright sale to a partial deal last September when Walgreens agreed to buy just 1,932 Rite Aids following antitrust scrutiny from the Federal Trade Commission.
• Merging with Albertsons gives EnvisionRx a larger platform to do business, executives say.

(Wall Street Journal) Dish Network Gains Sling TV Subscribers but Retention Is a Problem

• Dish Network said its Sling TV streaming-video service has signed up 2.2 million subscribers in the company’s first disclosure of a figure, but Chairman Charlie Ergen said customer retention is a significant challenge.
• Dish launched the streaming service nearly three years ago in an attempt to lure younger viewers and people giving up cable TV. The hope was that it would be an avenue for growth as Dish’s traditional satellite TV business declines.
• The number of Sling TV customers grew 47% compared with the year-ago period, but it wasn’t enough to offset a 9.4% decline in satellite TV subscribers. The company finished the quarter with 13.2 million subscribers overall, including Sling and satellite customers, down from 13.7 million subscribers last year. In the fourth quarter, satellite TV subscribers fell by 121,000.
• Sling TV added 711,000 subscribers in 2017, below the 878,000 in the previous year. Growth slowed partly because of increased competition with other streaming services.