High Yield Weekly 03/02/2018

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.5 billion and year to date flows stand at -$15.3 billion.  New issuance for the week was $0.8 billion and year to date HY is at $35.0 billion, which is -12% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Junk bond investors continued to be wary amid tumbling stocks and rising volatility, with the VIX rising for three consecutive sessions and closing at a two-week high yesterday.
• Stocks saw the biggest decline in three weeks and closed at a two-week low as markets could not get a break to consolidate after digesting the Fed chair Powell’s assessment of the economy, following the new tariff proposal of 25% and 10%, respectively, on aluminum and steel
• Amid all the hullabaloo over a possible trade war, junk bond yields were resilient

(Modern Healthcare)  20 states sue federal government to abolish Obamacare

• Twenty states sued the federal government on Monday to end the Affordable Care Act, claiming the repeal of the individual mandate’s tax penalty rendered the law unconstitutional.
• The U.S. Supreme Court upheld the ACA in 2012, determining President Barack Obama’s healthcare reform law was a tax penalty. But the tax cuts signed by President Donald Trump in December zeroed out the penalty, and the rest of the ACA can’t stand as law without it, according to the states.
• Health insurance is regulated by the states, but the ACA required states to create or adopt exchanges where individuals could purchase plans. The law also imposed certain requirements on plans, including covering pre-existing conditions.
• Since Trump signed the tax cut law, some states have taken action to stabilize their individual markets. In January, Wisconsin’s Republican Governor Scott Walker urged the state legislature to pass a reinsurance program that would help minimize rate increases for residents. Idaho’s GOP Governor Butch Otter has issued an executive order that would allow insurers to sell plans that don’t comply with the ACA, as long as they also have compliant plans for sale in the state.

(Barron’s)  Frontier’s Disappearing Dividend Shouldn’t Have Surprised Anyone

• Frontier Communicationsannounced it was suspending its dividend following its fourth-quarter earnings report.
• Frontier said it lost $13.92 a share in the quarter, which included an impairment charge, on revenue that fell to $2.2 billion but beat forecasts for $2.1 billion. Ebitda came in at $919 million, ahead of the Street consensus for $911 million.

(Bloomberg)  AES issues new debt and tenders for existing notes

• The AES Corporation issued $1.0 billion aggregate principal amount of senior notes. $500 million senior notes due 2021 priced at 4% while $500 million senior notes due 2023 priced at 4.5%. AES intends to use the net proceeds from the offering of the Notes to fund the concurrent tender offer announced to purchase AES’ outstanding 8.00% senior notes due 2020 and 7.375% senior notes due 2021 (together, the “Outstanding Notes”) and to pay certain related fees and expenses. AES intends to use any remaining net proceeds from this offering after completion of the tender offer to retire certain of its outstanding indebtedness. In conjunction with the tender offer, the Company is soliciting consents to the adoption of certain proposed amendments to the indenture governing the Outstanding Notes to alter the notice requirements for optional redemption with respect to each series of Outstanding Notes.

(Bloomberg)  Teva Selling $3.5 Billion of Junk Bonds to Refinance Debt

• Teva Pharmaceutical Industries Ltd., in its first offering as a high-yield issuer, is selling $3.5 billion of bonds to refinance debt.
• The drugmaker will have to bear higher interest costs to push out maturities as a massive debt load and weakening sales of a top product have cost it its investment-grade ratings. Teva is selling 1 billion euros ($1.22 billion) and $2.25 billion of debt, it said in a statement. The European offering will include maturities of four and seven years, according to people with knowledge of the matter.
• In early discussions with investors, the six-year dollar notes have been marketed at a yield of around 6.5 percent, while the bonds due in 10 years are being offered at about 7.25 percent, said a person familiar with the deal, who asked not to be identified as the details are private. Teva’s outstanding 10-year notes due 2026 currently yield about 5.9 percent, according to Trace bond price data.
• “That’s enough of a concession that people are going to look at it,” said John Yovanovic, a high-yield portfolio manager at PineBridge Investments LLC. “This is going to get a lot of attention.”