CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.6 billion and year to date flows stand at -$23.6 billion.  New issuance for the week was $3.7 billion and year to date HY is at $65.0 billion, which is -27% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Junk bond spreads tightened the most in nine weeks and CCC yields fell to a 5-week low as U.S. funds saw inflows and the year-to-date return turned positive.
• Yields dropped across ratings in 6 of the last 9 sessions and have fallen for 4 consecutive sessions this week, amid strong technicals boosted by light supply, and WTI oil at a 40-month high
• Spreads have narrowed in seven of last nine sessions
• Year-to-date returns for junk bonds turned positive for the first time since early February, with a gain of 0.05% in the index, compared to a 2.38% loss in IG
• Resilient junk bonds brought investors home after more than 10 weeks of no material inflow
• Rebounding equities, steadily declining volatility — with the VIX hovering near and below 20 for last two weeks — boosted junk bonds
• Supply is expected to be light as the earnings season was in progress
• New issue pricing reinforced the strength of high yield as Drax Finco and J.B. Poindexter priced at the tight end of talk, with orders more than 3x the offer
• Earlier this week, TopBuild advanced its pricing schedule, increased the size of the offer, priced at the middle of talk, suggesting junk investors were not avoiding risk
• CCCs continued to outperform BBs and single Bs, with positive YTD returns of 1.25%, BBs were the worst with negative YTD returns of 0.92%, single-Bs turned positive with 0.54%

(Reuters)  Icahn to sell Federal-Mogul to Tenneco for $5.4 billion 

• Activist investor Carl Icahn said on Tuesday he was selling auto parts maker Federal-Mogul to Tenneco Inc in a $5.4 billion deal, unloading an investment he has held for nearly two decades and picking up a new stake in Tenneco.
• Tenneco plans to separate into two independent, publicly traded companies – one focusing on powertrain products and the other on auto parts such as suspensions and axle dampers – after the deal closes.
• The new bulked up powertrain technology company will likely benefit from the fact that internal combustion engine parts and tailpipe exhaust scrubbing technology will be needed by automakers for a long time to come, before they can be replaced by newer technologies such as fully electric cars.
• The aftermarket parts company would provide a potentially steady cash flow.
• “Going to market with well-recognized brands, more product categories, greater coverage and expanded distribution capabilities is a strong formula for capturing growth, particularly in China,” Tenneco Executive Chairman Gregg Sherrill said.

(Forbes)  Why T-Mobile And Sprint Are Rekindling Their Merger Talks

• Sprint and T-Mobile appear to be back at the negotiating table, marking the third time that the two companies are exploring a potential combination. While a potential merger is likely a net positive for both companies and the broader U.S. wireless industry, it remains unclear as to how much has changed since the two companies called off their last round of merger talks in 2017.
• The biggest reason the two carriers are looking to restart talks is likely to avoid the duplication of future capital expenditures, as the wireless industry transitions from 4G technology to next-generation 5G technology. Sprint has a deep portfolio of 2.5 GHz spectrum holdings that could be used for 5G deployment, allowing the combined company to avoid some outlays that they may otherwise have to undertake individually. Moreover, wireless is a very high fixed cost business, on account of sizable network operation and maintenance costs as well as sales and marketing expenses. The present value of synergies stemming from a deal could stand at upwards of $20 billion.Additionally, the carriers may also have better pricing power in a saturating wireless market if a deal goes through.
• The last round of talks fell through in late 2017, as the two companies were unable to agree on who would have control over the combined entity, and it’s not clear how much has changed since last year. T-Mobile’s majority owner Deutsche Telekom (which owns a ~63% stake) apparently views its ability to consolidate T-Mobile’s earnings with its financials as key, given that the U.S. carrier is one of its most valuable assets. This means that the company could be willing to put in more money to increase its effective stake in the joint entity and retain control. While Sprint is likely to have less bargaining leverage in a potential deal, considering its comparatively challenging financial position, with over $30 billion in long-term debt, its parent Softbank may still want to keep control of the joint entity. Softbank has been doubling down on the Internet of Things space, and it’s likely that it views Sprint as a crucial part of this plan, given its nationwide wireless network in the U.S.

(Wall Street Journal)  Wynn Resorts in Early Talks to Sell Boston-Area Casino Project to MGM

• Wynn Resorts has been in talks to sell its partially built Boston-area casino project to rival MGM Resorts International, MGM according to people familiar with the matter, as Massachusetts regulators continue their investigation into the company’s handling of sexual-misconduct allegations against founder Steve Wynn.
• The talks, which are over the Wynn Boston Harbor property and no other parts of the company’s gambling empire, are at an early stage and may not result in a deal, the people said.
• Regulatory issues surrounding any potential deal would be complex, since Massachusetts forbids companies from operating more than one casino in the state, and MGM is planning to open one in Springfield soon, they added.
• Wynn Resorts estimates the Massachusetts project, scheduled to open next year, will cost a total of $2.5 billion to build, making it one of the largest U.S. casino projects ever undertaken outside Las Vegas.