CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $2.2 billion and year to date flows stand at -$23.1 billion. New issuance for the week was $3.8 billion and year to date HY is at $68.9 billion, which is -25% over the same period last year.

(Bloomberg) High Yield Market Highlights

• Yesterday High-yield spreads widened 9bps, snapping a two-week rally that had pushed junk within 3bps of the post-crisis tights. Among the negatives are equities, mixed corporate earnings, Treasury and oil weakness, while the biggest fund inflow since December 2014 boosted sentiment.
• Junk yields were still near 10- week low, oil near 3 year high
• Resilience also reflected in primary market, with four new issues for $1.5b priced yesterday, including CCC-credit LSB Industries
• All four priced at the tight end of talk with orders more than 3x the size of the offering suggesting risk appetite was holding
• Earlier in the week, HUB International priced through talk and had orders for more than $3 billion
• OCI NV increased size of the offering and tightened the price talk

(Reuters) Trump says will not accept high oil prices, crude dips

• U.S. President Donald Trump on Friday criticized OPEC for output reductions that have helped raise oil prices and said the action would not be tolerated, as oil prices appeared set for a second consecutive week of gains.
• “Looks like OPEC is at it again. With record amounts of Oil all over the place, including the fully loaded ships at sea. Oil prices are artificially Very High! No good and will not be accepted!” Trump said
• OPEC member countries are slated to meet in June in Vienna to decide their next steps after reducing output since January 2017 in a move aimed at supporting prices.
• Top oil exporter Saudi Arabia would be happy to see crude rise to $80 or even $100 a barrel, three industry sources have told Reuters, a sign Riyadh will seek no changes to an OPEC supply-cutting deal even though the agreement’s original target is within sight.  

(Bloomberg) Junk Bonds Back in Black as Market Calm Brings Out Yield Hunters

• The rising tide in junk debt markets is lifting all boats — even ones that looked a little leaky just a few weeks ago.
• In the last two weeks, money managers have grown more sanguine about loans and bonds from speculative-grade companies. Funds that buy high-yield bonds posted their biggest inflows of the year in the week ended April 18. That’s helped lift 2018 returns for the securities back into positive territory, and the bump in risk premiums that investors had said was long overdue has essentially been erased.
• At the beginning of the month, when oil and stock prices were lower and trade war fears more intense, investors were more hesitant. McDermott International Inc. and American Greetings Corp. borrowed more than $4 billion combined in early April, and they had to pay up. McDermott, which helps oil and gas drillers design and install their equipment, sold $1.3 billion of bonds on April 4 for just 94.75 cents on the dollar, an unusually high discount for a new issue. Now the securities are trading above 101 cents, according to Trace bond price data.  

(Company Report) United Rentals Announces First Quarter 2018 Results and New $1.25 Billion Share Repurchase Program

• United Rentals announced financial results for the first quarter of 2018. Total revenue was $1.734 billion and rental revenue was $1.459 billion for the first quarter, compared with $1.356 billion and $1.166 billion, respectively, for the same period last year. On a GAAP basis, the company reported first quarter net income of $183 million, or $2.15 per diluted share, compared with $109 million, or $1.27 per diluted share, for the same period last year. The first quarter of 2018 includes a net income benefit associated with the Tax Cuts and Jobs Act (the “Tax Act”) that was enacted in December 2017. The Tax Act reduced the U.S. federal corporate statutory tax rate from 35% to 21%, which contributed an estimated $0.37 to earnings per diluted share for the first quarter 2018.
• Adjusted EBITDA was $780 million and adjusted EBITDA margin was 45.0%, reflecting increases of $189 million and 140 basis points, respectively, from the same period last year.
• Michael Kneeland, chief executive officer of United Rentals, said, “We reported a good start to the year, with both rates and volumes benefiting from broad-based demand. Our Specialty segment continued to outperform, aided by strong market growth and cross-selling opportunities, and trends remained positive in Canada. We’re also pleased with the progress the team has made integrating Neff, where we remain on-track to deliver our 2018 synergies goals. Combined, we are well positioned for the seasonal upturn in customer activity.”
• Kneeland continued, “Our confidence extends to both our immediate operating environment and the durability of the cycle. Virtually all indicators point to market growth, which supports our reaffirming our outlook for the year. We’re also pleased to announce that our Board of Directors has authorized a new $1.25 billion share repurchase program to commence when the current program is complete. We remain focused on maximizing our value given the strength of our cash flows and capital structure.”

(CAM Note) S&P did upgrade the debt rating on United Rentals to BB from BB-