CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.0 billion and year to date flows stand at -$25.1 billion.  New issuance for the week was $6.2 billion and year to date HY is at $75.2 billion, which is -22% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Despite another week of substantial fund outflow, junk bonds appear to have found support. BB yields fell the most in more than five months as Treasuries firmed, equities rebounded, the VIX fell and oil steadied.
• Stung by the recent rise in Treasury yields and equity volatility, nervous high yield investors once again withdrew cash from high yield funds
• High yield primary looked resilient as new issues saw strong demand this week
• WeWork, a single-B credit with uncertain cash flow, got orders of ~$2.5b-$3b
• Flora Food increased size of issuance and priced at tight end of talk
• Jagged Peak Energy had orders 5x the size of the original offering, also priced at tight end of talk
• CCCs continued to outperform BBs and single-Bs, with positive YTW returns of 1.11%, reflecting willingness of investors to add credit risk

(Reuters)  T-Mobile, Sprint make progress in talks, aim for deal next week

• S. wireless carriers T-Mobile US Inc and Sprint Corp have made progress in negotiating merger terms and are aiming to successfully complete deal talks as early as next week, people familiar with the matter said on Thursday.
• The combined company would have more than 127 million customers and could create more formidable competition for the No.1 and No.2 wireless players, Verizon Communications Inc and AT&T Inc, amid a race to expand offerings in 5G, the next generation of wireless technology.
• T-Mobile majority-owner Deutsche Telekom and Japan’s SoftBank Group Corp, which controls Sprint, are considering an agreement that would dictate how they exercise voting control over the combined company, two of the sources said.
• This could allow Deutsche Telekom to consolidate the combined company on its books, even without owning a majority stake, the sources added. Deutsche Telekom owns more than 63 percent of T-Mobile, while SoftBank owns 84.7 percent of Sprint.
• Deutsche Telekom and T-Mobile are also in the process of finalising the debt financing package they will use to fund the deal, the sources said.

(Business Wire)  Spectrum Brands Holdings Reports Fiscal 2018 Second Quarter Results 

• Spectrum Brands reported results from continuing operations for the second quarter of fiscal 2018 and lowered its fiscal 2018 full-year guidance.
• Separately this morning, the Company announced that Executive Chairman David M. Maura has been named Chief Executive Officer, effective immediately, replacing Andreas Rouvé, who has stepped down as CEO and a Director, and that its Board of Directors has authorized a new three-year, $1 billion share repurchase program.
• Spectrum Brands announced on January 3, 2018 that it was exploring strategic options for its Global Batteries & Appliances (GBA) businesses with the intention to sell the units by December 31, 2018. As a result, effective with the Company’s fiscal 2018 first quarter financial results, the GBA segment has been reclassified as held for sale and is now reported as discontinued operations for the second quarter and six months of fiscal 2018 and the comparable prior-year periods.
• “While our second quarter performance was very disappointing, we believe it is in no way reflective of the underlying earnings power of our continuing operations,” said David Maura, Chief Executive Officer of Spectrum Brands Holdings.
• “The challenges related to our two greenfield manufacturing and distribution projects were meaningfully greater than we expected. As we brought our East Coast distribution center into our new Hardware & Home Improvement facility in Edgerton, Kansas at the end of February, we experienced facility-wide disruptions which hampered distribution capabilities materially in March,” Maura said. “Our Global Auto Care facility in Dayton struggled at higher production levels in March, which led to significant inefficiencies and shipping challenges.
• “Given these issues, sales of about $30 million from in-house orders could not be shipped by quarter-end due to higher customer order backlogs at our HHI and GAC facilities, and we are working to return them to normal efficiency levels,” he said. “In addition, cold and wet weather in March hurt Home & Garden revenues by about $10 million as POS declined and retailers delayed orders into April.
• “Our Pet business was impacted, as expected, by the exit of a European pet food customer tolling agreement and from lost rawhide distribution from our recall of last spring that we will lap in June,” Maura said. “Together, these items total about $12 million of revenues in our Pet business.
• “In addition, external cost headwinds and mix combined to deliver a significant negative impact on our sales and margins,” Maura said. “While we expect improvement in the back half of the year, the magnitude of our second quarter shortfall and manufacturing and distribution center start-up inefficiencies has caused us to lower our full-year adjusted EBITDA guidance from continuing operations by $57 million at the mid-point and adjusted free cash flow on a total company basis by $135 million.”