CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.5 billion and year to date flows stand at -$33.4 billion.  New issuance for the week was $4.2 billion and year to date HY is at $100.8 billion, which is -27% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• The yield on the Bloomberg Barclays US Corporate High Yield Bond Index jumped to the highest since December 2016 as issuance surged and funds saw outflows.
• Yesterday was busiest day for issuance this year, marking the busiest week of supply since early March
• Stars Group, a CCC-credit, got orders over $2b, priced at tight end of talk, increased size of the offering, cut size of TLB
• Nationstar, a low single-B credit, priced in middle of talk on orders of more than $3b
• AmWINS, also single-B, priced at tight end of talk
• June on track to be slowest sixth month since 2013
• 2018 issuance expected to be lower than last year’s $275b
• BB and single-B yields jumped to 20-month high after rising most in more than 2 months

(Bloomberg)  Community Health Continues Debt Revamp With $1 Billion of Senior Notes

• Community Health Systems Inc. is raising $1.027 billion by selling new senior notes to pay down more than$1 billion in term loans.
• The new first lien debt due in 2024 would be used to pay off Community’s Term Loan G, according to a statement. The sale would put off a near-term maturity and give the hospital operator a respite from refinancing for more than two years, at an incremental cost of $50 million in interest, Mike Holland, a Bloomberg Intelligence analyst, said in an interview.
• The offering follows Community’s debt exchange of unsecured notes for secured bonds with longer maturities. The Franklin, Tennessee-based company is unwinding a debt-fueled acquisition binge and cutting costs as it confronts tepid admissions, low margins and the industry’s high expenses. Community sold 30 hospitals last year, and it’s trying to strengthen results at the hospitals it’s keeping by focusing on more profitable treatments and getting out of low-margin treatments.
• Moody’s Investors Service rated the new first lien notes at B3, six steps below investment grade, on the expectation that Community will continue to operate with “very high financial leverage” of over eight times. The ratings firm expects negative free cash flow over the next 12 to 18 months as a result of high interest costs and “significant capital requirements” of the business.

(Moody’s)  Moody’s upgrades Diamondback Energy’s debt by one notch, positive outlook

(CAM Notes)  The Moody’s upgrade was based on the expected production and reserve growth over the next year and a half.  Additionally, Moody’s likes the generated top-tier margins of Diamondback.

(PR Newswire)  Steel Dynamics Announces Columbus Flat Roll Division’s New Galvanizing Line Expansion

• Steel Dynamics announced plans to expand its offering of value-added flat roll steel products through the addition of a new galvanizing line in Columbus, Mississippi.  The company plans to invest approximately $140 millionand create 45 new jobs, adding a third galvanizing line at its Columbus Flat Roll Division.  After the planned completion of this new facility, the company will have nine value-added galvanizing lines located throughout the eastern half of the United States, with a total annual coating capacity of approximately 3.8 million tons.  Upon the closing of the recently announced planned Heartland acquisition, the company will have ten flat roll steel galvanizing lines with approximately 4.2 million tons of coating capacity, solidifying Steel Dynamics as the largest provider of non-automotive galvanized flat roll steel in the United States.
• “This investment is another step of further diversification into higher-margin products for our Columbus Flat Roll Division,” said Mark D. Millett, President and Chief Executive Officer.  “In recent years, Columbushas transformed its product offerings through the addition of painting and Galvalume® coating capability, as well as through the introduction of more complex grades of flat roll steel, some of which serve the automotive sector.  These value-added improvements have reduced the amount of volume available to our existing galvanized customer base.  The addition of a third galvanizing facility will allow Columbus to serve these existing customers, as well as new customers in the region, and will also further reduce its exposure to the more cyclical hot roll market.”
• Construction is planned to take place during the next 24 months, with operations expected to begin mid-year 2020.
• Additionally, Steel Dynamics was recognized as the “2018 Steel Producer of the Year” on Tuesday, June 26, 2018, during the AMM Awards for Steel Excellence ceremony.
• Finalists were selected by senior American Metal Market editors, and those entries were scored by steel industry veterans who serve as judges to select the winners.

(CNBC)  Conagra Brands to acquire Pinnacle Foods for about $8.1 billion

• Conagra Brands on Wednesday announced plans to acquire Pinnacle Foods in a cash-and-stock deal valued at about $8.1 billion that furthers Conagra’s transformation under CEO Sean Connolly and its push into frozen foods.
• Including debt, the deal is valued at $10.9 billion.
• The pairing of Healthy Choice-owner Conagra and Bird’s Eye-owner Pinnacle would create the second-largest U.S. frozen food company behind Nestle, analysts at RBC Capital Markets have written. Conagra has poured money into its frozen business, with an eye toward repackaging and reformulating its products to cater to younger diners.
• Under the agreement, Pinnacle shareholders will receive $43.11 per share in cash and 0.6494 shares of Conagra’s common stock for each share of Pinnacle. Pinnacle shareholders are expected to own approximately 16 percent of the combined company.
• The deal is the culmination of on-again, off-again talks the two have had for years. It comes months after activist investor Jana Partners disclosed a roughly 9 percent stake in Pinnacle and said it planned to talk with the company about a possible sale.