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 -$35.1 billion. New issuance for the week was $2.7 billion and year to date HY is at $111.3 billion, which is -24% over the same period last year. 

(Bloomberg) High Yield Market Highlights

• Supply eludes the U.S. high-yield bond market, which is on track for the slowest July for new issuance since 2008. Two deals are expected to price today, and no new issues were added to the calendar.
• July has traditionally been a light month for junk bond sales, with an average supply of $15.5b the last five years
• Year-to-date supply is lowest since 2009
• Supply is down 24% year-over- year
• Junk bonds spread and yields were resilient yesterday amid faltering stocks and rising VIX
• High yield spreads and yields were little changed
• CCCs are at a 5-month low yield
• High yield has been operating in a friendly environment backed by the supply shortage, steady economic growth with no imminent threat of recession, healthy corporate earnings, low default rate

(The Economist) Netflix suffers a big wobble

• Even the most celebrated firms have their hiccups. On July 16th Netflix, an online-streaming giant, presented disappointing news to investors: it had added just 5.2m new subscribers in the second quarter of 2018, well below its projected number of 6.2m. Shares plunged by 14%.
• This most recent bout of volatility may say more about the firm’s soothsaying abilities than the strength of its underlying business. Although Netflix’s subscriber growth fell short of its own projections, it was still in line with that of past quarters. In percentage terms, Netflix registered a bigger miss against projected subscriber growth in the second quarter of 2016, when its shares fell by 13%.
• When asked this week to explain the forecasting error, Netflix’s chief executive, Reed Hastings, responded that the company never worked out what happened in 2016 either, “other than that there is some lumpiness in the business”. It is possible that subscriber growth fell short of expectations because none of the shows Netflix released last quarter captivated audiences in the way that past hits such as “House of Cards” have. Data from Metacritic, a review-aggregator, show its users gave Netflix shows released in the past quarter an average score of just 6.4 out of 10, well below the online streamer’s historical average of 7.2.  

(The New York Times) As Momentum for Sinclair Deal Stalls, Tribune Considers Options

• The Sinclair Broadcast Group’s plan to create a broadcasting behemoth that it hoped would rival Rupert Murdoch’s Fox News appears to be coming to an end.
• Already the largest local television operator in the nation, Sinclair agreed last year to buy the rival TV group Tribune Media for $3.5 billion. The deal would have given the combined company control of broadcasters reaching seven in 10 households across the country, including in New York, Chicago and Los Angeles.
• But in light of the Federal Communications Commission’s draft order this week questioning whether Sinclair was sufficiently transparent in how it represented the deal to regulators and whether a merger would be in the public interest, Tribune said in a statement Thursday that it was “evaluating its implications and assessing all of our options.”
• The merger agreement allows either side to walk away from the deal if it does not close by Aug. 8. Sinclair declined to comment.
• This week has brought a stunning shift in momentum for a deal that once seemed almost assured of being completed, thanks in no small part to policy changes proposed or enacted by the F.C.C. and advocated by Sinclair. The commission had also eased a cap on how many stations a broadcaster can own and relaxed a restriction on advertising revenue and other resources shared by television stations.
• But on Monday, the agency’s chairman, Ajit Pai — who is the subject of an investigation by the office of the F.C.C.’s inspector general regarding his new policies — said he had “serious concerns” about the Sinclair-Tribune merger. Mr. Pai asked the agency’s four commissioners to hand off its review of the merger to an administrative law judge to determine the legality of Sinclair’s proposal.

(Aluminium Insider) Arconic Lands Long-Term Aluminium Sheet Supply Contract With Boeing

• Value-added aluminium firm Arconic announced Monday a new, long-term contract with The Boeing Company to supply the aerospace firm with aluminium sheet and plate for the entirety of its offerings from Boeing Commercial Airplanes.
• This latest contract is the biggest to date, and it builds upon a deal signed by Arconic’s predecessor-in-interest with Boeing four years ago. Arconic and its predecessors have a longstanding relationship to provide wing skins for the entirety of Boeing’s metallic-structured airplanes, and this week’s agreement adds structural plate to the slate, which is used on a wide swath of Boeing’s offerings, including the 787 and 777X.
• Arconic plans to use materials produced by its Very Thick Plate Stretcher (VTPS), which is a program that began last year and is capable of stretching thicker aluminium plate than any competing process. Additionally, Arconic will begin offering aluminium plate treated by its new horizontal heat-treat furnace, which it expects to begin qualifications next year.
• Per Arconic, the principal challenge faced by composite wing makers is maintaining structural strength as wing surfaces increase. Arconic says its processes have allowed aircraft manufacturers like Boeing to address this problem, which has, in turn, led to a significant uptick in demand for its composite aluminium sheet solutions.

(The Wall Street Journal) Arconic Draws Interest From Buyout Firms 

• Aerospace-parts maker Arconic Inc. ARNC -2.59% is the subject of takeover interest from private-equity firms, according to people familiar with the matter.
• The company has received expressions of interest from buyout firms including Apollo Global Management APO -1.93% LLC, the people said.
• A takeover of Arconic would be a relatively big deal, especially for private equity. The New York company, which was known as Alcoabefore the aluminum maker broke itself up, currently has a market value of $8.3 billion, so with a typical premium it could go for north of $10 billion in a sale. Arconic also has $6.4 billion in debt.
• No deal is imminent, and there is no guarantee there will be one.

(CAM Note) HCA debt was upgraded one notch by S&P

• The upgrade reflects the company’s credit profile, cash flow growth, and free cash flow generation.

(CAM Note) Ingles debt was upgraded one notch by Moody’s

• The upgrade reflects the company’s real estate base, stable gross margins, and same store sales numbers in the context of a competitive food retail landscape.