CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at -$34.9 billion.  New issuance for the week was $1.7 billion and year to date HY is at $114.5 billion, which is -25% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Issuance-starved investors scrambled for Intelsat, the first Ca-rated sale of 2018, placing more than $4 billion in orders for what started as a $1 billion deal.
• Offering upsized to $1.25b highlighting demand for credit rated lower than triple-C as investors move deeper down the risk spectrum for yield
• FS Energy and PGT Innovations also oversubscribed by 3x-4x, priced at tight end of talk, as investors made a beeline to rare new issues after a long drought
• Yesterday was the busiest issuance session in more than three weeks
• S. corporate high-yield funds returned to inflow
• CCCs continued to beat other fixed income assets with 4.53% YTD returns
• Investment-grade bonds down 2.62% YTD
• Strong technicals, steady economic growth, healthy corporate earnings and low default rate is backdrop for high yield
• Default rate projected to decline to 1.5% by April 2019 from current 3.7%, according to Moody’s

(Company Release)  Seagate Technology Announces CFO Resignation

• David H. Morton, Jr., executive vice president and chief financial officer at Seagate, will leave the company for a senior finance executive role at another company. Morton has agreed to assist in the orderly transition of his CFO responsibilities and will leave the company on August 3, 2018. His departure is not based on any disagreement with the company’s accounting principles, practices or financial statement disclosures.
• Dave Mosley, president and chief executive officer said, “On behalf of the board of directors and executive team at Seagate, I would like to thank Dave for his contributions over his 20+ year tenure at the company. As chief financial officer, Dave championed company-wide efforts to create shareholder value through optimizing our financial model, strengthening the company’s balance sheet and driving strategic investments. We wish Dave the best in his future endeavors.”
• Dave Morton said, “It has been a tremendous career experience working at Seagate and I am proud of the successful transitions we have accomplished in the business over the last few years. Seagate is well positioned with a strong operational and financial foundation to continue to achieve its strategic goals and create shareholder value.”
• Seagate will be initiating a search for a successor CFO and has named Kathryn R. Scolnick interim CFO. Kathryn has been a senior finance executive at Seagate for six years leading the company’s investor relations and treasury operations.

(CAM Note)  Morton will fill the Chief Accounting Officer role at Tesla

(Bloomberg)  NY Regulator Rescinds Charter Merger Approval 

• The New York State Public Service Commission revoked its approval of the 2016 merger between Charter Communications and Time Warner Cable because Charter did not provide the public benefits promised on which the approval was conditioned
• Commission directed its counsel to bring enforcement action against the company
• Commission directed Charter to pay $1 million to New York Treasury for missing the June milestone for expanding its service network, bringing the total amount of payments to $3 million
• Charter is also ordered to file a plan with the Commission within 60 days to ensure an orderly transition to a successor provider, or providers
• The Commission says the company repeatedly failed to meet deadlines and attempted to “skirt obligations to serve rural communities”
• Charter says in a statement that Spectrum has extended the reach of broadband network to more than 86,000 New York homes and businesses since merger
• Charter Communications has a “very strong legal case” in New York State and will litigate if needed against New York regulators, according to comments by management on its 2Q earnings call.

(Business Wire)  Arconic Reports Second Quarter 2018 Results

• Arconic Inc. reported second quarter 2018 results, for which the Company reported revenues of $3.6 billion, up 10% year over year. Organic revenue was up 5% year over year, driven by higher volumes in the commercial transportation, automotive, aerospace engines, defense, and building and construction markets. This was partially offset by unfavorable aerospace wide-body production mix, and the negative impact of $38 million related to the settlements of certain customer claims.
• Second quarter 2018 operating income was $324 million, up 1% year over year. Operating income excluding special items was $381 million, down 2% year over year, reflecting the impact of a $23 million charge related to a physical inventory adjustment in one facility, unfavorable aerospace wide-body production mix, and continued challenges in the Rings and Disks operations, mostly offset by higher volumes and net cost savings.
• Arconic Chief Executive Officer Chip Blankenship said, “In the second quarter, Arconic delivered strong organic revenue growth and doubled adjusted free cash flow. We announced contract awards at the Farnborough International Airshow, providing groundwork for exciting growth with valued customers. We have initiated the sale process of our Building and Construction Systems business as the first outcome of our ongoing strategy review. Our team is delivering operational improvements where we need it the most. While there is plenty of work yet to be done, we are driving progress and generating positive momentum.”
• Arconic ended the second quarter 2018 with cash on hand of $1.5 billion. Cash provided from operations was $176 million; cash used for financing activities totaled $35 million; and cash provided from investing activities was $117 million. Adjusted Free Cash Flow for the quarter was $289 million.