CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.3 billion and year to date flows stand at -$35.0 billion. New issuance for the week was $6.4 billion and year to date HY is at $142.6 billion, which is -26% over the same period last year. 

 (Bloomberg) High Yield Market Highlights

• Supply shortage is the continuing theme for U.S. junk bonds, aggravated by more cash flowing into dedicated funds.
• AkzoNobel priced at the tight end of price talk yesterday as investors shrugged off aggressive issuer-friendly covenants
• Orders exceeded $2.5b for the $600m offering
• Covenants allow flexibility to convert asset sale proceeds into restricted payments; permit dividend distribution to sponsor without deleveraging
• Oversubscription on new issues have become common as investors scramble for yield
• This week, orders for Refinitiv’s $2.8b USD tranche exceeded $10b
• Diamondback Energy’s drive-by offering got orders above $2b for a $500m offering, which was increased to $750m
• IGT and Clearway Energy had 3x-4x the size of the offering and priced at tight end of talk
• YTD supply is $142b, down 26% from same time last year, lowest since 2009
• Junk bond spreads, yields little changed across ratings
• CCCs beat BBs and single-Bs and remained the best performing asset, with YTD returns of 5.59%, a new YTD high
• IG down 2.62% YTD
• High yield supported by low default rate, strong corporate earnings, steady U.S. growth
• Moody’s expects default rate to fall to 2.6% by year-end and 2.2% in August 2019

(Bloomberg) Supply Dearth Elevates Junk Bonds to Top Fixed Income Performer

• Buy U.S. junk bonds — they’re not selling enough of them.
• Investors who followed that logic this year are enjoying the best returns anywhere in fixed-income, as high-yield issuance runs much slower than in 2017.
• September, traditionally a busy month for supply, has been the slowest since 2011
• Volume is down after years of refinancing and a lack of LBO activity
• Some financing is being done in the loan market instead of bonds
• The shortage has pushed investors to reach for yield and give less regard to risk

(Reuters) Cheniere signs 15-year LNG deal with oil trading giant Vitol

• U.S.-based Cheniere Energy Inc said that it has signed a 15-year agreement to supply liquefied natural gas (LNG) to the world’s largest oil trader Vitol Group that has been steadily ramping up its presence in that market.
• The move by Vitol is part of a long-term objective shared by many major commodity traders to increase their traded gas volumes as emerging markets seek cleaner fuels for power generation.
• China in particular has soaked up what many analysts expected to be a significant LNG glut this year as it replaces some of its coal furnaces with gas-fuelled ones.
• Part of the drive for traders is that the LNG market is becoming increasingly liquid with more spot deals, presenting arbitrage opportunities and supply imbalances that traders thrive off.
• Cheniere said it will sell 700,000 tonnes of LNG per year to Vitol, starting in 2018 with a purchase price pegged to the Henry Hub monthly average, plus a fee.

(Health Imaging) TriMedx to buy Aramark healthcare division, including imaging tech services, for $300M

• TriMedx announced plans to buy the healthcare technologies division of Aramark Corporation for $300 million. The two companies have signed a definitive agreement and expect the transaction to be completed by the end of the year.
• Aramark’s Healthcare Technologies business, which it acquired in 2001, maintains and services imaging equipment and provides management programs for clinical equipment. TriMedx specializes in clinical asset management and clinical engineering services.
• “We are excited to bring our technology and service model to a greater number of healthcare providers, delivering a comprehensive and differentiated clinical asset management program in an ever-changing environment,” said Henry Hummel, CEO of TriMedx, in a company statement. “We look forward to Aramark HCT’s talented associates joining the TRIMEDX team to support our strategic operating model focused on partnering with healthcare providers to drive measurable and persistent value.”
• Aramark executives announced plans to use the proceeds of the sale to pay down debt and buy back $50 million in shares.
• “Today’s action is another demonstration of the clear and focused strategy we are following that has substantially elevated our operating performance and is driving Aramark’s success,” said Eric J. Foss, chairman, president and CEO, in a prepared statement. “The divestiture of our Healthcare Technologies business will further focus our portfolio around our core food, facilities and uniforms businesses. I want to thank and congratulate our HCT team members for their contributions to Aramark and wish them continued success.”

(Business Wire) AMC Entertainment Closes on $600 Million Strategic Investment from Silver Lake 

• AMC issues $600 million Senior Unsecured Convertible Notes due 2024 to Silver Lake bearing interest at 2.95% and convertible into AMC Class A common stock at $20.50 per share, before giving effect to the special dividend noted below; with ongoing cash interest expense of the Notes to be more than offset by the cash dividend savings no longer being paid on the AMC shares repurchased from Wanda.
• On September 28, 2018, AMC will pay a special dividend of $1.55 per share to all AMC Class A and Class B common shareholders of record as of September 25, 2018. The special dividend will not be paid to Wanda on the shares repurchased by AMC.
• Silver Lake, a private equity firm with over $40 billion of invested or committed capital, and a global leader in technology investing, receives one seat on the AMC Board and a two-year right of first refusal on certain future transfers of AMC shares by Wanda.
• With support from Silver Lake in identifying candidates, AMC will add a new independent Director to its Board who will have significant technology experience and knowledge.
• Wanda and Silver Lake are both wholly committed to continuing AMC’s current growth strategies under the leadership of AMC CEO and President Adam Aron and AMC’s senior management team.