CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.3 billion and year to date flows stand at -$36.4 billion. New issuance for the week was $4.0 billion and year to date HY is at $146.6 billion, which is -27% over the same period last year. 

(Bloomberg) High Yield Market Highlights

• Junk bonds are leading the fixed income pack with a near 2.5 percent return at the end of third quarter, shrugging off fund outflows as issuance remains sparse.
• U.S. corporate high-yield funds saw a $1.3b outflow for the week ended September 26, biggest outflow in more than 10 weeks
• CCCs are the best performing asset in fixed income with YTD return of 5.88%
• Investors appeared wary of aggressive LBO funding after Refinitiv and AkzoNobel, as Envision Healthcare’s $1.625b senior notes offering to fund its buyout by KKR was met with resistance to loose covenants, forcing a cut in the size of the offering by $400m and moving funds to term loan
• Besides issuer-friendly covenants, Envision was weighed down by stalled negotiations with UnitedHealthcare as it threatened to drop the firm from its network
• YTD supply of $147b is the slowest since 2009

(Company Release) CenturyLink Chief Financial Officer Sunit Patel to depart company

• CenturyLink announced that Executive Vice President and Chief Financial Officer Sunit Patel has resigned from CenturyLink after accepting an executive leadership role at another company. Patel’s resignation is effective Sept. 28. CenturyLink will initiate a search process for his replacement that will include both internal and external candidates.
• Neel Dev, CenturyLink’s group vice president of finance, has been named interim CFO effective upon Patel’s departure. Dev served as the integration planning lead for Level 3 in the recent CenturyLink acquisition and currently has responsibility for business unit finance support, supply chain and procurement, capital governance management, budgeting and financial performance analysis and management. He has been part of Patel’s leadership team for 14 years and has more than 20 years of experience in the telecommunications industry, in both financial and operational roles.
• “Sunit has made significant contributions to CenturyLink and Level 3 as CFO, and he has been a valuable partner to both companies and to me,” said Jeff Storey, president and chief executive officer of CenturyLink. “Additionally, Sunit did a great job in building bench strength and an excellent leadership team across the finance organization. As Sunit focused on our external stakeholders, Neel has been our de facto operational CFO and part of my management team for the past ten years. I am highly confident he will continue our drumbeat of financial discipline across CenturyLink with a focus on synergy attainment, operating efficiency and profitable growth.”  

(Company Release) CyrusOne Inc. Prices Public Offering of Common Stock

• CyrusOne announced that it has priced a public offering of 8,000,000 shares of its common stock, of which 5,500,000 shares were offered directly by CyrusOne, and 2,500,000 shares were offered, at the request of CyrusOne, by the Forward Purchaser, at a price to the public of $62.00 per share. CyrusOne granted the underwriters an option to purchase up to 1,200,000 additional shares of its common stock in connection with the offering.
• In connection with the offering of CyrusOne’s common stock, CyrusOne entered into a forward sale agreement with Morgan Stanley (who is referred to in such capacity as the “Forward Purchaser”), with respect to 2,500,000 shares of CyrusOne’s common stock covered by the offering.
• Pursuant to the terms of the forward sale agreement, and subject to CyrusOne’s right to elect cash or net share settlement under the forward sale agreement, CyrusOne intends to issue and sell, upon physical settlement of such forward sale agreement, 2,500,000 shares of its common stock to the Forward Purchaser in exchange for cash proceeds per share equal to the applicable forward sale price, which will initially be the public offering price, less underwriting discounts and commissions, and will be subject to certain adjustments as provided in the forward sale agreement. CyrusOne expects to physically settle the forward sale agreement in full and receive proceeds by September 15, 2019.
• The Operating Partnership intends to use such proceeds to repay borrowings under the senior unsecured revolving credit facility, fund growth capital expenditures related to recently signed leases and for general corporate purposes, which may include funding future acquisitions, investments or capital expenditures.

(CAM Note) On the back of the stock issuance, S&P upgraded the debt of CyrusOne by one notch. The debt is now investment grade at S&P.

(CNBC) Health Management Associates to pay $260 million to settle criminal charges for allegedly defrauding Medicare, Medicaid

• Health Management Associates has agreed to pay more than $260 million to settle fraud charges that included paying kickbacks to physicians and ripping off federal health programs, the Justice Department said.
• HMA, which was acquired by the for-profit hospital Community Health Systems in 2014, paid physicians in exchange for patient referrals and submitted inflated claims for emergency department fees to federal health insurance programs, prosecutors said.
• The agreement announced Tuesday also resolves several outstanding civil claims against the hospital operator, the DOJ said. An HMA subsidiary that operated under the name Carlisle Regional Medical Center additionally agreed to plead guilty to one count of conspiracy to commit health-care fraud.
• “HMA pressured emergency room physicians, including through threats of termination, to increase the number of inpatient admissions from emergency departments — even when those admissions were medically unnecessary,” Assistant Attorney General Brian Benczkowski said in a statement. “Hospital operators that improperly influence a physician’s medical decision-making in pursuit of profits do so at their own peril.”