CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.2 billion and year to date flows stand at -$40.9 billion.  New issuance for the week was $0.8 billion and year to date HY is at $158.9 billion, which is -31% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• S. junk bonds appeared to be on the mend after the October tumult, with yields declining and returns rebounding across ratings yesterday. High yield is the only positive returning global fixed income segment this year, up 1.01% at the close yesterday.
• Heightened volatility in October caused outflows from U.S. high- yield funds
• October saw fourth biggest outflow on record with $4.93b for week ended Oct. 10
• Investors pulled cash in three of the last five weeks in October
• Supply drought is a dominant theme, with issuance down more than 30% year-over-year
• Little issuance kicked off November after a slow October
• Junk bonds are supported by low default rates, strong technicals, lack of supply, and steady GDP growth

(Bloomberg)  Junk Bonds Spooked by Worst October Since 2008 as Yields Spike 

• October is typically a good month for high yield, but this October is on track for the biggest loss since December 2015 as equity volatility, earnings and trade worries weigh.
• S. high yield’s 1.81 percent drop so far this month is exceeded only by the 1.87 percent decline for global high yield, making it the second-worst performer of all the main bond market indexes. October has been positive for high-yield bonds in every year since 2008, when the market tumbled almost 16 percent in the month.
• The equity and oil slump, VIX jump and rising concerns about trade wars, Brexit and Italy all dented risk appetite in October.
• The average yield jumped to almost 7 percent — from about 5.5 percent at the start of this year — the highest since July 2016. CCC yields crossed the 10 percent mark for the first time since Jan. 2017. This makes it more costly for lower-quality companies to raise new funds and pay down debt.
• While junk bond yields rose and returns plummeted, there has been no panic selling. Some investors see this as a buying opportunity. Firm credit fundamentals, low default rates and a steady economy are critical factors favoring junk bonds.

(PR Newswire)  Olin Announces Third Quarter 2018 Earnings

• Third quarter 2018 reported net income was $195.1 million, which compares to third quarter 2017 net income of $52.7 million.  Third quarter 2018 adjusted EBITDA was $398.3 million.  Third quarter 2017 adjusted EBITDA was $265.5 million.  Sales in the third quarter 2018 were $1,872.4 millioncompared to $1,554.9 million in the third quarter 2017.
• John E. Fischer, Chairman, President and Chief Executive Officer, said, “During the third quarter, Olin achieved the highest adjusted EBITDA level since the acquisition of the DowDuPont Chlorine Products businesses.  Olin benefited from strong operating performances by both the Chlor Alkali Products and Vinyls and Epoxy businesses as well as improved chlorine, ethylene dichloride, and other chlorine-derivatives pricing.  We also made significant progress on our de-leveraging initiatives, repaying $170 millionduring the third quarter, thereby reducing debt by $250 million during the first nine months of 2018.
• We now believe full year 2018 adjusted EBITDA will be approximately $1.26 billionwith upside opportunities and downside risks of approximately 2%. This reflects higher than previously anticipated ethylene costs, resulting from increased ethane prices, of approximately $25 million, lower expected caustic soda pricing of approximately $45 million, and lower Winchester results due to decreased commercial ammunition demand of approximately $15 million. “
• Despite near-term declines in caustic soda prices, Olin continues to believe that the long-term supply and demand fundamentals for caustic soda remain positive.  Long-term caustic soda demand growth from alumina, pulp and paper and inorganic chemicals is forecast to exceed long-term chlorine growth from PVC, water treatment, urethanes and refrigerants.  The combination of steady global demand growth, chlor alkali capacity reductions in North America, Europeand China over the last two years, and minimal capacity additions support a favorable caustic soda outlook.  Olin expects continued improvement in caustic soda pricing during the next several years.

(Modern Healthcare)  HCA posts strong revenue, earnings in Q3 

• The Nashville, Tenn.-based company’s revenue jumped 7.1% to $11.5 billion during the third quarter of 2018, which ended Sept. 30, compared with $10.7 billion during the same period in 2017. Net income attributable to HCA grew 78% year over year to $759 million, from $426 million during the same period in 2017.
• HCA’s earnings before interest, taxes, depreciation and amortization totaled about $2 billion during the quarter, compared to $1.8 billion during the same period in 2017.
• The company’s same-facility admissions grew 3.1% during the third quarter of 2018 year over year, while same-facility emergency room visits declined 0.4% during that time. Same-facility inpatient surgeries increased 1.6% year over year, and same-facility outpatient surgeries increased 4.2% during that period.
• HCA’s Chief Operating Officer Sam Hazen said on the earnings call that the third quarter of 2018 marked 18 consecutive quarters in which HCA has grown its same-facility admissions. He also noted that 12 of the company’s 14 divisions saw growth in both admissions and adjusted admissions.
• Considering macro trends in HCA’s markets, the company’s growth plan, market-share gains and its experienced management team, Hazen said he expects the earnings growth rate in 2019 to be within the range of the company’s 2018 guidance for its full-year EBITDA growth rate of roughly 7%.