CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.5 billion and year to date flows stand at -$39.3 billion.  New issuance for the week was $0.9 billion and year to date HY is at $159.9 billion, which is -32% over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• S. junk bond spreads narrowed as fund flows turned positive, despite oil’s fall below $60 as it entered a bear market.
• ETF inflows did accelerate
• WTI fell for a 10th consecutive session, the longest losing streak on record
• Bloomberg Barclays high yield energy index returns were up a tad and almost flat at close yesterday with YTD returns at 1.256% vs 1.252% on Tuesday suggesting high yield energy bonds barely budged
• Energy yields were little changed at 7.58% at close yesterday even as oil dropped by 1.6%
• S. high yield continued to outperform other fixed income assets with YTD return at 1.61%
• CCCs were still the best performers YTD beating IG, BB and single-B with returns at 3.56%
• Investment grade is down 3.58% YTD
• There appears to be no immediate catalyst to derail junk bonds, with supply at a 10-year low and oil losing its grip
• Low and declining corporate default rate, steady economy and improved quality of the junk bond universe boosts sentiment
• Number of companies rated B3 with negative outlook dropped to the lowest since 2014
• YTD high yield supply was the lowest since 2009

(KTLA)  Prop 8: California Voters Reject Measure That Would’ve Capped Dialysis Clinics’ Profits

• California voters on Tuesday rejected a ballot measure that would have capped dialysis clinics’ profits in an effort to improve patient care.
• Proposition 8 would have limited profits for dialysis clinics that provide vital treatment for people whose kidneys don’t work properly.
• The measure was the most expensive initiative on the 2018 ballot in California, generating more than $130 million in campaign contributions. A health care workers union, Service Employees International Union-United Healthcare Workers West, funded the $18 million supporting campaign. Dialysis companies contributed more than $111 million to kill the initiative.
• The union argued Proposition 8 would stop the dialysis companies from cutting corners to make money and force them to invest more of their revenue into patient care. Supporters say the profit-hungry companies don’t adequately clean clinics and overwork staff.
• Dialysis providers say the measure was actually a tactic to pressure the dialysis companies to let workers unionize and would have forced clinics to close. They say most California clinics provide high quality care.

(Reuters)  Dish beats profit estimates, expects more subscriber losses

• Dish Network Corp beat Wall Street estimates for quarterly profit on Wednesday, as the U.S. satellite TV provider benefited from lower programming costs due to a blackout of Univision channels.
• Dish shed a net 367,000 satellite subscribers during the third quarter, much higher than a consensus estimate of 232,000 net customer losses, according to research firm FactSet.
• Dish, which has been stockpiling licenses for wireless spectrum, or airwaves that carry data, said it was on track to build an Internet of Things wireless network, and it is placing antennas on towers this year.
• The company’s streaming video service Sling TV added just 26,000 subscribers during the quarter, below analyst expectations of 71,000 additions, according to FactSet.

(Sun Sentinel)  Prison operator Geo increased revenue, profits in third quarter

• Prison and detention center operator The Geo Group saw its third-quarter profits increase to $39.3 million, or 33 cents a share, compared with $38.5 million, or 31 cents a share, in the year-ago quarter, according to earnings released Wednesday.
• Revenue at the Boca Raton-based company increased 3 percent in the quarter to $583.53 million, up from $566.76 million in the third quarter of 2017, Geo said.
• Chairman and CEO George Zoley said he remains optimistic about demand for the company’s services and its outlook for “growth opportunities.”

(Business Wire)  Zayo Announces Plans to Separate into Two Public Companies

• Zayo Group Holdings, Inc. today announced it plans to separate into two publicly traded companies: one to focus on providing core communications infrastructure and another to leverage infrastructure to provide solutions for a broad set of enterprise customers.
• Zayo Infrastructure, “InfraCo,” will be a unique, fiber-focused infrastructure provider with deep, dense networks and broad geographic reach throughout North America and Western Europe.
• “EnterpriseCo” will have a strong product portfolio and customer base centered on higher bandwidth connectivity to enterprise locations, including to public cloud and SaaS providers, that will be sold both directly to enterprise customers and wholesale through a carrier focused channel.
• “Today’s announcement is the logical next step in the evolution of Zayo,” said Dan Caruso, chairman and CEO of Zayo. “While Zayo’s business today is organized as five autonomous segments, the complexities of these businesses have made it more difficult to achieve our growth objectives. By completely separating the infrastructure and enterprise businesses, we will enable more focused execution within each business, leading to enhanced growth and unlocking value.”
• “This transaction positions InfraCo as the largest pure-play fiber-focused communications infrastructure provider and creates an opportunity for EnterpriseCo to fully focus on our extensive enterprise customer base, solution set and business model while maintaining a strategic relationship with InfraCo,” said Caruso. “As we operate independent businesses today, we anticipate the transition to be fairly straightforward.”
• The transaction is expected to be consummated via a pro rata taxable spin of EnterpriseCo from Zayo. Zayo’s existing NOLs are expected to be available to reduce any cash taxes owed by Zayo in conjunction with the spin-off. This structure preserves the ability for InfraCo to convert to a real estate investment trust (REIT). Consummation of the spin is subject to regulatory and Board approval. Immediately following the separation transaction, which is expected to be completed in late 2019, Zayo shareholders will own shares of both companies.