CAM HIGH YIELD WEEKLY INSIGHTS

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $2.5 billion and year to date flows stand at $3.5 billion.  New issuance for the week was $1.8 billion and year to date HY is at $1.8 billion, which is -81% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• Buyers jumped on rare new U.S. junk-bond issues, driving significant oversubscription as funds saw their biggest net inflow since December 2016.
• Issuance-starved investors made a beeline to HCA’s drive-by offering yesterday
• The $1.5b deal saw orders of more than $5b, was upsized from $1b
• Deal priced at lower end of talk
• Junk bond yields fell to new 2-mo. low, spreads tightened across risk spectrum
• Junk bonds top investment grade and loans, with YTD returns of 3.52% vs 0.499% and 2.467% for IG and loans, respectively
• CCCs are best-performing in fixed income, with gain of 4.66% YTD
• There appeared to be no immediate catalyst to derail junk bonds, with the economy on a steady path, no signs of an imminent recession, rate hikes on hold in the short term
• Several forecasters have raised their return projections for 2019
• Risk- aversion could take hold and bonds could plunge should U.S.- China trade tensions escalate

(Bloomberg)  High-Yield Bond Sales Freeze Is Thawed by Red-Hot Energy Sector

• Finally the junk bond new issue market has reopened, following the biggest secondary price rally in a decade. The energy sector is leading the way, just as it’s done in the secondary.
• Targa Resources is the first company to sell U.S. junk bonds in six weeks. The midstream energy services provider’s sold $750 million in bonds due 2027.
• The deal is rated Ba3/BB and may be used to buy back existing debt, so it’s far from the riskiest type of sale for this market. But it should open the door for more issuers, particularly given the secondary market rally and strong reception being seen for investment-grade bonds.
• Some issuers may be waiting for even better pricing, especially if they want to refinance. But according to UBS, which cites S&P, there’s $8.5 billion of new issues in the junk
  bond pipeline.

(Reuters)  CEO exits as PG&E faces fire liabilities, bankruptcy preparations

• Chief Executive Geisha Williams stepped down as pressure from potentially crushing liabilities linked to catastrophic wildfires have pushed the California utility owner to the financial brink and prompted it to make bankruptcy preparations.
• Williams, who took the helm of the provider of electricity and natural gas to millions of customers in March 2017, will be replaced by General Counsel John Simon on an interim basis, the company said. She also resigned from the boards of both PG&E and its utility subsidiary, Pacific Gas and Electric Co.
• “While we are making progress as a company in safety and other areas, the Board recognizes the tremendous challenges PG&E continues to face. We believe John is the right interim leader for the company,” PG&E Chairman Richard Kelly said in a statement. “Our search is focused on extensive operational and safety expertise, and the board is committed to further change at PG&E.”
• The company faces widespread litigation, government investigations and liabilities that could potentially reach $30 billion, according to analyst estimates.
• The management shake-up comes as PG&E is in discussions with banks for a multibillion-dollar bankruptcy financing package to aid operations during bankruptcy proceedings.

(Bloomberg)  Junk Bond Forecasts Are Quickly Going From Good to Great

• Junk bonds limped into 2019 nursing wounds from a December rout that was the worst month for the market since 2011. After a robust rally to start the year, strategists are significantly upgrading their annual forecasts.
• Most bullish on the asset class is Wells Fargo, which boosted its high-yield total return forecast to 9.9 percent, from a 6-7 percent call made last year. An attractive starting yield, fundamental backdrop and slight uptick in issuance are all positive drivers, the bank said in a Jan. 4 report.
• Barclays beefed up its high-yield bond total return call to 6.5-7.5 percent from a 3.5-4.5 percent projection made at the end of November. This compares to a 2.1 percent loss in 2018, the worst for the sector since 2015.
• JPMorgan raised its U.S. high-yield bond return forecast to 8 percent, from 3.3 percent at the end of November. It cited a meager chance of a recession, low rates and attractive valuations as reasons to buy.
• Even Morgan Stanley — historically one of the most bearish credit prognosticators — expects a better year for junk. In a Jan. 11 report, it lifted its high-yield total return forecast for 2019 to 4.5 percent from 0.5 percent.

(CAM Note)  MOODY’S UPGRADES HCA INC.’S SR SECURED DEBT TO Baa3

• HCA’s senior secured debt is now rated investment grade at two of the three rating agencies

(Wall Street Journal)  Apollo Nears Deal to Buy Arconic for More Than $10 Billion

• Private-equity firm Apollo Global Management is nearing a deal to buy Arconic Inc. for more than $10 billion, ending months of negotiation over what would be one of the largest leveraged buyouts in recent years.
• The Wall Street Journal first reported in July that Apollo and others were interested in an acquisition of Arconic, an aerospace-parts maker that was Alcoa before the aluminum company was split up in 2016.
• As usual in complicated merger talks, the timing could slip and a deal isn’t guaranteed. Should one be completed, it would end a months long sales process for Arconic. Apollo, before emerging as the front-runner, competed in an auction with other buyout firms including a team of Blackstone Group LP and Carlyle Group LP.
• In addition to providing relief to its shareholders, a deal for Arconic, to be funded with a huge helping of high-yield debt, would be another sign of a thaw in the credit markets. Just a few weeks ago, it looked like turmoil in global markets might threaten Apollo’s bid, but a recovery in recent days has aided the deal’s prospects.