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 $3.2 billion.  New issuance for the week was $7.8 billion and year to date HY is at $9.6 billion, which is -45% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• The U.S. junk bond issuance spigot continued to flow, with two more drive-by deals for $2 billion taking the week’s volume to $7.8 billion, the most since early August.
• Junk bonds shrugged off wobbling equities, outflows from retail funds and new supply as spreads and yields were little changed
• Issuance dominated by drive-by offerings, uncharacteristic of the junk bond market, and opportunistic financing, suggesting investor confidence
• Continuing uncertainty over the U.S.-China trade talks, prolonged government shutdown and concerns over slowing global growth weigh on junk bonds
• Returns negative across ratings for the third straight session and first time since December
• CCCs reported biggest loss, of 0.15%
• CCCs remain best performing asset, with YTD return of 4.59%
• Bloomberg Barclays high yield index loss was 0.05%
• Junk bond return of 3.59% YTD beats IG return of 1.38%
• High yield beats leveraged loans, which have returned 2.51% YTD

(Financial Times)  How Apollo’s buyout of Arconic fell apart over pensions

• The $15bn buyout of Arconic by Apollo Global Management fell apart due to a last-minute dispute over hundreds of millions of dollars needed to cover pension obligations owed to the US manufacturer’s retirees, according to people involved in the transaction.
• The unravelling of what would have been one of the largest leveraged buyouts since the financial crisis had little to do with the potential liabilities related to Arconic’s flammable cladding panels linked to the deadly Grenfell Tower fire in the UK — as many industry observers had speculated.
• Instead, the sticking point involved issues investors and analysts had paid little attention to: underfunded pensions, as well as a disagreement over the company’s dividend policy in the period between an announcement of a buyout and its completion.
• The decision by Arconic’s board to walk away from the deal at the last minute — up until midday on Monday, the company had agreed in principle to sell itself to Apollo and activist hedge fund Elliott Management — stunned investors.

(The Street)  Steel Dynamics had Revenue Miss Estimates

• Fort Wayne, Ind.-based steel company Steel Dynamics Inc. reported earnings that were ahead of Wall Street expectations but fourth-quarter revenue that fell just short.
• The company reported net income of $1.31 per share, topping analysts’ expectations of $1.25. Revenue for the period came in at $2.9 billion, short of analysts’ predictions of $2.92 billion for the period.
• “The performance of the entire Steel Dynamics team was exceptional this year. We performed at the top of our industry, both operationally and financially,” said Mark D. Millett, president and chief executive officer. “In 2018, the domestic steel industry benefited from a steady improvement in underlying steel consumption, based on strength from the automotive, construction and energy sectors.”
• The Company’s press release noted two significant planned maintenance outages during the fourth quarter.

(Business Wire)  United Rentals Announces Fourth Quarter Results

• Rental revenue increased 8.5% year-over-year, reflecting growth of 4.3% in the volume of equipment on rent and a 2.4% increase in rental rates.
• time utilization decreased 60 basis points year-over-year to 69.0%
• Total gross margin of 43.3% increased 30 basis points year-over-year, while SG&A expense as a percentage of revenue declined 20 basis points to 13.1%. The company’s pre-tax margin increased 90 basis points to 18.4%.
• Michael Kneeland, chief executive officer of United Rentals, said, “We delivered strong fourth quarter results, including broad volume growth and rental rate improvement, in a year that leveraged our numerous competitive advantages. Our integration of major acquisitions expanded our service offering, and we gained traction from investments in fleet and technology.
• Kneeland continued, “Our momentum in the quarter gave us a strong start to 2019, when we expect to once again outpace the industry. By reaffirming our guidance, we’re underscoring our confidence in the cycle and our differentiation in the marketplace. Customer feedback, as well as key internal and external indicators, continues to point to healthy end-market activity. We remain focused on balancing growth, margins, returns and free cash flow to maximize shareholder value.”

(Bloomberg)  MGM Committee to Evaluate Real Estate After Activist Push

• MGM Resorts International said it would evaluate options for its real estate portfolio, forming a board committee to consider how to extract more value from the properties.
• The committee will be composed of three independent directors with real estate and financial markets experience
• Caesars last year spun off its real-estate holdings into Vici Properties Inc., and the real estate investment trust controlled by MGM Resorts, MGM Growth Properties LLC, tried to combine with Vici but failed.
• MGM created MGM Growth Properties, known as MGP, for some of its assets in 2016 under pressure from activists. CEO Jim Murren has said he’ll continue to sell casinos to MGM Growth Properties and reduce the company’s ownership stake in the REIT.

(Bloomberg)  PG&E Excitement Cools as Wall Street Sticks to Bankruptcy View

• PG&E Corp.’s 75 percent surge late Thursday after being cleared of responsibility for the deadly 2017 Tubbs fire may be short-lived as Wall Street continues to weigh the prospects of a bankruptcy filing.
• Shares are down about 12 percent in pre-market trading. Susquehanna now sees PCG’s total liability from the 2017 and 2018 fires combined to be $7 billion-$11 billion from earlier estimate of $10 billion-$14 billion.