CAM High Yield Weekly Insights

July 5, 2019 Rich Balestra - Portfolio Manager High Yield Weekly 0 comment Like

CAM High Yield Market Note

7/5/2019

(Bloomberg) High Yield Market Highlights

Retail funds estimated to have received $885m through Tuesday, JPMorgan strategists wrote, citing Lipper data. High-yield bond ETFs recorded inflows of ~$1b in the last four sessions, data compiled by Bloomberg show.
Issuance slowed ahead of the Fourth of July holiday and is expected to resume next week
Returns rebounded in a holiday-shortened session Wednesday across ratings, with BBs leading the rally.
Spreads tightened and yields dropped in thin trading
U.S. high yield trading on July 3 was the slowest day in 2019 and volumes dropped the most in almost three months
YTD returns climbed back again to close at 10.257% from 10.146%
BBs are still the best performers, with a YTD return of 10.832%, followed by single Bs at 10.42%
Triple-C YTD returns stand at 7.68%
Loans lag bonds with YTD returns of 5.83%

Weatherford International said it would file for bankruptcy protection after bondholders approved a restructuring agreement that will reduce its total debt by about 70%.
The company said it expected to file its chapter 11 petition in U.S. Bankruptcy Court in Houston in what would be one of the biggest oil patch bankruptcies in years.
Unsecured bondholders are in line to get all but 1% of the equity in the reorganized business, while shares in the existing company will be canceled.
Weatherford, which has about 26,000 employees world-wide, had said in May that it planned to file for bankruptcy after having reached an agreement with creditors holding 62% of its bond debt. The balance-sheet restructuring will reduce its total debt to about $2.5 billion from $8.3 billion, nearly all of which is made up of unsecured bonds. Under the proposed plan, which requires court approval, the bondholders are expected to recover about 63% of what they are owed based on the proposed valuation of the company. Weatherford blamed its bankruptcy filing, in part, on volatility in oil and natural gas prices.
As oil-and-gas companies’ spending on exploration, development and production of oil and natural gas has decreased, so has demand for Weatherford’s services and products, the company said in a filing with the Securities and Exchange Commission. Weatherford said its cash flows from operations have been negative the past three fiscal years.

(Wall Street Journal) OPEC Agrees to Extend Output-Cut Pact

OPEC agreed to roll over its production cuts into the first quarter of 2020, the cartel’s officials said, but the new pact exposed deepening geopolitical fractures among members of the group.
The discussions over long-term cooperation plans highlighted the risks of the cartel’s alliance with Russia: OPEC needs the partnership to compete with U.S. shale producers, but longstanding members say they feel ostracized by the alliance.
OPEC reached a consensus on oil output without much drama Monday, but the cartel hit an impasse when it sought agreement on whether it should continue working with Russia and its allies to balance oil markets once the nine-month plan expires.
Iran initially objected, but after talks lasting five hours and involving a separate meeting between Iranian and Saudi officials both sides reached a compromise on long-term cooperation with Russia, OPEC officials said.
Over the weekend, Russian President Vladimir Putin revealed that Saudi Arabia — OPEC’s de facto leader — and Russia had already agreed to maintain the output cuts at current volumes, which run at around 1.2 million barrels a day. The news left some in OPEC feeling overshadowed by two of the world’s largest oil producers, OPEC officials said.

(Bloomberg) T-Mobile on Cusp of Justice Department Approval for Sprint

T-Mobile U.S. Inc. is on the cusp of securing U.S. Justice Department approval for its $26.5 billion merger with Sprint Corp., after establishing the general outlines of asset sales to Dish Network Corp., according to people familiar with the matter.
The Justice Department is hammering out final issues with T-Mobile on an agreement aimed at ensuring Dish can become a strong fourth competitor in the U.S. wireless market, said the people, who asked to not be identified because the matter isn’t public. While the sticking points aren’t insurmountable, the Justice Department has yet to bless the arrangement to allow Sprint’s acquisition to proceed.
T-Mobile is trying to offer just enough concessions to gain approval but not so many that it creates a formidable rival while the Justice Department is aiming to maximize competition, the people said.