CAM High Yield Weekly Insights

CAM High Yield Market Note

7/19/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at $15.0 billion. New issuance for the week was $3.7 billion and year to date HY is at $137.8 billion, which is +24% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bond spreads should see some relief Friday as oil prices bounce back following a recent losing streak and stocks futures rise on expectations of a Fed rate cut later this month.
• The high-yield primary market could see as many as three deals price today, putting it on track for the busiest July in five years if volumes for the month top $15b
• Investor demand for high-yield remains strong despite recent spread widening. Cash continues to pour into funds, and new deals have been inundated with orders
• U.S. high yield funds have seen six straight weeks of inflows
• Sinclair Broadcast Group saw around $19b in investor demand for its $4.9b acquisition deal, including $11b for the secured tranche and $8b for the unsecured tranche
• Trivium Packaging is expected to price a cross- border new issue today. The U.S. dollar tranches have been upsized after orders topped more than $5b
• Junk bond YTD returns are still high, but did fall below 10% for the first time in three weeks on Thursday
• BBs YTD returns stand at 10.626%
• Single-B YTD returns are 10.131%
• CCCs YTD returns are 7.269%
• Loan returns are at 6.257% YTD

(Bloomberg) Sinclair Has $19b of Investor Orders for Sports M&A Junk Bond

• Sinclair Broadcast Group’s high-yield bond offering to finance its acquisition of 21 regional sports networks was inundated with investor demand as order books reached $19b, according to people familiar with the matter who are not authorized to speak publicly and asked not to be identified.
• The $2.55b 7 year senior secured tranche received orders of about $11b, while the $2.325b 8 year unsecured tranche received about $8b, the people said
• The bond — the biggest dollar high-yield offering since Altice France priced a $5.19b deal in 2016 — is expected to price Friday
• Initial whisper talk for the secured tranche is 6%-6.25%, and the unsecured 7.25%-7.5%
• Commitments on $4b term loans that will also finance the acquisition were due July 18
• The $9.6b acquisition announced in May will be financed with $1b of preferred equity and around $1.4b of cash from Sinclair, according to bond documents seen by Bloomberg
• The sale of the sports networks to Sinclair by Walt Disney allowed the company to get the antitrust approval needed for its $71b takeover of Fox 

• (Netflix) Netflix’s Next Big Market Is Crowded With Cheaper Rivals

• Netflix Inc., reported the worst drop in U.S. users since 2011, is looking for new subscriber growth in India, a rapidly expanding streaming market. Trouble is, so are a raft of ambitious local players with cut-rate programming packages.
• Already wrestling with other global giants such as Walt Disney Co. and Amazon.com Inc., Netflix now also contends with broadcasters and Bollywood powerhouses allied with billionaire-backed wireless carriers, who are luring users with free offers
  or as low as 40 cents a month. That tactic has put them directly in the India growth path of the world’s largest paid online streaming service.
• The intense competition could derail Chief Executive Officer Reed Hastings’s goal of 100 million customers in India – almost 25 times Netflix’s estimated subscriber base there this year. The world’s second-most populous country is a priority for the streaming service, which is effectively blocked in China.
• The second-quarter loss of 130,000 users in the U.S., reported Wednesday, makes winning in India all the more pressing.

(Company Report) United Rentals Announces Second Quarter 2019 Results

• • Total revenue increased 21.1% to $2.290 billion and rental revenue increased 20.2% to $1.960 billion. On a GAAP basis, the company reported second quarter net income of $270 million, compared with $270 million, for the same period in 2018. Second quarter 2019 included a pretax debt redemption loss of $32 million
  • Adjusted EBITDA increased 18.3% year-over-year to $1.073 billion, while adjusted EBITDA margin decreased 110 basis points to 46.9%. On a pro forma basis, year-over-year, net income increased 7.1%, adjusted EBITDA increased 6.6% and adjusted EBITDA margin increased 40 basis points.
  • Matthew Flannery, chief executive officer of United Rentals, said, “We were pleased with our solid growth in revenue for both our general rental and specialty segments and our adjusted EBITDA for the second quarter. Importantly, the market outlook for the second half of 2019 remains positive based on feedback from our customers and the field. The multiple integrations we have underway will continue to gain traction in the back part of the year.”
  • Flannery continued, “Our updates to guidance reflect a slightly slower than expected pace for the BlueLine integration, as well as historically bad weather in several key regions this past quarter. As a result, we’ve trimmed the upper ends on total revenue and adjusted EBITDA by approximately 1%, and capex by $150 million, while raising our free cash flow expectation. We remain confident in the health of the cycle and are well positioned to serve our customers with the strongest service offering in our history.”