CAM High Yield Weekly Insights

CAM High Yield Market Note

8/2/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.7 billion and year to date flows stand at $15.6 billion. New issuance for the week was $4.5 billion and year to date HY is at $155.1 billion, which is +35% over the same period last year.

(Bloomberg) High Yield Market Highlights

• Rising trade tensions, volatile stocks and outflows from high-yield funds are likely to keep U.S. junk bond prices under pressure and may stall a recent burst of activity in the new issue market.
• U.S. corporate high-yield funds reported an outflow for the week. This marks the first time in the last eight weeks that the high-yield market has seen an outflow
• Spreads widened by 17 basis points to 388bps over U.S. Treasuries while yields rose. Yields, however, remain below 6% which is still attractive borrowing rates for companies
• July was the third busiest month this year as LBOs and M&As accounted for 43% of issuance, the most this year
• Junk YTD returns are 10.477%, off the 10.57% highs of this year
• BB were at 11.188% after a gain of 0.29%
• Single Bs stood at 10.68% after a loss of 0.14%
• CCCs lost the most posting 0.26%, the biggest one day loss in five weeks. taking the YTD to 7.481%
• Loans returns were at 6.58% YTD  

• (The Hill) T-Mobile, Sprint deal at final major hurdle

• The $26 billion T-Mobile–Sprint deal faces one last major hurdle as a group of state attorneys general look to block the telecommunications mega-merger in court.
• The controversial deal — which would combine two of the country’s top national mobile carriers into one company valued at $146 billion — has already cleared a series of pivotal regulatory hurdles this month.
• The Department of Justice (DOJ) greenlighted the deal last week, and the Republicans on the Federal Communications Commission (FCC) signaled they are ready to sign off on the plan.
• Now, critics of the deal are turning their focus to the legal challenge from state attorneys general, saying it is the most significant hurdle the merger still has to clear.
• The group of 13 attorneys general, along with Washington, D.C., are moving forward with their litigation to block the merger, which they officially announced last month — even before the DOJ announced its decision on the deal.

(Business Wire) The GEO Group Reports Second Quarter 2019 Results

• The GEO Group, a fully integrated equity real estate investment trust (“REIT”) and a leading provider of evidence-based offender rehabilitation and community reentry services around the globe, reported its financial results for the second quarter of 2019.
• GEO reported second quarter 2019 net income attributable to GEO of $41.9 million, or $0.35 per diluted share, compared to $37.4 million, or $0.31 per diluted share, for the second quarter 2018. GEO reported total revenues for the second quarter 2019 of $614.0 million up from $583.5 million for the second quarter 2018. Second quarter 2019 results reflect $2.6 million in start-up expenses, pre-tax, and a $5.7 million loss on the extinguishment of debt, pre-tax, related to the recent amendment and extension of GEO’s senior revolving credit facility and the recent refinancing of non-recourse senior secured debt associated with the development of the Ravenhall Correctional Centre in Australia. Excluding these items, GEO reported second quarter 2019 Adjusted Net Income of $49.4 million, or $0.41 per diluted share.
• GEO reported second quarter 2019 Normalized Funds From Operations (“Normalized FFO”) of $66.6 million, or $0.56 per diluted share, compared to $57.7 million, or $0.48 per diluted share, for the second quarter 2018. GEO reported second quarter 2019 Adjusted Funds From Operations (“AFFO”) of $83.4 million, or $0.70 per diluted share, compared to $72.2 million, or $0.60 per diluted share, for the second quarter 2018.
• George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “We are pleased with our strong quarterly performance and our outlook for the balance of the year, which reflect strong fundamentals and growing earnings. We are scheduled to activate 5,700 beds in the second half of the year, including 4,600 previously idle beds. We are proud of the success of our GEO Continuum of Care enhanced rehabilitation and post-release programs. We remain focused on effectively allocating capital. We believe that our current dividend payment is supported by predictable cash flows, and we expect to apply our increasing excess cash towards paying down debt.”

(Bloomberg) HCA’s Quarter Misses but Guidance Is Raised

• Post-2Q Earnings Outlook: HCA management raised 2019 Ebitda guidance by $75 million at the midpoint to $9.6-$9.85 billion after what appeared to be a luckluster quarter. The raise indicates HCA’s confidence that Ebitda can return to 6% growth, or the upper range of the company’s long-term 4-6% target. Furthermore, the 2018 revenue benefit from graduate medical-education programs was a headwind to 2Q Ebitda growth and recent acquisitions pressured margins. Labor, supplies and operating expenses per adjusted admission growth on a same-facility basis were in-line with expectations and recent trends.
• Revenue increased 4.3% on a same-facility basis, slightly below recent trends, driven by solid volume but lower pricing. Softer pricing in the quarter is attributed to lower acuity volume and fewer inpatient surgeries.