CAM High Yield Weekly Insights

CAM High Yield Market Note

8/16/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.6 billion and year to date flows stand at $12.5 billion. New issuance for the week was $5.4 billion and year to date HY is at $165.0 billion, which is +26% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bonds are set to open higher at the end of a volatile week as stock futures climb alongside modest gains Europe and Asia. Providing support are higher oil prices and Lipper reporting a net fund flow into U.S. high yield funds following a large decline in the prior week.
• Yields and spreads were slightly higher, particularly for Triple-Cs, where spreads widened 11bps to 949bps and yields closed at a fresh 7-month high of and 11.16%
• Investors have moved up in quality as reflected in performance of BBs, with YTD returns at 10.9% and investment grade at 13.3%
• Investors yanked more cash from high-yield ETFs
• HYG reported an outflow of $514m in the latest session, the biggest outflow since Aug. 5
• Junk bond returns were negative for a second session, down 0.01%, weighed by CCCs and energy index
• Bloomberg Barclays High Yield Index was negative in three of the last four sessions taking YTD returns down to 9.477%
• Energy index YTD returns fell to 1.473% from 6.1% at end of July, a loss of more than 4.5% in August, taking CCCs down too
• CCC YTD return is 4.016% after a loss of 0.05% yesterday, the most in the high yield index
• CCCs MTD loss is 3.5%
• BBs YTD gain is 10.94%, best in high yield, after posting a gain of 0.004%, the only positive yesterday
• Single-Bs lost 0.02% taking the YTD returns to 9.62%

(Business Wire) Aramark Reports Third Quarter Results

• Consolidated Revenue was $4.0 billion in the quarter, an increase of 1.0%. Adjusted Revenue grew 5.8% over the prior-year, attributed to a 3.7% growth in the legacy business and a 2.1% increase related to an accounting rule change.
• Operating Income was $189 million, up 1% compared to the prior-year period. Adjusted Operating Income increased 4% on a constant currency basis, driven by operational improvements and acquisition synergies, offset by higher total incentive-based compensation and the deliberate exit of non-core custodial accounts in Europe.
• The Company made continued progress in de-leveraging by reducing its net debt position by $672 million compared to the prior year. Total trailing 12-month net debt to covenant adjusted EBITDA was 4.1x at the end of the quarter, a 0.5x improvement versus the end of the third quarter of 2018. Through nine months, Free Cash Flow improved $158 million compared to prior year. This increase can be attributed to a disciplined management of working capital and investment spend. At quarter-end the Company had approximately $1.1 billion in cash and availability on its revolving credit facility.

• The Company maintains the following performance outlook for Fiscal 2019:
• Legacy business revenue growth expectations of approximately 3%.
• Adjusted EPS of $2.20 to $2.30 per share. This includes four cents of unfavorable currency impact.
• Free cash flow of $500 million. This includes approximately $50 million in cash outlay related to the divestiture of the Healthcare Technologies business and approximately $50 millionin spending on the integrations of Avendra and AmeriPride.
• Net debt to covenant adjusted EBITDA of 3.8x by the end of the fiscal year. 

• (Business Wire) AMC Entertainment Announces Second Quarter 2019 Results

• “AMC delivered strong results for the second quarter of 2019, achieving 4.4% year-over-year total revenue growth to $1.506 billion, driven by record attendance in both our U.S. and international markets. Importantly, total Adjusted EBITDA grew 7.3% year-over-year after adjusting 2018 for the non-cash accounting impact of ASC 842,” said Adam Aron, CEO and President of AMC.
• Aron continued, “In a quarter that generated the second largest domestic industry box office for any quarter in the past 100 years, we are especially gratified that AMC outperformed the rest of the U.S. industry (meaning comparing AMC with the rest of the U.S. industry, excluding AMC) in attendance per screen by 800 basis points and in admissions revenue per screen by 400 basis points. Additionally, AMC generated record U.S. food and beverage per patron of $5.58 and total food and beverage per patron of $5.08, representing year-over-year growth of 5.5% and 3.9%, respectively.
• (CAM Note) Additional AMC Highlights

• In the 3rd quarter two blockbusters currently playing are Spiderman and Lion King.  July is 6.7% ahead of July 2018. Lion King is already the 12th top grossing movie of all time.
• AMC 2 qtr 2019 attendance +3.9% to 92 million tickets sold.
• Deleveraging is the #1 priority now. Following aggressive cap-x program to modernize theatres and install reclining seats, upgraded food and beverage concession areas, install premium large format screens (over $2 Billion since 2014) cap-x will now decrease. 2018 was $460MM. 2019 guidance is $415MM. 2020 guidance is $300MM. 2021-2023 guidance is between $250MM-$300MM.
• This frees up cash flow for debt reduction.
• No maturities for the next 5 years

(CAM Note) Cheniere Reported Second Quarter Financial Results

• European gas electric generation nearly doubled in 2qtr 2019 versus 2qtr 2018.  More natural gas capacity coming on line.
• A senior secured deal private placement with Allianz Insurance is expected to have IG ratings to replace some of their bank debt.
• Signed a marketing tolling agreement with Apache to sell their natural gas (LNG).  They are working with other large producers to sign similar agreements as well to sell their gas “off shore” in the LNG market given low Henry Hub prices.
• In 2Q2019 104 cargoes exported totaling 361 Tbtus versus 310 Tbtu in 1Q2019.
• Corpus train 1 made its first shipments. Train 2 is under test. Completion expected by September, at which time shipments will commence. Train 3 in permitting; expect full permitting to be completed by December.
• $2.9 – $3.2 billion in ebitda 2019 full year guidance. Stated they’re committed to paying down debt to garner IG bond ratings.