CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $2.6 billion and year to date flows stand at $16.0 billion. New issuance for the week was $9.3 billion and year to date HY is at $177.1 billion, which is +31% over the same period last year.

 (Bloomberg) High Yield Market Highlights 

• U.S. high-yield is set for a strong opening with stock futures up after a new round of stimulus from the ECB yesterday, and spreads holding up amid a surge in new issues.
• U.S. junk bonds have had a blockbuster week pricing over $9 billion in new issuance
• Bankers have tested investor appetite for lower rated debt and riskier structures this week after double B issuers kicked off the primary market after Labor Day. But investors are being selective
• Junk bond returns have also rebounded to close at a new peak of 11.58% for the year, after posting a gain of 0.55%
• CCCs gained the most for the second straight session at 0.22%, taking YTD returns to 6.79%
• BBs YTD stood at 12.75% after gaining 0.023%
• Single Bs also hit a 2019 high of 11.9% after gains of 0.05%
• Yields dipped 1bps to 5.65%, while spreads tightened to near seven-week lows of +365 after tightening 7bps
• CCC yields dropped the most in three weeks to close at a five-week low of 10.69%, while spreads tightened 15bps to +878

(Reuters) China exempts some U.S. goods from retaliatory tariffs as fresh talks loom 

• China announced its first batch of tariff exemptions for 16 types of U.S. products, days ahead of a planned meeting between trade negotiators from the two countries to try and de-escalate their bruising tariff row.
• The exemptions will apply to U.S. goods including some anti-cancer drugs and lubricants, as well as the animal feed ingredients whey and fish meal, the Ministry of Finance said in a statement on its website on Wednesday.
• Beijing said in May that it would start a waiver program, amid growing worries over the cost of the protracted trade war on its already slowing economy.
• Some analysts view the move as a friendly gesture but don’t see it as a signal that both sides are readying a deal.
• Indeed, the exempted list pales in comparison to over 5,000 types of U.S. products that are already subject to China’s additional tariffs. Moreover, major U.S. imports, such as soybeans and pork, are still subject to hefty additional duties, as China ramped up imports from Brazil and other supplying countries.
• Beijing has said it would work on exempting some U.S. products from tariffs if they are not easily substituted from elsewhere.

(PR Newswire) Encompass Health prices offering of senior notes

• Encompass Health Corporation announced the pricing of its underwritten public offering of $500 million in aggregate principal amount of its 4.500% senior notes due 2028 at a public offering price of 100% of the principal amount and $500 million in aggregate principal amount of its 4.750% senior notes due 2030 at a public offering price of 100% of the principal amount. The Company will pay interest on both series of the notes semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2020. The notes will be jointly and severally guaranteed on a senior unsecured basis by all of its existing and future subsidiaries that guarantee borrowings under the Company’s credit agreement and other capital markets debt.
• The Company intends to use the net proceeds from this offering to fund the purchase of equity from management investors of its home health and hospice segment, to fund a call of $400 million of its senior notes due 2024 and to repay borrowings under its revolving credit facility.

(Business Wire) Spectrum Brands Holdings Announces Management Changes

• Spectrum Brands Holdings, Inc., a global consumer products company offering a broad portfolio of leading brands and focused on driving innovation and providing exceptional customer service, announced that Jeremy W. Smeltser, 44, will join the Company on October 1 as Executive Vice President. Mr. Smeltser will succeed Doug Martin, 57, as Executive Vice President and Chief Financial Officer on or prior to December 20, 2019. Mr. Smeltser will report to Chairman and Chief Executive Officer David Maura.
• The Company also announced two executive leadership promotions. Senior Vice President and Chief Operating Officer Randal D. Lewis, 53, has been promoted to Executive Vice President and COO, effective today, and Rebeckah Long, 45, has been named Senior Vice President, Global Human Resources, effective October 1, and will continue to report to Randy Lewis.
• Mr. Smeltser most recently was Vice President and CFO from 2015-2018 for SPX FLOW, Inc. following its spinoff from SPX Corporation, where he was Vice President and CFO from 2012-2015.
• “We’re excited to welcome Jeremy to the Spectrum Brands management team as we execute on our strategies to deliver earnings and cash flow growth in 2020 and beyond, and we look forward to his contributions to our Company’s bright future,” said Mr. Maura. “He is a seasoned public company CFO with a well-developed career path over the last 22 years. He has served at several corporations similar in size and global reach to Spectrum Brands. Jeremy shares our passion for servant leadership in building a fully aligned organization, rooted in a culture of ownership and accountability. Jeremy has an impressive track record in delivering major cost and efficiency improvements across the business platform, and brings a wealth of experience in M&A and other capital structure activities.”

(CNN) Ford debt has been downgraded to junk

• Moody’s downgraded Ford’s credit to junk Monday evening. It said the automaker faces considerable business challenges, and its poor financial performance badly positions Ford to take on its planned $11 billion restructuring.
• “Ford is undertaking this restructuring from a weak position as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade rated auto peers,” Moody’s said.
• During the Great Recession, Ford and other US automakers suffered massive losses and junk bond credit ratings, which can raise the cost of borrowing. But the industry has been profitable for about 10 years.
• Ford in 2012 was upgraded to investment grade, which is what a credit rating is called when it is not considered a junk bond.
• The company responded that it is taking the proper steps to improve its business, and that it has the cash necessary to do so.
• “Ford remains very confident in our plan and progress. Our underlying business is strong, our balance sheet is solid and we have plenty of liquidity to invest in our compelling strategy for the future,” said company in a statement.