CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.6 billion and year to date flows stand at $24.4 billion.  New issuance for the week was $3.8 billion and year to date HY is at $219.3 billion, which is +37% over the same period last year.

(Bloomberg)  High Yield Market Highlights 

• S. junk bonds rebounded as equities rallied to a record high and the 10Y UST yield jumped. The debt may open on a softer note as stock futures declined and oil prices dropped amid uncertainty over supply cuts.
• The debt’s returns turned positive on Thursday after a two-day losing streak as equities climbed to a new high. Year-to-date returns were 12.01%, just 9bps off the 2019 peak
• Gains were across ratings, with single-Bs posting the most at 0.1% and YTD at 12.39%
• Junk bond yields were little changed. Single-Bs dropped 6bps to close at 5.68% and BBs closed at 3.88%, down 2bps
• Spreads held firm across ratings moving in tandem with UST yields
• There was lull in the primary market with just two drive-by deals for $1.1b pricing yesterday
• Yesterday’s deals took the November volume to $4.98b
• As investors turned cautious of weaker credits, Wesco’s $2.18b bond offering faced some resistance and its pricing was delayed

(Reuters)  U.S. may not need to impose auto tariffs this month 

• The United States may not need to impose tariffs on imported vehicles later this month after holding “good conversations” with automakers in the European Union, Japan and Korea, U.S. Commerce Secretary Wilbur Ross said in an interview published on Sunday.
• The United States must decide by Nov. 14 whether to impose threatened U.S. national security tariffs of as much as 25% on vehicles and parts. The tariffs have already been delayed once by six months, and trade experts say that could happen again.
• “We have had very good conversations with our European friends, with our Japanese friends, with our Korean friends, and those are the major auto producing sectors,” Ross said.
• “Our hope is that the negotiations we have been having with individual companies about their capital investment plans will bear enough fruit that it may not be necessary to put the 232 (tariffs) fully into effect, may not even be necessary to put it partly in effect,” he added.

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

• GEO reported third quarter 2019 net income attributable to GEO of $45.9 million, compared to $39.3 million, for the third quarter 2018. GEO reported total revenues for the third quarter 2019 of $631.6 million up from $583.5 million for the third quarter 2018.
• GEO reported third quarter 2019 Normalized Funds From Operations (“Normalized FFO”) of $70.3 million, compared to $62.9 million, for the third quarter 2018. GEO reported third quarter 2019 Adjusted Funds From Operations (“AFFO”) of $85.6 million, compared to $77.9 million, for the third quarter 2018.
• George C. Zoley, Chairman and Chief Executive Officer of GEO, said, “We are pleased with our strong quarterly financial performance, which reflect strong fundamentals and growing earnings. During the quarter, we reactivated 4,600 previously idle beds, which are expected to drive future cash flow growth. We are proud to have published our first-ever Human Rights and ESG report in September, highlighting our long-standing commitment to respecting the human rights of all those in our care, as well as, the continued success of our GEO Continuum of Care enhanced rehabilitation and post-release programs. We believe that our current dividend payment is supported by stable and predictable cash flows, and we expect to continue to apply our growing excess cash flow towards paying down debt.”
• During the third quarter 2019, GEO repurchased approximately $34 million of senior unsecured notes due 2022. GEO also closed on a $44 million, 15-year real estate loan bearing interest at 4.22 percent annually. At the end of the third quarter, GEO had approximately $395 million in available borrowing capacity under its $900 million revolving credit facility, which matures in May 2024.

(Business Wire)  Arconic Reports Third Quarter 2019 Results

• The Company continues to target the completion of the separation in the second quarter 2020. We expect the Form 10 filing to be available in the fourth quarter 2019. The Engineered Products and Forgings businesses (engine products, fastening systems, engineered structures and forged wheels) will remain in the existing company (Remain Co.), which will be renamed Howmet Aerospace Inc. at separation. The Global Rolled Products businesses (global rolled products, aluminum extrusions and building and construction systems) will comprise Spin Co. and will be named Arconic Corporation at separation.
• Arconic Inc. reported third quarter 2019 results, for which the Company reported revenues of $3.6 billion, up 1% year over year. Organic revenue was up 6% year over year on strong volumes across all key markets and favorable pricing in the Engineered Products and Forgings segment, and volume growth in packaging, industrial, and aerospace markets as well as favorable pricing in the Global Rolled Products segment.
• Third quarter 2019 operating income was $326 million, versus operating income of $345 million in the third quarter 2018. Operating income excluding special items was $475 million, up 36% year over year, as favorable product pricing, higher volume, favorable aluminum prices, and net cost reductions more than offset operational challenges in the aluminum extrusions business and unfavorable product mix.
• Arconic Chairman and Chief Executive Officer John Plant said, “In the third quarter 2019, the Arconic team delivered improved quarterly revenue, adjusted operating income, adjusted operating income margin, adjusted free cash flow and adjusted earnings per share on a year-over-year basis. Arconic’s third quarter 2019 return on net assets improved by 550 basis points year over year. We expect this positive year-over-year trend to continue in the fourth quarter. Based on our performance through the first nine months of 2019 and our outlook for the remainder of 2019, we are increasing our full-year adjusted earnings per share guidance for the third time in 2019.”
• Arconic ended the third quarter 2019 with cash on hand of $1.3 billion. Cash provided from operations was $52 million; cash used for financing activities totaled $202 million, reflecting the impact of the accelerated share repurchase program of $200 million; and cash provided from investing activities was $117 million. Adjusted Free Cash Flow for the quarter was $154 million.