CAM High Yield Weekly Insights

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.2 billion and year to date flows stand at $49.0 billion.  New issuance for the week was $7.7 billion and year to date issuance is at $376.7 billion. 

(Bloomberg)  High Yield Market Highlights

• Tervita Corp., a Canadian waste management company focused on oilfield services, may price a junk bond Friday after it hiked pricing discussions. The riskiest debt in the CCC tier, meanwhile, is outperforming with gains of 1.44% this week.
• Tervita is offering a five-year bond at a yield of 11% area with an OID of two points, and lengthened the call period to three years from two. Early pricing discussions were for a coupon of 10% plus a two point discount
• CreditSights analysts said Tenneco’s new $500m 8NC3 issue that’s due to price today demands a premium given uncertainty around the credit with respect to asset sales
• Borrowers are hitting the market to take advantage of fund inflows, and a rally in the risky debt that looks set to extend with credit risk falling, and stock futures rising
• Junk-bond investors poured over $3 billion into retail funds during the week.
• Sizzling Platter LLC, which owns and operates franchise restaurants such as Little Caesars, revived a junk-bond sale after shelving borrowing plans last month
• It raised $350m from a five-year note offering, higher than the $325m it was looking to sell before. Borrowing costs of 8.5% were also more than it initially sought first time around
• Orders reached about $550m by mid-afternoon, according to people familiar with the matter
• Barclays Plc strategists led by Brad Rogoff expect high-yield supply to exceed $300b in 2021. Though a normalization from this year’s pace, “it is above all years from 2014-2019,” Rogoff wrote in note
• Junk-bond yields have retreated from an all-time low of 4.56% reached earlier this week amid hopes of a coronavirus vaccine that fueled a rally already underway on a Joe Biden election victory
• Yields rose to 4.99% on Thursday, up 26bps, the biggest jump in five months
• Spreads closed at 435bps more than Treasuries, up 23bps, and the most widening in seven weeks
• CCC yields also jumped the most in five months to close at 8.33%, up 40bps. Spreads closed at +764bps, widening 18bps
• CCCs are slated to gain at least 1.44%, outperfoming BBs and Bs

(Bloomberg)  Stockpiling Cash Ahead of a Covid Winter 

• One after another, some of the most embattled names in corporate Americaare racing to raise easy money while they can.
• In the junk bond market, corporations are hurrying to lock in today’s ultra-low interest rates.
• The rush underscores the angst gripping many companies even as global investors drive financial markets to giddy heights. With reduced odds for a large stimulus package, companies looking for money to tide them through the crisis are riding an election rally and progress toward a vaccine that could end the pandemic. But it could be a short reprieve, with President-elect Joe Biden warning a “dark winter” lies ahead as the virus roars back, signaling some hard months before a vaccine is available.
• “Companies are currently focused on strengthening their balance sheets and boosting cash liquidity,” said Nicholas Elfner, co-head of research at Breckinridge Capital Advisors. “The window is open, so take advantage of it — before a Covid Winter.”
• There will likely be more companies tapping credit markets amid record low borrowing costs, to either shore up cash, or to curb the cost of their existing loans or bonds with new and cheaper debt.
• And at these rates, other companies will follow suit, either opportunistically or to help weather the impact of Covid-19, according to Jerry Cudzil, head of U.S. credit trading at TCW Group.
• “All-in yields are almost too enticing for companies to ignore,” he said. “Given the recent rally, many companies can access the capital markets at levels not seen since pre-Covid.”