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03 Nov 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $5.362bln. This brings the YTD total to +$282.514bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $24.35bln, and YTD total corporate bond issuance was $1.19t. Investment grade corporate bond issuance thus far in 2017 is down 3% y/y when compared to 2016.

(WSJ) Mr. Ordinary: Who Is Jerome Powell, Trump’s Federal Reserve Pick?

  • When a business-school student sought out Jerome Powell several years ago for career advice, Mr. Powell, President Donald Trump’s pick to become the 16th chairman of the Federal Reserve, offered his philosophy on getting ahead.
  • His advice: Keep your head down and work hard, according to the student, Sean Gillispie, today a software product director in the Washington area. Mr. Powell told him he would be surprised “how many otherwise competent people self-sabotage with poor behavior,” Mr. Gillispie recalls.
  • In recent years, there have been two kinds of Fed chairmen: commanding personalities such as Paul Volcker and Alan Greenspan, whose views on inflation and interest rates dominated central banking from the 1980s through the mid-2000s; and the consensus-driven leaders, Ben Bernanke and Janet Yellen, who guided the central bank toward more open decision-making and de-emphasized the power of the chairman.
  • Mr. Powell, judging by his nearly 40-year career in government, law and banking, is likely to be in the latter group. That means a Powell Fed might look a lot like it has since Mr. Greenspan retired in 2006.
  • Such continuity would be welcome in the markets, which don’t like uncertainty, and at the Fed, one of the world’s most powerful economic policy-making bodies. It also could please Mr. Trump, who has spoken approvingly of record stock prices and declining unemployment.
  • “I would be surprised if [Mr. Powell] walked away at the end of his term with a huge stamp of reshaping the Fed,” says Charles Plosser, who as president of the Federal Reserve Bank of Philadelphia until 2015 worked closely with Mr. Powell. “He’s not likely to lead Federal Reserve reform and innovation on monetary policy, but that does not mean he won’t be a good chair.”
  • Unlike Ms. Yellen and Mr. Bernanke, Mr. Powell doesn’t hold a degree in economics—which would make him the first chairman since the late 1970s without such a credential. Although he has worked as an investor, lawyer and bank regulator, he has no experience leading a large organization.
  • The Fed is no simple bureaucracy. It has a seven-member board, 12 regional banks, a secretive decision-making process and 2,700 employees involved in interest-rate decisions, bank regulation and managing the nation’s currency circulation. It also serves as the Treasury’s fiscal agent in managing the nation’s debt.
  • It is in the process of raising short-term interest rates from near-zero levels and of gradually winding down a $4.2 trillion portfolio of mortgage and Treasury securities built up during and after the financial crisis. Mr. Powell was part of a group in 2013 that pressed Mr. Bernanke to wind down the bond-purchase programs, although he has never dissented in 44 meetings on the Fed board.
  • Mr. Powell’s most notable mark on monetary policy at the Fed was his involvement in bond-buying phase out. Worried that investors believed the programs would continue indefinitely, he joined with two other Fed governors, Betsy Duke and Jeremy Stein, to persuade Mr. Bernanke to scale the program back. The effort was typical of Mr. Powell’s style—conducted almost entirely behind the scenes and with little fanfare.
  • One person who has worked with several Fed officials in recent years says he often heard about petty personal rivalries or feuds between board members, but these people never had a bad word for Mr. Powell.
  • “He is remarkably undogmatic,” says Jeremy Stein, a Harvard University economics professor, Democrat and former Fed governor whose office was adjacent to Mr. Powell’s. “He listens more than he talks.”
  • Mr. Powell has held several different roles on a board that has been plagued with vacancies in several years. He earned respect from colleagues for tackling unheralded operational tasks and technical issues, including managing payment-processing systems. He also boosted morale this summer when he oversaw the implementation of a relaxed summer dress code.

(Moody’s) Moody’s downgrades CenturyLink to Ba3; outlook negative

  • Moody’s Investors Service, (Moody’s) has downgraded CenturyLink, Inc.’s (CenturyLink) corporate family rating (CFR) to Ba3 from Ba2, downgraded its senior unsecured rating to B2 from Ba3, and confirmed its senior secured rating at Ba3. The downgrade reflects CenturyLink’s higher leverage related to its imminent acquisition of Level 3 Communications, Inc. (Level 3).
  • The senior unsecured ratings of Qwest Corporation and Embarq Corporation were downgraded to Ba2 from Ba1.

(Fitch) Fitch Downgrades CenturyLink’s Ratings to ‘BB’ / Affirms Level 3

  • Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) assigned to CenturyLink, Inc. (CenturyLink) and its subsidiaries to ‘BB’ from ‘BB+’ and removed the ratings from Negative Watch. In addition, Fitch has affirmed the IDRs for Level 3 Communications, Inc. (LVLT) and its subsidiary, Level 3 Financing, Inc. The Outlook is Stable for all ratings. The rating action is due to CenturyLink’s completion of the acquisition of LVLT, which closed on Nov. 1, 2017 following approval by the Federal Communications Commission.
  • The $9.9 billion in secured financing is guaranteed by certain existing CenturyLink subsidiaries (including Embarq Corp.), except for Qwest Corporation (QC), and by a new holding company, Level 3 Parent, LLC, which is now LVLT’s parent. The stock of both LVLT and QC has been pledged as collateral for the facilities. LVLT and its subsidiaries will not provide guarantees to HoldCo or the acquisition debt, and its existing debt will remain outstanding.
  • Based on the one-notch downgrade of CenturyLink’s IDR to ‘BB’, Fitch has taken the following rating actions:
    • –A one-notch downgrade of CenturyLink’s and Qwest Capital Funding’s senior unsecured debt to ‘BB’/’RR4’. The one-notch downgrade is consistent with Fitch’s notching treatment of issue ratings with ‘RR4’ recoveries, reflecting a rating at the same level as the IDR.

(Bloomberg) Teva Lowers Debt Repayment Forecast to $3.5B: McClellan

  • Teva has no current plan to raise new equity; will consider raising equity with new management, Interim CFO Michael McClellan says on conference call with analysts.
    • Credit rating downgrade would raise rates on Teva term loans: CFO
    • Teva’s $6b term loans would face 25 basis point rise
    • Asset sales to generate $2.3b in net proceeds, majority to be collected this year: outgoing interim CEO Peterburg
    • CEO Schultz plans to focus on key generic launches, scale of operations, strengthening operations, stabilizing operating profit and cash flow
    • Teva will do “whatever is needed to improve performance:” Chairman Barer

(Bloomberg) Hurricane Rebound Comes Up Short in Payrolls

  • The October jobs report was well above trend, as a rebound from hurricane interruptions lifted hiring, albeit by not as much as the consensus of economists anticipated. However, significant upward revisions to August and September mean the net hiring gain was considerably stronger than the October headline would otherwise suggest.
  • The important takeaway from this report is that there has been little interruption of the underlying hiring trend due to recent hurricanes. In fact, the categories most impacted by storms — such as leisure and hospitality — posted complete recoveries. The underlying hiring pace of job creation (roughly 160k) exceeds the natural growth rate of the labor force, whereby the unemployment rate continues to grind lower. This is a critical development for policy makers, because unemployment is now running well below their estimate of the neutral level. As a result, Fed officials will be less concerned about the backsliding of inflation, which continues to perplex forecasters.
  • Tighter labor conditions will ultimately drive wages and consumer inflation higher. While the level of unemployment at which this occurs may be lower than policy makers currently estimate, it will almost certainly occur if unemployment descends into 3% territory; this appears likely over the next few quarters.
  • It is difficult to discern if wage pressures are flaring up in the latest jobs report, as average hourly earnings recoiled from a hurricane-driven surge in September. Nonetheless, other metrics of labor cost pressures, such as the employment cost index reported earlier this week, are reapproaching post-recession highs — thereby signaling that labor inflation is indeed mounting, albeit gradually.
  • Unfortunately, the hurricane distortions evident in both the September and October jobs reports leave policy makers with just one clean labor assessment ahead of their Dec. 13 rate decision. However, the latest GDP results, swift post-storm recovery in an array of data and solid employment gains all give the green light to policy makers to continue normalizing interest rates, particularly given that financial conditions continue to ease.
03 Nov 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.6 billion and year to date flows stand at -$8.0 billion. New issuance for the week was $2.7 billion and year to date HY is at $231 billion, which is up 19% over the same period last year.

(Bloomberg) Historical Fundamentals: High Yield Corporates

  • 3Q is poised to deliver a sixth-straight quarter of Ebitda margin expansion across the high yield index, though such gains have resulted in only a marginal improvement in leverage trends. Double Bs have seen more fundamental improvement vs. single B, while commodity sectors have been notable outperformers. Almost half the Russell 1000 has reported 3Q results to date.
  • Double B total debt-to-Ebitda is modestly lower vs. year-ago levels, though remains almost half a turn above the 10-year average. Basic industries, consumer cyclicals and transportation have leverage below the long-term average, while other sectors are higher, notably energy and technology. The BB technology sector has become a more frequent issuer over the last decade amid mergers such as Dell-EMC and increased leverage at more cyclical memory suppliers such as Western Digital and Micron.
  • Ebitda margin has increased almost 200 bps vs. year-ago levels, given 3Q quarter-to-date earnings reports, paced by gains in the energy sector, where margins have expanded to 21.5% from 4.2% for 3Q16. Only consumer staples have seen margins decline over the period, though leverage for the sector is also lower on both a gross and net basis. Free cash flow trends across single B corporates are relatively unchanged on the year, though up from the flat-to-negative levels of 2013-15.

(The Verge) T-Mobile makes Sprint new offer in hopes of saving merger

  • T-Mobile and Sprint aren’t calling it quits on their potential merger yet despite recent disagreements over which side would have control over the combined company. The Wall Street Journal reports that T-Mobile US has restarted talks by presenting Sprint with a revised offer, and it’s still possible that a deal could be struck “within weeks.” T-Mobile CEO John Legere and Sprint CEO Marcelo Claure spoke on Wednesday, with Legere making it clear that T-Mobile doesn’t want the deal to collapse.
  • Earlier this week, SoftBank chairman Masayoshi Son reportedly wanted to walk away from negotiations after his shareholders expressed concern about handing over control of Sprint if the merger were successful. Deutsche Telekom would presumably hold a majority stake in a combined T-Mobile/Sprint, but SoftBank has reportedly been exploring ways to guarantee itself a powerful say in the company’s direction.

(Business Wire) Community Health Systems, Inc. Announces Third Quarter 2017 Results

  • Net operating revenues for the three months ended September 30, 2017, totaled $3.666 billion, a 16.3 percent decrease, compared with $4.380 billion for the same period in 2016. Adjusted EBITDA for the three months ended September 30, 2017, was $331 million compared with $465 million for the same period in 2016, representing a 28.8 percent decrease.
  • The consolidated operating results for the three months ended September 30, 2017, reflect a 14.8 percent decrease in total admissions, and a 15.5 percent decrease in total adjusted admissions, compared with the same period in 2016. On a same-store basis, both admissions and adjusted admissions decreased 2.3 percent during the three months ended September 30, 2017, compared with the same period in 2016. On a same-store basis, net operating revenues decreased 1.5 percent during the three months ended September 30, 2017, compared with the same period in 2016.
  • Commenting on the results, Wayne T. Smith, chairman and chief executive officer of Community Health Systems, Inc., said, “Numerous factors affected our operating and financial results in the third quarter, including lower volumes, divestiture activity and extreme weather events. Hurricanes Harvey and Irma directly impacted operations at a significant number of our hospitals, forcing evacuations at some facilities and requiring others to take extraordinary measures to remain operational during these storms.”
  • Smith added, “Looking forward, we remain focused on strategic initiatives that we believe will yield positive results in the future. We’ve made substantial progress in our portfolio rationalization initiative with 30 hospital divestitures now complete. Our goal is to emerge from this process with a sustainable group of hospitals that are positioned for long-term success and growth.”

(Bloomberg) Frontier Faces Tough Road With Declines, Dividend Cut

  • While subscriber trends are improving in acquired Verizon markets, Frontier Communications still faces steep revenue declines. Management will need to continue delivering on initiatives to bolster gross subscriber additions and reduce churn. In legacy markets, this may not happen until 2018. Even after customer trends improve, stabilizing revenue will remain a challenge, given the company’s large exposure to declining legacy services. Cost synergies from the acquisition should help stabilize its Ebitda margin.
  • The company cut its common dividend by 62% in May to help pay down debt amid declines in profit and free cash flow. Near term, this saves cash to use toward improving leverage. Yet the same risks remain long term, and Frontier will have to stabilize revenue and profit.
  • Customer revenue in acquired markets declined 14.2% in 3Q, after falling 17% in 2Q, highlighting the long path to stabilization. This compares with a 8.1% drop in legacy market revenue.
27 Oct 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $3.2bln. This brings the YTD total to +$277.152bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $33.71bln, and YTD total corporate bond issuance was $1.163t. Investment grade corporate bond issuance thus far in 2017 is down 3% y/y when compared to 2016.

(Nikkei Asian Review) Abe’s coalition retains two-thirds majority in Japan election

  • Japanese Prime Minister Shinzo Abe’s ruling coalition held on to a two-thirds majority of the seats in Japan’s lower house after Sunday’s general election, putting the prime minister in a position to move toward revising the country’s pacifist constitution.
  • Abe’s Liberal Democratic Party and coalition partner Komeito easily saw off a challenge from a divided opposition, gaining 313 seats of the contested 465 seats.
  • Abe’s victory gives the prime minister a fresh mandate to pursue his cherished goal of reforming Japan’s postwar constitution and to continue his economic-stimulus measures. If he wins a fresh three-year term as LDP leader at a party congress next year, he could govern until 2021, making him Japan’s longest serving prime minister since World War II.
  • Following the coalition’s victory, Abenomics will get a new start. In the coming months, the prime minister will prepare a 2 trillion yen policy package that is to include making education free.

(TheStreet) Charter and Comcast Shares Get Punished for Cord Cutting

  • Over-the-top video services such as Netflix and Amazon Prime are eating away at pay-TV’s customer base, but Comcast says cord-cutting isn’t the end of the world.
  • Comcast badly wants to hold onto its video subscribers, although Chairman and CEO Brian Roberts told investors during a Thursday morning investor call that the cable operator has been preparing for the world of cord cutting.
  • “We anticipated this shift,” Roberts said. Comcast invested in its Emmy-winning X1 entertainment operating system that allows users to watch Netflix or Alphabet’s (GOOGL – Get Report) YouTube via its platform, developed a remote control that recognizes voice commands and launched the Xfinity streaming app, among other initiatives that enhance its video service.
  • When customers cut the cord to Comcast’s pay-tv offering, Roberts and other executives suggested, they don’t kill the cable operator’s model.
  • “Broadband connectivity, both residential and business — that’s now a $20 billion-year business,” Roberts said.
  • “That is a big portion of our company. That’s growing at double-digit revenue growth, and it is very accretive to our margin.” Over the next five years, he added, broadband usage will only increase with the growth of the Internet of things, smart home applications, virtual reality, 4K video, smart electrical grids and other applications.
  • Cord cutting actually improves some of Comcast’s metrics, cable unit CEO David Watson told investors.
  • While Comcast still wants customers to buy a package of video, mobile phone service, home security and other services, as the company has said that the bundle of services reduces customer defections. Or course, the package also boosts revenues. At the same time, though, Comcast actually has higher profit margins if consumers cut out other services. “The economics are very encouraging if they do select broadband only,” Watson said, noting not only the higher profit margins but also the lower cost to deliver just broadband.

(TheStreet) Coca-Cola Proves It’s Not Irrelevant

  • Coca-Cola Co. reported better-than-feared third-quarter earnings on Wednesday, Oct. 25, as the beverage company continues to reinvent itself for more health-focused consumers.
  • While Coca-Cola continues to “drive relevance” in its core brands like Coke, CEO James Quincey told analysts on the conference call that expanding its portfolio of smaller brands is crucial to the company’s success.
  • “The consumer landscape is changing,” he said. “We see an increasing number of smaller, faster competitors” catering to consumers seeking more variety. “In order to thrive in this kind of environment, we need to be more entrepreneurial and agile.” The Topo Chico acquisition is one such effort at “growing our portfolio multiple ways.”
  • Topo Chico, part of Coca-Cola’s venturing and emerging brands unit, will follow the same playbook Coca-Cola used after acquiring Honest Tea, maintaining the brand’s entrepreneurial spirit while rapidly expanding its reach.
  • “Growing premium beverage such as adult craft beverages,” like mixers, is another priority, Quincey added. Coca-Cola introduced a premium mixer brand, Royal Bliss, in Spain, and also relaunched Schweppes mixers in the U.K.
  • Strong North American performance came after Coca-Cola’s biggest competitor, PepsiCo Inc. , reported weak results in the region. Quincey downplayed the comparison, saying that in the highly competitive North American market, “it’s not just one large competitor we face-there are lots of competitors, large, medium, and small.”

(Bloomberg) Lear Full Year Sales Forecast Beats Highest Estimate

  • Lear forecast sales for the full year; the guidance beat the highest analyst estimate.
    • Sees FY sales $20.4 billion, estimate $20.06 billion (range $19.61 billion to $20.33 billion) (Bloomberg data)
    • 3Q net sales $4.98 billion, estimate $4.84 billion (range $4.65 billion to $4.95 billion) (BD)
    • 3Q adjusted EPS $3.96, estimate $3.74 (range $3.42 to $3.97) (BD)
    • Boosts Yr Views for Sales, Earnings, and Free Cash Flow
  • Lear’s credit profile may continue to be among the strongest of the auto suppliers covered by BI Credit in 2017. Downturn analysis shows the company’s profile weakening, but remaining well within raters’ targets and its maximum leverage covenant. Maintenance of current credit metrics may be sufficient for further upgrades of Lear’s bonds, based on rating providers’ comments. The company’s bonds trade wider than Delphi and BorgWarner, despite having outperformed them over the past year. (Bloomberg Intelligence – 09/25/17)

(Bloomberg) U.S. Notches Solid 3% Economic Growth, Despite Hurricanes

  • The U.S. economy grew robustly in the third quarter despite two hurricanes, propelled by steady spending from American businesses and households.
  • Gross domestic product, the broadest measure of goods and services made in the U.S., expanded at a 3% annual rate in July through September, the Commerce Department said Friday. Economists surveyed by The Wall Street Journal had projected a 2.7% gain.
  • Output expanded at 3.1% rate in the second quarter. This marks the economy’s best six-month stretch since mid-2014.
  • The third quarter’s strong growth is particularly impressive because two hurricanes—Harvey and Irma—temporarily shut down major population centers in Texas and Florida in August and September. The Commerce Department said in its report Friday that the storms likely suppressed business activity such as oil and gas extraction in Texas and agriculture production in Florida. But the agency added, “it is not possible to estimate the overall impact of Hurricanes Harvey and Irma on 2017 third-quarter GDP.”
27 Oct 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at -$7.3 billion. New issuance for the week was $4.3 billion and year to date HY is at $229 billion, which is up 22% over the same period last year.

(Bloomberg) US Issuers to Look to European High-Yield Bond Market in 2018

  • Banks are anticipating more U.S. companies to tap the European market in a bid to diversify funding and capitalize on the region’s low interest rates in light of ongoing U.S. rate hikes.
  • “U.S.-based issuers with a desire for euro- or sterling-denominated debt liabilities are increasingly interested in issuing directly in euros or sterling given the relatively low interest rate and tight spread environment that continues to prevail in Europe,” said Mathias Blumschein, co-head of high-yield debt capital markets at ING Groep NV. The economics of issuing in dollars and swapping back into euros have become less attractive, he said.
  • Bond sales from Diversey Inc, Aramark and Netflix Inc have helped take year-to-date European issuance of high-yield bonds by U.S. firms to a record 11.0 billion euros-equivalent, according to data compiled by Bloomberg. This has already eclipsed the previous highest full-year total of 9.7 billion euros-equivalent in 2016, the data show.

(Pittsburgh Post-Gazette) Arconic Reports Earnings and Announces CEO

  • Arconic shares tumbled 10 percent Monday after the company reported a third-quarter earnings miss, raised its full-year sales estimate and named a veteran General Electric executive CEO.
  • The aluminum and titanium parts maker said third-quarter profit fell 28 percent to $119 million, or 22 cents per share, vs. earnings of $166 million, or 33 cents per share, in the year ago quarter. Sales totaled $3.24 billion, up 3 percent from year-ago levels.
  • Arconic said Charles “Chip” Blankenship, 51, will take over as CEO, effective Jan. 15. Mr. Blankenship formerly led GE’s commercial engine operations and was the president and CEO of its appliance business before the unit was sold to Haier Co. last year. He will also become a member of Arconic’s board.
  • Arconic said it now expects to report sales of $12.6 billion to $12.8 billion for the year, up from its previous forecast of $12.3 billion to $12.7 billion. The company affirmed its full-year guidance that adjusted earnings will be $1.15 to $1.20 per share.
  • Arconic was formed in November when Alcoa broke into two companies. The mining, refining and smelting businesses maintained the Alcoa name while the businesses that make aluminum and titanium parts for the aerospace, automotive and other industries became Arconic.

(PR Newswire) International Paper and Graphic Packaging Create Leading Consumer Packaging Platform

  • International Paper has signed a definitive agreement to contribute its North America Consumer Packaging business to Graphic Packaging in a transaction valued at $1.8 billion. IP plans to use $660 million in cash proceeds from a loan being assumed by Graphic Packaging to pay down existing debt. IP will also receive a 20.5% ownership interest valued at $1.14 billion in a subsidiary of Graphic Packaging that will hold the assets for the combined business. The transaction is expected to close in early 2018, subject to the receipt of regulatory approval and certain other closing conditions.
  • “After evaluating a range of strategic options, we believe this transaction represents excellent value for IP’s shareholders,” said International Paper Chairman and CEO Mark Sutton. “Investing in Graphic Packaging gives IP the opportunity to benefit from a much stronger value-creation consumer packaging platform, while allowing us to remain focused on growing value in our core businesses. Our North America Consumer Packaging business has a talented team, very good assets and great customers, and I am confident of the results the combined business will achieve.”
  • International Paper’s North America Consumer Packaging business is a leading producer and converter of solid bleached board used in a variety of fiber-based foodservice products such as hot and cold cups, cartons, paper plates, food containers and liquid packaging. The transaction includes 3,900 Coated Paperboard and Foodservice employees located at 10 locations in the United States and United Kingdom.

(Tech Crunch) Netflix is raising $1.6B in debt as its content costs balloon

  • Netflix raised a very large lump of debt for the typical laundry list of uses though, the timing comes as its content costs may hit as much as $8 billion next year.
  • The announcement comes off a strong earnings report last week, where Netflix once again beat expectations for its subscriber growth. The company also said it expects to spend between $7 billion and $8 billion on original content in 2018, up from around $6 billion on original content this year. To be sure, original content — and racking up those Emmy awards — is critical to Netflix’s future as it looks to convert those high-quality shows into new subscribers.
  • Original content is also going to be increasingly critical as it grows internationally, where it’s acquiring the majority of its new subscribers. Netflix said it would raise its prices earlier this year, and that may temper some expectations for domestic growth. The company’s future may rest on making sure that original content is strong, and also expanding into internationally-oriented original content like its original show 3%. (That show is quite good, by the way, and does a good job of demonstrating that internationally-focused content could perform well domestically as well.)
20 Oct 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.4 billion and year to date flows stand at -$7.2 billion. New issuance for the week was $2.2 billion and year to date HY is at $224 billion, which is up 21% over the same period last year.

(Bloomberg) Refinancings Boost Corporate High Yield Primary Markets

  • Corporate high yield debt issuers have been active this month as credit spreads touched three-year lows. Most of the deals are refinancing-related, with the energy sector particularly active on firming oil prices.
  • Primary markets for U.S. corporate junk bonds have been remarkably active in October, totaling $16 billion through Oct. 15, and will likely surpass the month’s $18 billion historical median volume. Deals linked to refinancings account for about 80% of issuance, a large portion considering just half the total debt tracked by the Bloomberg Barclays U.S. Corporate High Yield Bond Index is refi-related. The index option-adjusted spread to Treasuries touched 341 bps in October, the tightest level in three years.
  • Issuers in the energy sector lead October sales of new dollar corporate junk bonds, accounting for over a third of the $16 billion sold vs. a 14% share of the total debt outstanding in the Bloomberg Barclays U.S. Corporate High Yield Bond Index. Most were refinancing deals as companies took advantage of oil prices firming above $50 a barrel and demand for high yield debt to extend maturities and strengthen balance sheets.

(PR Newswire) DaVita Provides Additional Information Regarding Patients Receiving Charitable Premium Assistance

  • DaVita believes that charitable premium assistance will continue to be available to dialysis patients.
  • In the unlikely scenario that charitable assistance were no longer available to any of its patients, DaVita estimates that the total negative impact to its annual operating income – after related cost offsets – would be in the range of $100 million to $250 million.
  • DaVita believes that elimination of charitable assistance entirely is unlikely due to the tremendous negative impact on tens of thousands of patients and the fact that it has been part of a stable dialysis ecosystem for decades. In addition, DaVita believes that the fact that most commercial patients would likely retain commercial coverage even without charitable assistance reduces not only the downside to its operating income but also the likelihood of such a scenario materializing in the first place.

(CNBC) Netflix adds 5.3 million subscribers during third quarter, beating analysts’ estimates

  • Netflix continues to grow, adding 5.3 million net subscribers this past quarter. And it’s willing to spend the money to continue that trajectory, with a new content budget of between $7 billion to $8 billion for next year. The figure is up from the $7 billion figure chief operating officer Ted Sarandos previously said to Variety.
  • “While we have multi-year deals in place preventing any sudden reduction in content licensing, the long-term trends are clear,” the company said in a letter to shareholders. “Our future largely lies in exclusive original content that drives both excitement around Netflix and enormous viewing satisfaction for our global membership and its wide variety of tastes.”
  • Netflix latest earnings report beat analysts’ estimates, mostly on the back of its high number of subscription additions. Revenue: $2.98 billion vs. $2.97 billion expected Thomson Reuters consensus estimate
  • The company now has about 109.3 million subscribers globally. Netflix said it added 850,000 subscribers in the U.S., ahead of the 810,000 Street Account estimate for the quarter. It boomed internationally, signing up 4.45 million subscribers versus the 3.69 million Street Account estimate. The subscription additions were up 49 percent year over year.

(Business Wire) HCA Previews 2017 Third Quarter Results

  • HCA anticipates revenues for the third quarter of 2017 to approximate $10.696 billion compared to $10.270 billion in the third quarter of 2016. Adjusted EBITDA for the third quarter of 2017 is expected to approximate $1.776 billion compared to $1.957 billion in the previous year’s third quarter.
  • During the third quarter of 2017, the Company incurred additional expenses and experienced losses of revenues estimated at approximately $140 million associated with hurricanes Harvey and Irma’s impact on our Corpus Christi, Houston, Florida, Georgia and South Carolina facilities. This amount is prior to any insurance recoveries which the Company may receive.
  • Also, results for the third quarter of 2017 include a negative impact to operating results related to the Texas Medicaid Waiver program of approximately $50 million. This reflects final settlement amounts related to the program year ended September 30, 2017.
  • Same facility admissions for the third quarter of 2017 increased 0.6 percent, while same facility equivalent admissions increased 0.3 percent, when compared to the third quarter of 2016. Same facility emergency room visits for the third quarter of 2017 increased 0.3 percent from the prior year’s third quarter. The Company estimates that hurricanes had unfavorable impacts of 30 basis points on same facility admissions growth, 80 basis points on same facility equivalent admissions growth and 30 basis points on same facility emergency visits growth during the third quarter.
  • HCA anticipates reporting its complete financial and operating results for the third quarter of 2017 on, or about, October 31, 2017.
13 Oct 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.5 billion and year to date flows stand at -$5.9 billion. New issuance for the week was $7.3 billion and year to date HY is at $222 billion, which is up 20% over the same period last year.

(Bloomberg) OPEC Says ‘Extraordinary’ Steps Needed for Stable Market in 2018

  • Oil producers are succeeding in re-balancing an oversupplied market, though they may need to take further steps to sustain the recovery into 2018, OPEC Secretary-General Mohammad Barkindo said.
  • Saudi Arabia and Russia are currently leading consultations between the Organization of Petroleum Exporting Countries and other major suppliers about the future of their agreement to cut oil output, Barkindo said Sunday in New Delhi. The pact expires in March, and oil producers are debating whether to extend it later into the year.
  • “There is a growing consensus that, number one, the re-balancing process is underway,” he said after meeting with Indian Oil Minister Dharmendra Pradhan. “Number two, to sustain this into next year, some extraordinary measures may have to be taken in order to restore this stability on a sustainable basis going forward.”
  • Barkindo didn’t elaborate on what those additional measures could be and if they would include the main proposal currently on the table — an extension of the existing cuts by up to nine months — or something else. Venezuela has suggested making deeper cuts, but that’s considered unlikely given the political challenges of getting all members to agree unanimously.

(Phone Arena) Sprint and T-Mobile expected to announce merger details this month

  • Rumors about the Sprint/T-Mobile merger continue to make headlines, but that won’t go for too long now. Apparently, the carriers are currently ironing out the final details of the deal, so we could have an official announcement laying them out sometime this month.
  • The companies have reached the point where they need to decide on the exchange ratio that will determine Sprint’s valuation, one of the last steps before the merger could be officially announced.
  • Sprint and T-Mobile continue to discuss non-cash items, such as the location of the HQ that will shelter the leadership of the new entity resulting from the merger.
  • People with knowledge of the matter claim that a traditional breakup free will most certainly not be included in the final agreement as to avoid the risk of US regulators rejecting the merger, much like the merger deal between Comcast and Time Warner Cable Inc.
  • Last but not least, both carriers want to go ahead with the merger as quickly as possible and finalize a deal agreement that can be released at the same time with the quarterly earnings, which is meant to help them avoid confusion over the status of the deal.

(Bloomberg) Callability and Duration Characteristics of HY Market

  • Over $500 billion of high yield bonds trade above their next call prices, reflecting the market’s extended rally. Communications and consumer staples debt leads subindexes with about $197 billion of the total, including debt from Altice, Charter and T-Mobile US. Health-care names, including Valeant and HCA, are among the non-cyclicals with the highest amount of debt trading above call.
  • The current environment, with modified duration to maturity at almost 120% of effective duration, historically portends a high probability for negative price returns in subsequent months. Partly that’s because the relationship is largely driven by changes in effective duration and, in turn, the negative convexity characteristics of the high yield market, given widespread use of call features. Periods of negative total returns are rarer given the impact of overall carry.
  • In negatively convex environments, the relationship between prices and yields changes: bonds become less sensitive to further spread or rate compression, but more sensitive to extension risk should the market-required yield widen substantially.
  • Almost 60% of the bonds in the Bloomberg Barclays U.S. Corporate High Yield total return index with a duration of less than three years may be sensitive to potential extension risk should spreads widen significantly. On a yield-to-worst basis, these are bonds where the embedded call feature has resulted in the effective duration being at least one year less than the modified duration to maturity. In dollar terms, this is a little over $300 billion, more than half of which has an effective duration below one.

(Bloomberg) Trump Cuts Off Health-Insurer Subsidy, Threatening Obamacare Chaos

  • President Donald Trump’s administration took its most drastic step yet to roll back the Affordable Care Act, cutting off a subsidy to insurers hours after issuing an executive order designed to draw people away from the health law’s markets.
  • Late Thursday, the administration said it would immediately stop paying what are known as cost-sharing reduction subsidies. The payments — which are the subject of a legal dispute — go to health insurers in the Affordable Care Act to help lower-income people with co-pays and other cost sharing. Without them, insurers have said they’ll dramatically raise premiums or pull out of the law’s state-based markets.
  • The White House said the Department of Justice and the Department of Health and Human Services concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare.
  • The payments will stop immediately, with no transition period, Acting HHS Secretary Eric Hargan and Centers for Medicare and Medicaid Services Administrator Seema Verma said in a statement. The next payments were due next week.
29 Sep 2017
Investment Grade Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM Investment Grade Weekly Insights

Fund Flows & Issuance: According to Wells Fargo, IG fund flows decelerated on the week, but were still positive at $2.3bln. This brings the YTD total to +$241.961bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $20.725bln, and YTD total corporate bond issuance was $1.06t. Investment grade corporate bond issuance thus far in 2017 is down 5% y/y when compared to 2016.

(Bloomberg, El Mostrador) Albemarle Said to Be Interested in Potash’s SQM Stake: Mostrador

  • Lithium-producer Albemarle is among the companies interested in acquiring Potash Corp.’s 32% stake in Soc. Quimica y Minera de Chile, says El Mostrador, citing unidentified sources with knowledge of the situation.
    • There’s also interest from Chinese, European and South Korean companies, news website says
    • Albemarle and SQM are the only two lithium producers in Chile
    • Acquisition of a stake in a company that has an ongoing dispute with the Chilean state would complicate Albemarle’s lithium operations in the country, sources tell Mostrador
    • Process is in a preliminary phase and would start formally in October after Potash receives at least two bids; process would last about four months, Mostrador says
  • The decision by the main shareholder of SQM to put on sale the 32% that controls in the nonmetallic mining leaves Corfo in a complicated situation. If successful, the purchase would leave the US giant with a dominant position in the lithium business in Chile, something that would be politically unviable for the government, sources close to the operation say. Lawyers who know the industry indicate that blocking the operation would be possible for the State of Chile, but it would not be an easy process or free of controversy.

(Bloomberg) FTC Approves Abbott’s Acquisition of Alere

  • The FTC on Thursday approved pharmaceutical company Abbott Laboratories’ bid to purchase Alere , a manufacturer of rapid point-of-care diagnostic tests, on the condition that Abbott sells two point-of-care medical testing units.
  • The deal, first proposed in February 2016, hit several snags on its route to approval over issues regarding the Alere’s accounting and sales practices. Abbott was able to reach a deal to buy Alere in April for around $5.3 billion, below its initial $5.8 billion offer.
    • The transaction establishes Abbott as the global leader in point of care testing – the fastest-growing segment of the $50 billion in vitro diagnostics market – and further strengthens the company’s diagnostics presence. The addition of this business aligns with Abbott’s long-standing strategy of shaping the company for growth and complements the leadership positions it has built across its other businesses, which include medical devices, nutritionals and established pharmaceuticals.

(Bloomberg) Chubb to Face Up to $1.3 Billion in Losses From Harvey, Irma

  • Chubb Ltd. said losses from Hurricanes Harvey and Irma could total as much as $1.3 billion after taxes.
  • Harvey, which hit Texas in August and caused flooding in Houston, will cost the insurer about $520 million, the company said Wednesday in astatement. Claims expenses from Irma, the storm that slammed southern Florida earlier this month, could be $640 million to $760 million. Those figures dwarf the $107 million in after-tax catastrophe losses the insurer took during the third quarter of 2016.
  • “For Chubb, these large losses should be manageable within the context of its earnings, capital position and ratings,” David Havens, an analyst at Imperial Capital, said Wednesday in a note. “But this is a big number.”
  • “It’s a little on the high side for storm losses,” Paul Newsome, an analyst at Sandler O’Neill & Partners, said by phone. “They’re real losses and affect the book value, but most investors will normalize for these large events because they are very episodic.”

(Bloomberg) A $6.4 Billion Windfall Awaits Big U.S. Banks in Trump’s Tax Cut

  • The six largest U.S. banks could see net income rise $6.4 billion, or 7 percent, if President Donald Trump and Republicans in Congress can push through their proposed corporate tax rate cut.
  • Banks stand to benefit more than other industries because they typically have fewer deductions. The top six firms — JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co., Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley — paid an average of 26 percent in federal taxes last year, almost twice the average for nonfinancial companies, according to data compiled by Bloomberg. The Republican framework released Wednesday calls for lowering the corporate rate to 20 percent from 35 percent.
  • The estimates for the tax savings are based on the firms paying a 20 percent effective U.S. federal rate, assuming current deductions are no longer allowed. While earlier versions of Republican tax proposals have talked about eliminating some deductions, the latest plan has scant information on such changes. If some deductions are kept, banks would end up with a lower effective tax rate and their savings would be even greater.

(WSJ) U.S. Seeks to Undo Parker Hannifin’s Clarcor Deal on Antitrust Grounds

  • The Justice Department on Tuesday filed an antitrust lawsuit challenging Parker Hannifin Corp.’s $4.3 billion acquisition of Clarcor Inc., alleging the deal created an unlawful monopoly.
  • The department, in a legal challenge filed in a Delaware federal court, argued that Parker Hannifin’s acquisition, completed in February, had eliminated the company’s only competitor in the market for products that filter fuel for airplanes. Aircraft fuel must be filtered to remove particles that could cause engine failure.
  • The case marks the first merger challenge brought by the Justice Department under the Trump administration. The lawsuit asks a federal judge to order Parker Hannifin to sell off either its own aviation fuel filtration business or Clarcor’s to restore the previous competition in the market.
  • “Parker Hannifin’s acquisition of its only U.S. rival for these types of aviation fuel filtration products has effectively created a monopoly in these critical safety products, depriving their customers of the benefits of competition,” said Andrew Finch, the acting head of the Justice Department’s Antitrust Division.
  • The lawsuit alleged the company and Clarcor competed vigorously before the merger, resulting in better prices and more innovation for customers. Now, Parker Hannifin has “the power to raise prices without fear of losing a significant amount of sales,” the lawsuit said.
  • The department also alleged Parker Hannifin didn’t provide significant documents or data to the Justice Department while it was investigating the transaction.
  • The lawsuit comes at a time of transition for antitrust enforcement, as Republican officials begin to take over from Democrats who served during the Obama administration.
  • Antitrust enforcement often isn’t considered a partisan exercise, but Republicans have tended to take a more free-market approach. Whether the Trump administration will continue on that path is unclear. , given that President Donald Trump has at times embraced a populist sentiment that can be suspicious of big businesses growing more powerful.
  • Mr. Trump’s nominee to lead the department’s antitrust enforcement efforts, Makan Delrahim, hasn’t yet been confirmed by the Senate, but political deputies selected by Mr. Delrahim are already in place and conducting Justice Department business.
15 Sep 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.8 billion and year to date flows stand at -$9.0 billion. New issuance for the week was $15.2 billion and year to date HY is at $188 billion.

(Bloomberg) Saudi Arabia Says It’s Open to Another OPEC Cuts Extension

  • Saudi Arabian Energy Minister Khalid Al-Falih agreed with his Venezuelan, Kazakh and U.A.E. counterparts to keep all options open in their push to re-balance world oil markets, including the possible extension of output cuts beyond next March.
  • Al-Falih agreed in separate talks with the ministers in the Kazakh capital Astana that steps taken by OPEC and other major crude producers such as Kazakhstan have contributed to better market stability, according to three emailed statements from the Saudi energy ministry.
  • Saudi Arabia and Venezuela, both members of the Organization of Petroleum Exporting Countries, agreed to consider prolonging production cuts “beyond the first quarter of 2018, if needed,” the Saudi ministry said in one of the statements. The kingdom and Kazakhstan said such an extension “would be considered in due course as market fundamentals may dictate,” according to a separate Saudi statement.
  • OPEC and other producers including Russia pledged to reduce output by about 1.8 million barrels a day through March to trim global oil inventories and buttress prices. The producers are seeking to strengthen compliance with the cuts accord they reached last year.

(Broadcasting and Cable) CenturyLink Extends Level 3 Deal Closure Date

  • CenturyLink said it expects its deal to buy Level 3 Communications will close by mid-to-late October, which will require approval by the FCC and Justice as well as remaining state sign-offs.
  • That is actually a slight delay in the original projected closing, which had been the end of this month. California won’t vote on its state approval until Oct. 12, but CenturyLink pointed out that a California ALJ has deemed the deal in the public interest and recommended the California PUC approve it at that Oct. 12 meeting.
  • CenturyLink CEO Glen Post said the company views the “slight delay” as manageable and is ready to begin integrating Level 3 into the fold as soon as the deal is closed.
  • He also said that the company wanted to give the regulators time to complete their review. The company will have to, since the deal cannot close until and if the FCC and DOJ approve it, though the company is working with regulators throughout to provide info and input, so the announcement is a good sign the deal will not be blocked.

(Real Deal) Despite rising demand, multifamily construction is slowing down

  • Construction of multifamily buildings is slowing down across the country, even though there’s rising demand for rental units.
  • More than half of metro areas across the country are expected to see more multifamily housing built this year than what was seen between 1980 and 2016, the Wall Street Journal reported, citing Trulia data. However, that construction — the driver of the last construction boom — is on the cusp of slowing down. If the construction of single-family homes doesn’t increase to fill its place, according to the newspaper, the country’s economy could be adversely affected.
  • According to Commerce Department data released on Wednesday, overall U.S. housing starts dropped for the fourth time in five months in July. For single-family construction, starts decreased by 0.5 percent. However, they dropped a massive 17 percent for construction on buildings with five or more units.
  • “I’m optimistic that single-family will catch up,” Ralph McLaughlin, the chief economist at Trulia. “It’s not going to happen this year and it’s probably not going to happen next year.”
  • Apartment construction is slowing because of the massive increase in apartment inventory. In New York City, excess supply has led to landlords offering concession to renters and brokers. In July, concessions at residential rental buildings in Brooklyn were the highest they have been in the seven years that they’ve been tracked.

(Kansas City Business Journal) AMC completes $130M sale-leaseback deal

  • AMC Entertainment Holdings Inc. is making progress with monetizing assets and announced it completed the sale-leaseback of seven U.S theaters. The $130-million deal involves an unnamed U.S. buyer and will lead to about $128 million in cash after closing costs and a deferred gain on sale of about $80 million.
  • “AMC’s $130 million sale leaseback transaction is the second action step we have consummated since the announcement last month to realize monies from assets which were not vital for us to own,” AMC CEO Adam Aron said in a release. “Combined with the sale of our 50 percent interest in Open Road Films, which was sold last month with an $18 million pre-tax gain, AMC has generated more than $140 million of cash. This is beneficial in enabling AMC to pursue our plan to strengthen our balance sheet even as we pursue dynamic growth.”
  • The announcement is part of AMC’s effort to sell $400 million in assets to strengthen its overall liquidity position and help finance buying back AMC shares and paying down debt.
08 Sep 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.0 billion and year to date flows stand at -$8.1 billion. New issuance for the week was $1.3 billion and year to date HY is at $173 billion.

(Reuters) Bankers work on US$70bn debt for Altice Charter tie-up

  • Bankers are working on debt financings of around US$70bn backing a potential offer by Netherlands-based telecom conglomerate Altice NV and its US cable unit for US cable operator Charter Communications Inc, banking sources said on Wednesday.
  • A debt deal would be one of the largest acquisition financing packages to date and one of the largest leveraged acquisition financings, the sources said.
  • “Even on a conservative level, the debt backing Altice’s Charter bid would be the largest-ever leveraged financing,” a senior banker said.
  • Bankers are unwilling to risk missing out on a deal of this size and are actively pitching financing proposals to Altice to back any potential bid, bankers said.
  • “The financing would be sizeable so every big bank is around it in some shape or form – all the guys that have led Altice deals in the past,” a second senior banker said.
  • “Any bank with any appetite will be in there pitching. No one wants to miss out on the trade,” a third senior banker said.

(Nashville Post) Moody’s cuts Community Health Systems rating

  • A Moody’s Investors Service analyst on Tuesday downgraded the debt rating of Community Health Systems, saying the company is unlikely to lower its high debt ratios over the next year and a half despite selling dozens of its hospitals.
  • The debt ratings agency said Franklin-based CHS, along with its hospital company peers, faces “operating headwinds” that will keep its ratio of debt to earnings before interest, taxes, depreciation and amortization around 7:1. Moody’s analysts have cut their group rating for CHS as well as its senior unsecured notes, among other things, but have a stable outlook for the company. They say they’ll consider an upgrade if the company’s debt-to-EBITDA ratio climbs to 6:1.
  • CHS executives in May renegotiated their main credit agreement to give them more time to lower the company’s debt ratios. In the past year, they have sold or signed agreements to sell 30 hospitals and last month said more deals are likely coming in 2018.

(Industrial Distribution) U.S. Rig Count Snaps 4-Week Slide, Harvey Drives Oil Back Above $48

  • The U.S. combined active oil and gas rig count posted its first increase for the first time in five weeks with a modest gain, while the price of oil jumped essentially $2 from the midpoint of last Friday to Tuesday morning.
  • Friday’s count provided by oilfield services provider Baker Hughes (Sept. 1) was up by three, snapping a four-week streak of declines. The count hadn’t increased in six of the previous seven weeks. Friday’s total of 943 was up by 89.7 percent year-over-year
  • Oil rigs comprised 80.5 percent of Friday’s total.
  • The U.S. oil rig count held steady last week at 759. Its count is up 86.5 percent year-over-year and up 140.2 percent since bottoming out at 316 on May 27, 2016.
  • The U.S. added three gas rigs last week, moving its current mark to 183. The active gas rig count is up 108.0 percent year-over-year and up by 125.9 percent since bottoming out at 81 on Aug. 5 and Aug. 26, 2016.

(PR Newswire) Steel Dynamics Announces Offering of Notes

  • Steel Dynamics, Inc. announced that it plans to sell approximately $350 million aggregate principal amount of debt securities in a transaction exempt from the registration requirements of the Securities Act of 1933, subject to market and other conditions. The Company intends to use the net proceeds of the offering, along with cash on hand, to purchase any and all of its 6.375% Senior Notes due 2022 that are validly tendered in a tender offer commenced on September 6, 2017, and to redeem, repurchase or satisfy and discharge any 2022 Notes not purchased in the Tender Offer, and to pay related fees and expenses.

Additionally, Steel Dynamics was upgraded by Moody’s to a Ba1 credit rating.

(Bloomberg) Distressed Supply Increases in August, Led by Communications

  • Distressed supply increased for the third month in a row, raising the question whether another distressed cycle is upon the credit market. In strong credit markets, distressed inventory tends to decline or meander in a trough. The distressed ratio increased to 6% from 5%, as the communications and energy sectors added distressed supply.
  • The face value of bonds in the BofA Merrill Lynch U.S. Distressed Index rose $16 billion to $84 billion in August, the third straight gain. Having fallen to $53 billion in February from a $377 billion peak a year earlier, the question is whether supply is set to reverse and increase.
01 Sep 2017
High Yield Weekly, Weekly Insights Kathryn Bailey 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.08 billion and year to date flows stand at -$9.2 billion. New issuance for the week was $0.0 billion and year to date HY is at $172 billion. This past week was very much a typical late summer lull.

(Oil & Gas Journal) US rig count falls 6 units to 940

  • The overall US rig count has fallen again this week, marking the fourth straight week of declines. Baker Hughes’ calculation of active US rigs dropped 6 units during the week ended Aug. 25 to 940.
  • Rigs drilling for oil fell 4 units to 759 rigs working, while those rigs targeting natural gas also declined 2 units to 180 rigs. Rigs unclassified sat unchanged at 1 unit.
  • The US rig count is up 451 rigs from last year’s count of 489, with oil rigs up 353, gas rigs up 99, and unclassified rigs down 1 to 1.
  • Among the major oil and gas-producing states, Texas and Pennsylvania were down 3 rigs each to respective counts of 456 and 31. Oklahoma, Utah, and Alaska were down 1 rig each to respective counts of 130, 8, and 4.
  • In Canada, the overall rig count climbed 3 units this week to reach 217. Rigs drilling for oil fell 6 units to 115 and those targeting gas gained 9 units to 102. The total count is up 71 units from this time a year ago when 146 rigs were operating.

(Bloomberg) Altice to Buy Back Up to $1.2 Billion in Stock, Will Eye M&A

  • Billionaire Patrick Drahi’s Altice NV plans to buy back as much as 1 billion euros ($1.2 billion) of stock during the next 12 months, while continuing to look for potential acquisition targets.
  • The telecommunications company will buy A and B shares on the Amsterdam exchange, according to a statement Monday. “Going forward, Altice will continue to assess the use of excess cash for either significantly accretive M&A opportunities or further shareholder returns,” the company said.
  • Altice said the buyback reflects its confidence in achieving near-term financial targets, reiterating all its 2017 goals. An acquisition push in the U.S. has helped Drahi diversify Altice beyond a stagnant European telecommunications market, and the company has said its Altice USA unit is seeking to grow further through takeovers after its initial public offering in June.
  • The company is working on a potential offer to buy Charter Communications Inc., following other possible suitors including Japan’s SoftBank Group Corp. in targeting the U.S. cable carrier, people familiar with the matter said this month. Altice is also considering other potential acquisitions, one of the people said.

(CNN) U.S. company gives up control of world’s No. 2 copper mine

  • Freeport-McMoRan agreed Tuesday to give up its majority stake in the massive Grasberg gold and copper mine, ceding control to the Indonesian government in what is likely to be seen as a victory for President Joko Widodo.
  • The U.S. miner’s ownership stake will be reduced from 90% to 49%, Indonesia’s energy minister Ignasius Jonan said at a joint press conference with Freeport CEO Richard Adkerson. The exact time of the handover is under discussion, they said.
  • Freeport and its local subsidiary have conducted mining and exploration activities since 1988 at the 525,000-acre complex, which includes a massive open pit mine.
  • But many Indonesians objected to their country’s mineral resources being mined by a foreign corporation, and the project has long faced opposition — and even violent protests — from locals in the eastern province of Papua.
  • Jonan said Tuesday that the agreement wants to “prioritize the national interest” and the “importance of the people of Papua.” He said that control of the mine would also give Indonesia sovereignty over its natural resources.
  • Freeport has agreed to build a new processing and refining facility for the mine, and — if other conditions are met — it will be allowed to operate the project until 2041.

(Bloomberg) Largest U.S. Refiner Shuts as New Harvey Landfall Extends Damage

  • Harvey’s second landfall, hitting southwest Louisiana near the Texas border, expanded the growing list of damaged oil refineries, shutting down two key plants, including America’s largest.
  • The latest hit list potentially reduces U.S. fuel-making capacity to the lowest since 2008, following Hurricane Ike. Motiva Enterprises LLC’s Port Arthur facility in Texas, the biggest U.S. refinery, is shutting because of severe flooding, said a person with knowledge of the operations. Total SA’s refinery in Port Arthur is out with a power loss, a person familiar with that plant said. Those plants are located less than 50 miles (80 kilometers) from the tropical storm’s 4 a.m. Wednesday landfall just west of Cameron, Louisiana.
  • The two refineries join more than a dozen others with a combined ability to produce more than 4 million barrels a day, or about 23 percent of U.S. capacity, that are at least partially offline. Gasoline futures are at the highest in two years, and the fuel’s premium to crude is at a 16-month high.
  • “These closures are already impacting markets with crude prices lower on a perceived drop in demand and gasoline prices spiking in response to lower supply,” Sandy Fielden, director of research commodities and energy at Morningstar Commodities Research, said in an emailed note.
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