Author: CAM Team

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$3.6 billion and year to date flows stand at -$6.0 billion.  New issuance for the week was $3.6 billion and year to date HY is at $27.8 billion, which is flat over the same period last year. 

(Bloomberg)  High Yield Market Highlights

• Recent spread widening for high yield markets should see at least a short-term reversal to tighter levels before potentially taking a leg higher. Flows remain unsupportive and absolute levels tight, but the 34-bp widening over the seven trading sessions through Feb. 6 looks overdone. Renewed equity uncertainty may push spreads toward 360 bps.
• Equity market pressures over the last week have translated into spread widening in high yield, eliminating year-to-date returns for the asset class. The market had been up as much as 0.53% as of Jan. 26, before rates and spread pressures took hold, leaving high yield lower by 0.35% as of Feb. 6. Basic materials and energy have seen the greatest weakness, though energy remains the best performer on a total return basis for 2018.
• Fixed income exchange-traded funds have attracted a net $12 billion in 2018, about 1.5% as a share of AUM, with inflows favoring shorter duration and less risky assets. U.S. Treasury ETFs saw a spike of demand through the recent bout of volatility, adding a net $2 billion in February for a total of $3.2 billion year-to-date, about 4% of assets under management. A weakening dollar boosted demand for emerging market debt with EM sovereign and corporate ETFs attracting net inflows of $3.4 billion, about 6% of AUM.
• By contrast, flows into ETFs pegged to high grade U.S. corporate bonds remain flat for the year with investors reassessing valuations amid the tightest credit spreads in a decade, while almost $3.2 billion has fled U.S. high yield, 6% of AUM, including $2 billion in the past two weeks.

(Bloomberg)  Sprint Is Said to Seek Looser Terms on $4 Billion Term Loan

• Sprint Corp. has approached lenders seeking relaxed terms on the credit agreement governing its $4 billion term loan B, according to people with knowledge of the matter.
• The company is seeking the release of liens on some properties
• Investors are being offered a 5 basis-point fee to agree to the changes
• JPMorgan launched the amendment process for Sprint
• A representative for JPMorgan declined to comment, while Sprint didn’t immediately have comment

(Reuters)  Teva Pharmaceutical warns on 2018 profits citing US market, Copaxone

• Teva Pharmaceutical on Thursday said 2018 results would be weaker than expected due to difficult conditions in the U.S. generics market and fierce competition facing its branded multiple sclerosis drug.
• Teva, the world’s largest generic drugmaker, is facing price erosion, increased competition and a consolidating customer base, particularly in the United States.
• It also has a hefty debt load that company executives said would be tackled in the near term.
• CEO Kare Schultz attributed half of the expected revenue decline in 2018 to its multiple sclerosis blockbuster Copaxone, which began to face competition last year.
• Persistent price pressure in the U.S. generics market, lower revenue following the sale of several businesses and expected competition to its ProAir inhaler in the second half of 2018 also hurt its outlook, he said on an earnings call.
• Schultz said Teva would no longer comment on expected price developments, noting such estimates were leading to steeper declines.

(Business Wire)  Zayo Group Holdings, Inc. Reports Financial Results

• Second quarter operating income increased by $8.6 million and net income decreased by $11.7 million over the previous quarter primarily due to the provision for income taxes. Income tax expense increased by $17.5 million in the second quarter, largely due to the impact from tax reform under the Tax Cut and Jobs Act of 2017 of $44.1 million partially offset by a $28.5 million release of a valuation allowance on deferred tax assets for certain foreign subsidiaries. During the three months ended December 31, 2017, capital expenditures were $193.4 million.
• As of December 31, 2017, the Company had $280.8 million of cash and $442.0 million available under its revolving credit facility.
• On November 26, 2017, the Company entered into a definitive agreement to acquire Spread Networks, LLC, a privately owned telecommunications provider that owns and operates a 825-mile, high-fiber count long haul route connecting New York and Chicago, for $127.0 million in cash. The all-cash transaction is expected to be funded with cash on hand and debt and is expected to close in the first calendar quarter of 2018.
• On January 18, 2018, the Company completed the CAD $31.0 million (or $24.9 million) cash acquisition of Vancouver-based Optic Zoo Networks. Optic Zoo Networks owns and operates high-capacity fiber in Vancouver and has achieved a significant penetration of customers, with a focus on the digital media sector.
• On January 28, 2018, the Company entered into an agreement to acquire substantially all of the assets of Neutral Path Communications and Near North Partners for $31.5 million. Neutral Path is a long haul infrastructure provider, operating a fiber network in the Midwest. The transaction will add 452 owned plus additional leased route miles to the Company’s extensive North American network, including a unique, high-count fiber route from Minneapolis to Omaha.

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$2.0 billion and year to date flows stand at -$2.3 billion. New issuance for the week was $5.6 billion and year to date HY is at $24.3 billion, which is up 30% over the same period last year.

(Bloomberg) High Yield Market Highlights

• Junk yields were on the ascent amid lackluster stocks and a continuing climb in Treasury yields as the 10Y jumped 3% at close yesterday, the biggest since September; 10Y closed at a multi-year high of 2.789%.
• Junk investors were cautious amid volatility in Treasuries and pulled cash from retail funds
• While prudence and caution prevailed, there was no risk aversion with the primary market pricing $1.85b yesterday
• CCCs outperformed the Energy sector and the high yield index in January amid a flood of issuance
• Investor resilience was reflected again yesterday in the continuing demand for new issues with JBS USA, a single-B credit, getting orders of ~$3b, and pricing at the tight end of talk; boosted the size of the offering to $900m from $700m
• Earlier in the week Shelf Drilling priced at the tight end of talk with orders more than $2b. Scientific Games had orders of more than $3b and increased the size of the offering to $900m from $500m . Western Digital priced its $2.3b offering earlier in the week, at the middle of price talk, with orders more than $4b
• While there was some nervousness and caution caused by volatile Treasuries, the high yield continued to be backed by an overall supportive environment:
  1. The default rate should move lower in 2018 amid a growing economy and improving credit conditions in the commodity sector, Moody’s John Puchalla, wrote in note yesterday
  2. Moody’s Liquidity Stress Indicator was a new low of 2.4% mid-January, suggesting junk issuers were backed by steady economic growth and buoyant credit markets
  3. Corporate earnings have been robust and economic growth was synchronized across the globe

(Bloomberg) Wynn Outlook to Negative Following CEO Investigation

• S&P believes recent misconduct allegations against Wynn Resorts’ founder and CEO, which the company’s board of directors and at least one gaming regulator are investigating, could impair the company’s brand and ability to maintain or renew its gaming licenses.
• S&P changed the rating outlook on Wynn debt to negative from stable
• S&P did also affirm the current ratings of BB-

(Reuters) Hospital operator HCA reports strong quarter

• HCA Healthcare Inc., the largest U.S. for-profit hospital operator, on Tuesday reported better-than-expected quarterly earnings and revenue, helped by higher patient admissions.
• HCA’s same-facility equivalent admissions, which include patients who stay in the hospital overnight and those who are treated on an outpatient basis, rose 2.3 percent in the fourth quarter.
• Hospital operators have been plagued by weak patient admissions in the past few quarters, but HCA has been buying hospitals from rivals in the face of the decline.
• Flu continues to be widespread across the United States and the season is on track to be one of the most severe since 2014/2015, U.S. health officials said last week.
• The company, which operates 179 hospitals and 120 freestanding surgery centers, reported revenue of $11.56 billion, above analysts’ estimates of $11.17 billion.
• HCA, which also initiated a quarterly dividend, forecast 2018 EBITDA (earnings before interest, taxes, depreciation and amortization) of $8.45 billion-$8.75 billion. That was above consensus estimates of $8.4 billion, according to Evercore ISI.

(Reuters) Teva Pharma to raise $5 billion in debt securities

• Teva Pharmaceutical Industries said on Tuesday it planned to raise $5 billion of debt securities as it pushes ahead with a global overhaul aimed at cutting costs and managing its massive debt burden.
• “The net proceeds from the sale of securities … will be used for general corporate purposes, which may include additions to working capital, investments in or extensions of credit to our subsidiaries and the repayment of indebtedness,” Teva said in a filing with the U.S. Securities and Exchange Commission.
• Teva, the world’s biggest generic drugmaker, announced in late 2017 a restructuring that would combine its generic and specialty medicine businesses, cut more than a quarter of its workforce and close many of its factories.
• The plan set a target to reduce costs by $3 billion by the end of 2019, from about $16.1 billion in 2017.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.3 billion and year to date flows stand at -$0.3 billion.  New issuance for the week was $7.5 billion and year to date HY is at $18.6 billion, which is up 16% over the same period last year. 

(Bloomberg)  High Yield Market

• Issuance kicked off the week with T-Mobile driving by with $2.5b 2-part senior notes offering and pricing at the tight end of talk; received orders of more than $5.5b
• Recent new issues have been seeing big orders
  • Extraction Oil & Gas saw orders of more than $2b, that is, 4 times the size of the original offering
  • IRB Holding priced at the tight end of talk to fund the buyout of Buffalo Wild Wings, with orders of ~$1.5b
  • Earlier, Noble Holding got orders more than $2b and increased the size of the offering to $750m from $500; Olin Corp saw orders of more than $2b; and Nabors Industries about $3b, 5 times the size of the offering

• Strong equities with stocks setting new highs, and oil near 37-mo. high bolster junk bonds leading to lower risk premium
• High yield continued to be backed by an overall supportive environment: Moody’s Liquidity Stress Indicator kicked off 2018 with a new low of 2.5%, suggesting junk issuers were backed by steady economic growth and buoyant credit markets as investors scramble for yield
• Corporate default rates declined, another critical factor for high yield
• Steady economy, declining default rates, low volatility, steady oil prices and stocks augur well for high yield

(PR Newswire)  Steel Dynamics Reports Financial Results

• Company records for 2017: company-wide safety performance, steel shipments of 9.7 million tons, net sales of $9.5 billion, operating income of $1.1 billion, and EBITDA of $1.4 billion
• “The performance of the entire Steel Dynamics team was exceptional this year,” said Mark D. Millett, President and Chief Executive Officer.  “We performed at the top of our industry, both operationally and financially, and most importantly, we did it safely.  Based on our strong cash flow generation from operations of $740 millionin 2017, we maintained near-record liquidity of over $2.2 billion, while simultaneously investing in our company through organic growth, a sustained positive dividend profile and the continuation of our share repurchase program.  We have a firm foundation for our continued growth.”
• “In spite of the continuation of elevated levels of steel imports, which were over 15 percent higher than in 2016,” continued Millett, “the domestic steel industry benefited in 2017 from an improvement in underlying demand, as the automotive sector remained strong, and the construction and energy sectors continued to improve.  Our steel operations achieved record annual operating income of $1.1 billion.  Supported by improved domestic steel utilization, the metals recycling team maintained volume, increased metal spread and reduced costs throughout the year.”

(Reuters)  Advisory group ISS recommends that Cineworld investors oppose Regal deal

• Influential advisory group Institutional Shareholder Services has recommended that investors in Cineworld oppose the company’s $3.6 billion reverse takeover of U.S. rival Regal Entertainment.
• ISS told clients in a report that a vote against the deal and its associated rights issue “is warranted based on the significant financial and operation risks related to the transaction.”

(Politico)  Trump nominee Powell overwhelmingly confirmed as Fed chair

• The Senate on Tuesday confirmed Jerome Powell, the president’s pick to chair the world’s most important central bank, in a bipartisan 84-13 vote.
• But the Fed might not be radically different with Powell at the helm. The Fed under Powell will likely continue its path of steady interest rate increases — three are projected for 2018 — and cautious removal of its decade long extraordinary support for the U.S. economy.
• Powell joined the Fed board in 2012 as an Obama appointee, and since then he has worked with Yellen and her predecessor, Ben Bernanke, to craft the central bank’s monetary and regulatory policy in the wake of the 2008 financial crisis.
• “The best way to sustain the recovery, I believe, is to continue on this path of gradual interest rate increases,” Powell said at his confirmation hearing in November.
• Powell will probably be more interested in specific regulatory policy details than any Fed chair in history, making his relationship with newly minted Fed regulatory czar Randal Quarles a key one. Powell and Quarles are good friends who have known each other for decades, but Quarles seems slightly more inclined to loosen regulation than his soon-to-be boss.

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.2 billion and year to date flows stand at $1.0 billion. New issuance for the week was $6.9 billion and year to date HY is at $11 billion, which is up 32% over the same period last year.

(Bloomberg) High Yield Supply

• The primary market for dollar-denominated high yield bonds has been active so far in 2018 as credit spreads narrowed to the tightest level in a decade. Most deals continue to be refinancing-related with energy issuers particularly eager to take advantage of firmer oil prices.
• High yield dollar-debt issuers are actively tapping the primary markets at the start of the year, tallying total volume of $9.7 billion through Jan. 15 vs. a 10-year median of $8 billion over equivalent past periods. Demand appears strong, with many issues reportedly oversubscribed as secondary-market credit spreads reached a low of 318 bps on Jan. 9 — the tightest in a decade as gauged by the Bloomberg Barclays U.S. Corporate High Yield Bond Index option-adjusted spread to U.S. Treasuries.
• Issuers in the energy and materials sectors continue to lead offerings in 2018, with a 67% share of the year-to-date volume vs. the 24% share of total debt outstanding in the Bloomberg Barclays U.S. Corporate High Yield Bond Index for these sectors. Most were refinancing deals as issuers take advantage of firmer oil and metal prices to extend maturity profiles and shore up balance sheets after the 2015-16 commodities slump. Energy index spreads have narrowed to mid-2014 levels, currently at 347 bps.
• Companies Impacted: Sunoco LP has led issuance so far in 2018, with $2.2 billion in refinancing related 144A notes, while energy sector peer Ensco PLC sold $1 billion in global debt, also refi related. In the materials sector, Olin Corp sold $500 million senior debt, also a financing.

(Bloomberg) Teva to Become the Fourth-Largest Global High Yield Issuer

• Moody’s downgraded Teva’s unsecured bonds two notches to Ba2, two levels below investment grade. This will trigger the removal of $17 billion in debt outstanding from the Bloomberg Barclays U.S. Corporate Bond Index, a subcomponent of the U.S. Aggregate Index, in the Feb. 1 rebalancing.
• Moody’s downgrade of Teva’s debt means almost $25.6 billion face value in dollar and euro-denominated bonds will join the Bloomberg Barclays Global High Yield Corporate Bond index on Feb. 1. That’s about $23.5 billion market value at current prices, or about 1.2% index weight, which will make Teva the fourth-largest issuer in the index behind HCA, Sprint and Telecom Italia. Compared with the index, Teva’s bonds average higher ratings and lower yield, which should have a positive impact on index quality.

(Bloomberg) Frontier Asks Lenders for a Break as It Looks to Add More Debt

• The rural telecom service is asking lenders to cut it a break on some of the terms governing its $18 billion in bonds and loans so it can raise new funds, potentially setting the stage for refinancing parts of its crippling debt load.
• On a call with senior lenders and then in a regulatory filing Wednesday, Frontier executives proposed adding new debt at the junior level and enhancing protections for senior creditors. To that end, the company wants to eliminate a restriction on the amount of total debt it could incur as a percentage of earnings, according to the filing. Instead, the cap on that ratio would apply only to first-lien debt.
• The changes “will afford the company greater flexibility in executing on operational initiatives and in optimizing its access to the debt markets,” Frontier said in an emailed statement.
• Among other changes, the plan would set Frontier’s first-lien leverage ratio at 1.5 times Ebitda, dropping to 1.35 times in 2020, and limit additional first-lien debt to $800 million, according to the filing. Ebitda, or earnings before interest, taxes, depreciation and amortization, is a key measure of company’s ability to service its debt.
• On the lender call, organized by JPMorgan Chase & Co., Frontier executives said they’d offer lenders a consent fee of 15 basis points in exchange for the amendments, according to participants.

(PR Newswire) Noble Corporation Announces Pricing And Upsizing Of Offering Of Senior Guaranteed Notes

• Noble Corporation announced today that its indirect, wholly-owned subsidiary, Noble Holding International Limited (“NHIL”), has priced an offering of $750,000,000 aggregate principal amount of 7.875% senior unsecured guaranteed notes due 2026 (the “Notes”). The offering was upsized from a previously announced amount of $500,000,000. NHIL intends to use the net proceeds of approximately $738,750,000, together with cash on hand, to pay the purchase price and accrued interest (together with fees and expenses) in the tender offers (the “Tender Offers”) to purchase for cash up to $750,000,000 aggregate purchase price, excluding accrued interest, of NHIL’s outstanding 4.00% Senior Notes due 2018, 4.90% Senior Notes due 2020, 4.625% Senior Notes due 2021, 3.95% Senior Notes due 2022 and 7.75% Senior Notes due 2024 and the outstanding 7.50% Senior Notes due 2019. If the Tender Offers are not consummated, or the aggregate purchase price of the notes tendered in the Tender Offers and accepted for payment is less than the net proceeds of the Notes offering, NHIL will use the remainder of those proceeds for general corporate purposes, which may include the further retirement of debt, including, but not limited to, the purchase of debt in open market or privately negotiated transactions. The Notes offering is expected to close on or about January 31, 2018, subject to customary closing conditions.