Author: Rich Balestra - Portfolio Manager

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $3.2 billion and year to date flows stand at $18.1 billion.  New issuance for the week was $9.9 billion and year to date HY is at $188.0 billion, which is +32% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• After the biggest week of inflows since February, U.S. junk bonds are poised to edge higher again Friday, capping the fifth straight week of gains. The CDX HY index is up slightly as stock futures gain and oil rallies. Another $1 billion of deals are set to price today.
• Investors continued to put money into high-yield bond funds with Refinitiv’s Lipper reporting an inflow of $3.2b for the week ended Sept. 18. That’s the most since February.
• HYG and JNK — the two-biggest high-yield ETFs, posted a combined $340m of inflows for Thursday
• There has been a steady stream of new supply in the market this week
• At least three deals are slated to price Friday
• Bloomberg Barclays index yields continued to head south, dropping to a new 20-month low of 5.57%; spreads are at a 3-month low of +355
• Single-B yields also hit a new 20-month low of 5.57% after falling by 1bps
• BB yields dropped 4bps to close at 4.03%
• CCC yields bucked the trend and rose for the third straight session to close at 10.62%, up 7bps
• Junk bond returns rebounded yesterday as oil recovered and posted a gain of 0.029%, taking YTD returns to 11.757%
• BBs were at 12.8% after a gain of 0.05%
• Single Bs were at a new 2019 high of 12.394% after a gain of 0.06%
• CCCs posted negative returns for the third straight session at 0.17%, taking the YTD down to 6.58%

(Bloomberg)  Unhinged Money Markets Trigger Fed Action to Alleviate Stress

• The Federal Reserve took action to calm money markets on Tuesday, injecting billions in cash to quell a surge in short-term rates that was pushing up its policy benchmark rate and threatening to drive up borrowing costs for companies and consumers.
• While the spike wasn’t evidence of any sort of imminent financial crisis, it highlighted how the Fed was losing control over short-term lending, one of its key tools for implementing monetary policy. It also indicated Wall Street is struggling to absorb record sales of Treasury debt to fund a swelling U.S. budget deficit. What’s more, many dealers have curtailed trading because of safeguards implemented after the 2008 crisis, making these markets more prone to volatility.
• Money markets saw funding shortages Monday and Tuesday, driving the rate on one-day loans backed by Treasury bonds — known as repurchase agreements, or repos — as high as 10%, about four times greater than last week’s levels, according to ICAP data.
• More importantly, the turmoil in the repo market caused a key benchmark for policy makers — known as the effective fed funds rate — to jump to 2.25%, an increase that, if left unchecked, could have started impacting broader borrowing costs in the economy. Because that’s at the top of the range where Fed officials want the rate to be, they are likely to make yet another tweak to a key part of their policy tool set to try to get things back on track when they meet Wednesday to set benchmark rates.
• But the central bank didn’t wait until then to do something, resorting to a money-market operation it hasn’t deployed in a decade. The New York Fed bought $53.2 billion of securities on Tuesday, hoping to quell the liquidity squeeze. It appeared to help. For instance, the cost to borrow dollars for one week while lending euros retreated after almost doubling Monday.

(CNN)  Coordinated strikes knock out half of Saudi oil capacity, more than 5 million barrels a day

• Coordinated strikes on key Saudi Arabian oil facilities, among the world’s largest and most important energy production centers, have disrupted about half of the kingdom’s oil capacity, or 5% of the daily global oil supply.
• Yemen’s Houthi rebels on Saturday took responsibility for the attacks, saying 10 drones targeted state-owned Saudi Aramco oil facilities in Abqaiq and Khurais, according to the Houthi-run Al-Masirah news agency.
• Yet key questions about the attacks remain unanswered. US Secretary of State Mike Pompeo pinned the strikes directly on Iran, which backs the Houthi rebels. But he said there was “no evidence the attacks came from Yemen.”
• Preliminary indications are that the attacks likely originated from Iraq, a source with knowledge of the incident told CNN. Iran wields significant influence in southern Iraq, which is situated much closer than Yemen to the affected Saudi sites.

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

 (Bloomberg) High Yield Market Highlights 

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

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

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

(PR Newswire) Encompass Health prices offering of senior notes

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

(Business Wire) Spectrum Brands Holdings Announces Management Changes

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

(CNN) Ford debt has been downgraded to junk

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

CAM High Yield Market Note

9/6/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.2 billion and year to date flows stand at $13.4 billion. New issuance for the week was $2.8 billion and year to date HY is at $167.8 billion, which is +28% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bonds are poised to extend their third straight week of gains as stock futures edged higher ahead of the monthly jobs report and remarks by Chair Jerome Powell in Zurich. Yields dropped to an 11-week low on Thursday to 5.7%, and spreads tightened to a five-week low of +388bps.
• Investor demand for the debt bolstered issuance even as retail funds faced outflows.
• Supply kept up its steady momentum and five of six deals were BB credits; all were drive-by offerings pricing at the lower end of price talk
• The primary is expected to maintain momentum this month, with September issuance of about $20-$25b, according to preliminary estimates from three dealers
• The Bloomberg Barclays High Yield Index saw the biggest drop in yields in two weeks, with bonds posting gains across all ratings. Returns in the index climbed to a fresh year-to-date high of 11.17%
• CCC yields closed at 10.86%, a drop of 3bps
• Spreads ended at +913bps, biggest decline in two weeks
• BB returns rose to 12.625%, a new 2019 high and the best in high yield, after gaining 0.136%
• Single-B yields also dropped to a 11-week low to 5.84%, the biggest fall in two weeks
• Single-Bs are at 11.43%, also a YTD high, after +0.18%
• CCCs were at 5.672% after a gain of 0.057%

Reuters) To cut or not? Dueling Fed views boost pressure on Powell

• The Federal Reserve should use its meeting in two weeks to aggressively cut interest rates, one U.S. central banker said on Tuesday.
• Less than an hour later, a second U.S. central banker said he saw no need to use up the Fed’s precious firepower when the economy is growing, inflation looks stable and labor markets are in good shape.
• The dueling views – from St. Louis Fed President James Bullard, who called for a half-a-percentage-point rate cut, and Boston Fed President Eric Rosengren, who saw no immediate need for any move – show the tight spot Fed Chair Jerome Powell finds himself in as the Fed’s next policy-setting meeting approaches.
• On one hand, the escalating U.S.-China trade war and a global economic slowdown have begun to pinch U.S. business spending and manufacturing output, posing a threat to the broader U.S. economy.
• But Americans continue to spend, wages are rising and employers keep adding jobs, suggesting a downturn is not on the horizon.
• Although Powell has said the Fed will act “as appropriate” to keep the economy growing, there is plenty of disagreement among his fellow rate-setters about what that two-word phrase means in practice.  

• (Bloomberg) U.S. Junk Bond Market Springs Back to Life With Three New Deals

• High-yield borrowers are jumping back into the market after a three-week hiatus with at least a trio of issuers expected to price bonds on Wednesday.

• Restaurant chain operator Yum! Brands, E&P company Murphy Oil and data storage manager Iron Mountain announced new offerings and are each targeting 10-year bonds
• The deals follow the reopening of the high-yield market on Tuesday by Icahn Enterprises, which was the first junk bond to price in three weeks
• Borrowers are selling new bonds mostly to refinance and repay existing debt following a recovery in spreads from August’s sell-off. High-yield bond spreads have rallied to two-month lows of 396bps over U.S. Treasuries after widening to 444bps last month, according to Bloomberg Barclays data
• Icahn’s new $500 million 4.75% 2024 bond edged higher in secondary trading to 100.125, according to Trace pricing. It priced at par.
• The deal was well received. It saw investor orders of more than $1.5 billion, helped by its higher double B ratings.
• Two of today’s offerings have similar ratings, which will likely appeal to investors looking to buy higher credit quality bonds.

(Bloomberg) With 49 Deals in 30 Hours, U.S. Corporate Bond Market Ignites

• A record number of companies borrowed in the U.S. investment-grade bond market this week as plunging yields spurred another wave of refinancing. And the frenzy isn’t letting up. Since Tuesday, corporations including Coca-Cola Co., Walt Disney Co., and Apple Inc. have sold or are selling notes, bringing the total number of sellers to 49.
• Completed sales totaled $54 billion through Wednesday, putting this week on track to be the busiest ever for corporate bond deals. At least another $70 billion are projected for the rest of the month, and the activity is spilling over to junk bonds and leveraged loans as well. With more than $16 trillion of bonds in Europe and Asia paying negative yields, investors worldwide are snatching up debt that offers higher returns, keeping demand strong in the U.S.
• For investment-grade companies, the average yield on bonds was 2.77% as of Wednesday, according to Bloomberg Barclays index data. In late November, that figure was above 4.3%. For a company selling $1 billion of debt, that amounts to $15.3 million of annual interest savings, before taxes. Junk-bond yields have dropped too, with notes rated in the BB tier, the uppermost high-yield levels, paying a near record-low 4.07%.
• It’s not clear how long that will last — on Thursday, U.S. Treasury yields surged, with the 10-year note jumping as much as 0.12 percentage point to 1.59%.
• In the leveraged loan market, 17 deals totaling more than $16 billion have launched this week, making it the busiest week since October. Investment-grade and high-yield bankers are telling clients that the good times may not last.
• “If someone has near-term financing needs, they should be looking to take advantage of this window,” said Jenny Lee, co-head of leveraged loan and high-yield capital markets at JPMorgan Chase & Co. “Things potentially could shut down or get more difficult as we head toward the back half of this year.”

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at $12.6 billion. New issuance for the week was $0.0 billion and year to date HY is at $165.0 billion, which is +26% over the same period last year.

 (Bloomberg) High Yield Market Highlights 

• U.S. junk bonds have recouped this month’s losses and look set to extend higher as stock futures rise ahead of Chair Jay Powell’s Jackson Hole speech.
• Funds have reported net inflows of $10.4b YTD vs outflows of more than $20b for the same period last year
• Month to date, the high-yield index is flat, following a 0.15% gain yesterday
• Junk bonds gained across the risk spectrum for five straight sessions, with CCCs gaining 0.17%, the most in high yield yesterday, compared to 0.15% for BBs and single-Bs respectively
• The energy index led the CCC rally, posting gains for five consecutive sessions for the first time in more than eight weeks, with a YTD return of 3.21% after a gain of 0.4% yesterday
• Junk bond yields dropped for five straight sessions to close at a fresh 2-month low of 5.78%
• Spreads were steady, tightening around 3-4bps across ratings and moving in tandem with the 5Y UST yields which were up 3bps
• Junk bond return YTD is 10.55%, close to the 2019 peak of 10.57%
• BB returns hit a new 2019 peak at 11.92% after posting returns of 0.15%
• Single-Bs, second best in high yield, were 10.74%, just 2bps off the YTD peak of 10.76%, after gaining 0.15% yesterday
• CCC YTD returns were 5.47% after 0.17% returns yesterday
• Summer lull descended on the primary
• August priced $9.65b over 11 deals, the slowest month of this year
• Supply is expected to resume after Labor Day

(Bloomberg) CyrusOne Explores a Sale After Bidder Approach

• CyrusOne Inc. is considering a potential sale after receiving takeover interest, according to people familiar with the matter, as digital infrastructure companies such as data center operators increasingly garner buyout interest from rivals and private buyers.
• The Dallas-based company is working with an adviser to evaluate strategic options after a recent approach from at least one potential suitor, said the people, who asked to not be identified because the matter isn’t public.
• A bidder group including KKR & Co., Stonepeak Infrastructure Partners and I Squared Capital is in the preliminary stages of weighing a bid for the company, said one of the people. Other potential bidders are interested too, the people said. No decision has been made and CyrusOne could opt to remain independent, they said.
• CyrusOne rose as high as 16.6% on the news, its biggest gain since going public in 2013. The shares were up 11.7% to $72.79 at 11:36 a.m. in New York on Friday, giving the company a market value of about $8.2 billion.
• A representative for KKR declined to comment. Representatives for Stonepeak, I Squared and CyrusOne didn’t respond to requests for comment.
• Founded in 2001, CyrusOne has a network of 48 data centers serving about 1,000 customers in the U.S., U.K., Singapore and Germany, according to its annual report. It is one of at least five real estate investment trusts that specialize in data centers, which help companies safely store data. Others include Equinix Inc. and Digital Realty Trust Inc.

(Bloomberg) Junk-Debt Market’s Flight to Quality Is About to Heat Up Again

• Companies selling debt in the U.S. leveraged loan and junk bond markets after Labor Day may find investors have a stronger appetite for quality than risk.
• The deal pipeline for both types of debt indicates higher rated, well-known companies plan to seek financing in the coming months. They are likely to be well-received by investors worried about a recession yet still looking for yield.
• “Investors are likely to remain highly selective but will be buyers in size for the structures that compare favorably to paper available in the secondary market,” said Jeff Cohen, Credit Suisse’s global head of leveraged finance capital markets.
• Amid negative sentiment due to the trade war and a possible global recession, riskier loan sales have struggled in the $1.2 trillion market. The loan market has seen five borrowings scrapped in recent weeks: Vewd Software USA LLC, Golden Hippo, Glass Mountain Pipeline Holdings LLC, Life Time Inc. and Chief Power Finance LLC.
• High-yield bore the brunt of this month’s sell-off, but has since clawed backsome of those losses.
• The high-yield market hasn’t seen a deal price since Aug. 12, yet about $20 billion of issuance may come in September, Bank of America Corp.’s Oleg Melentyev said. That compares to $23 billion in September 2018, and $40 billion in both 2016 and 2017. The market is about $1.24 trillion in size.

(Bloomberg) Cracks Forming in Leveraged Loan Market as Another Deal Pulled 

• The froth may not be off leveraged loans just yet, but with five deals falling through in the past few weeks, the market is definitely a little less giddy.
• This time it’s Vewd Software. The streaming-service provider joins marketing firm Golden Hippo, Glass Mountain Pipeline Holdings LLC, Chief Power Finance LLC and fitness-center builder Life Time Inc. in dipping its toe in the water and finding borrowing conditions too cold.
• The leveraged loan market has been a favorite of private equity firms, funding payouts to partners and buyouts of targeted companies at record-low borrowing costs for a decade, doubling in size to about $1.2 trillion. Now it’s experiencing a rare moment of sobriety. Investors who smell a recession are shying away from companies that just a few months ago might have been an easier sell.
• It’s not just failed offerings that are flashing yellow caution lights. Some borrowers have come to market and had to pay more than they originally planned. The possibility of continued rate cuts by the Federal Reserve has made floating-rate deals less attractive, and companies vulnerable to trade wars have had to promise higher yields.
• The market has seen “widely divergent pricing outcomes,” said Jeff Cohen, global head of leveraged finance capital markets at Credit Suisse Group AG.
• DNA-testing firm Ancestry.com Inc., for example, increased the pricing of a loan financing a dividend to its private equity owners and reduced the size of the payout by $200 million.

CAM High Yield Market Note

8/16/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.6 billion and year to date flows stand at $12.5 billion. New issuance for the week was $5.4 billion and year to date HY is at $165.0 billion, which is +26% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bonds are set to open higher at the end of a volatile week as stock futures climb alongside modest gains Europe and Asia. Providing support are higher oil prices and Lipper reporting a net fund flow into U.S. high yield funds following a large decline in the prior week.
• Yields and spreads were slightly higher, particularly for Triple-Cs, where spreads widened 11bps to 949bps and yields closed at a fresh 7-month high of and 11.16%
• Investors have moved up in quality as reflected in performance of BBs, with YTD returns at 10.9% and investment grade at 13.3%
• Investors yanked more cash from high-yield ETFs
• HYG reported an outflow of $514m in the latest session, the biggest outflow since Aug. 5
• Junk bond returns were negative for a second session, down 0.01%, weighed by CCCs and energy index
• Bloomberg Barclays High Yield Index was negative in three of the last four sessions taking YTD returns down to 9.477%
• Energy index YTD returns fell to 1.473% from 6.1% at end of July, a loss of more than 4.5% in August, taking CCCs down too
• CCC YTD return is 4.016% after a loss of 0.05% yesterday, the most in the high yield index
• CCCs MTD loss is 3.5%
• BBs YTD gain is 10.94%, best in high yield, after posting a gain of 0.004%, the only positive yesterday
• Single-Bs lost 0.02% taking the YTD returns to 9.62%

(Business Wire) Aramark Reports Third Quarter Results

• Consolidated Revenue was $4.0 billion in the quarter, an increase of 1.0%. Adjusted Revenue grew 5.8% over the prior-year, attributed to a 3.7% growth in the legacy business and a 2.1% increase related to an accounting rule change.
• Operating Income was $189 million, up 1% compared to the prior-year period. Adjusted Operating Income increased 4% on a constant currency basis, driven by operational improvements and acquisition synergies, offset by higher total incentive-based compensation and the deliberate exit of non-core custodial accounts in Europe.
• The Company made continued progress in de-leveraging by reducing its net debt position by $672 million compared to the prior year. Total trailing 12-month net debt to covenant adjusted EBITDA was 4.1x at the end of the quarter, a 0.5x improvement versus the end of the third quarter of 2018. Through nine months, Free Cash Flow improved $158 million compared to prior year. This increase can be attributed to a disciplined management of working capital and investment spend. At quarter-end the Company had approximately $1.1 billion in cash and availability on its revolving credit facility.

• The Company maintains the following performance outlook for Fiscal 2019:
• Legacy business revenue growth expectations of approximately 3%.
• Adjusted EPS of $2.20 to $2.30 per share. This includes four cents of unfavorable currency impact.
• Free cash flow of $500 million. This includes approximately $50 million in cash outlay related to the divestiture of the Healthcare Technologies business and approximately $50 millionin spending on the integrations of Avendra and AmeriPride.
• Net debt to covenant adjusted EBITDA of 3.8x by the end of the fiscal year. 

• (Business Wire) AMC Entertainment Announces Second Quarter 2019 Results

• “AMC delivered strong results for the second quarter of 2019, achieving 4.4% year-over-year total revenue growth to $1.506 billion, driven by record attendance in both our U.S. and international markets. Importantly, total Adjusted EBITDA grew 7.3% year-over-year after adjusting 2018 for the non-cash accounting impact of ASC 842,” said Adam Aron, CEO and President of AMC.
• Aron continued, “In a quarter that generated the second largest domestic industry box office for any quarter in the past 100 years, we are especially gratified that AMC outperformed the rest of the U.S. industry (meaning comparing AMC with the rest of the U.S. industry, excluding AMC) in attendance per screen by 800 basis points and in admissions revenue per screen by 400 basis points. Additionally, AMC generated record U.S. food and beverage per patron of $5.58 and total food and beverage per patron of $5.08, representing year-over-year growth of 5.5% and 3.9%, respectively.
• (CAM Note) Additional AMC Highlights

• In the 3rd quarter two blockbusters currently playing are Spiderman and Lion King.  July is 6.7% ahead of July 2018. Lion King is already the 12th top grossing movie of all time.
• AMC 2 qtr 2019 attendance +3.9% to 92 million tickets sold.
• Deleveraging is the #1 priority now. Following aggressive cap-x program to modernize theatres and install reclining seats, upgraded food and beverage concession areas, install premium large format screens (over $2 Billion since 2014) cap-x will now decrease. 2018 was $460MM. 2019 guidance is $415MM. 2020 guidance is $300MM. 2021-2023 guidance is between $250MM-$300MM.
• This frees up cash flow for debt reduction.
• No maturities for the next 5 years

(CAM Note) Cheniere Reported Second Quarter Financial Results

• European gas electric generation nearly doubled in 2qtr 2019 versus 2qtr 2018.  More natural gas capacity coming on line.
• A senior secured deal private placement with Allianz Insurance is expected to have IG ratings to replace some of their bank debt.
• Signed a marketing tolling agreement with Apache to sell their natural gas (LNG).  They are working with other large producers to sign similar agreements as well to sell their gas “off shore” in the LNG market given low Henry Hub prices.
• In 2Q2019 104 cargoes exported totaling 361 Tbtus versus 310 Tbtu in 1Q2019.
• Corpus train 1 made its first shipments. Train 2 is under test. Completion expected by September, at which time shipments will commence. Train 3 in permitting; expect full permitting to be completed by December.
• $2.9 – $3.2 billion in ebitda 2019 full year guidance. Stated they’re committed to paying down debt to garner IG bond ratings.

CAM High Yield Market Note

8/9/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$3.6 billion and year to date flows stand at $11.9 billion. New issuance for the week was $4.4 billion and year to date HY is at $159.5 billion, which is +33% over the same period last year.

(Bloomberg) High Yield Market Highlights

• It’s a risk-off day for U.S. junk bonds as stock futures tumble on renewed trade worries. Recent market turmoil has rattled junk bond investors as they withdrew $3.6b from U.S. high yield funds, the biggest outflow since February of last year.
• Market volatility has started taking casualties as two issuers – – U.S. Farathane LLC and Sirius Minerals Plc — pulled high- yield offerings this week
• High-yield returns will come under pressure again today after rebounding Thursday on the heels of an equity rally to jump the most in seven weeks
• YTD returns stand at 9.865%, after a gain of 0.45% yesterday. This year’s peak was 10.6% in July
• BBs YTD returns stand at 11.01%
• Single-Bs YTD returns stand at 9.95%
• CCCs returns stand at 5.63%
• Yields dropped and spreads tightened across ratings
• Bloomberg Barclays index yield dropped 22bps to close at 6.05% and spreads narrowed 24bps to 416bps over U.S. Treasuries
• Yields on CCC rated debt, which has borne the brunt of the volatility, dropped 22bps to 10.62%. Spreads of 881bps over U.S. Treasuries are at their tightest in seven weeks

(Company Report) Arconic Reports Second Quarter 2019 Results

Highlights include:

• Revenue of $3.7 billion, up 3% year over year; organic revenue up 10% year over year
• Net loss of $121 million, or $0.27 per share, mainly driven by non-cash asset impairments of $357 million, versus net income of $120 million, or $0.24 per share, in the second quarter 2018
• Net income excluding special items of $269 million, or $0.58 per share, versus $185 million, or $0.37 per share, in the second quarter 2018
• Operating loss of $81 million, versus operating income of $324 million in the second quarter 2018
• Operating income excluding special items of $484 million, up 27% year over year
• Operating income margin excluding special items up 240 basis points year over year
• Cash balance of $1.4 billion, improved $38 million sequentiallyUpdated 2019 guidance:

• Revenue unchanged at $14.3-$14.6 billion
• Increased the midpoint of Earnings Per Share Excluding Special Items by 10%; increased the range from $1.75-$1.90 to $1.95-$2.05
• Increased Adjusted Free Cash Flow to $700-$800 million
• Added guidance for EBITDA Excluding Special Items at $2.25-$2.35 billion

Arconic Chairman and Chief Executive Officer John Plant said, “In the second quarter 2019, the Arconic team delivered improved quarterly revenue, adjusted operating income, adjusted operating income margin, and adjusted earnings per share on both a year-over-year and sequential basis. Based on our first half performance and our outlook for the remainder of 2019, we are increasing our full-year adjusted earnings per share and adjusted free cash flow guidance for the second time in 2019.”

(Company Report) TENNECO REPORTS SECOND QUARTER 2019 RESULTS

• Tenneco reported second quarter 2019 revenue of $4.5 billion, a 78% increase versus $2.5 billion a year ago, which includes $1.9 billion from acquisitions.  On a constant currency pro forma basis, total revenue increased 1% versus last year, while light vehicle industry production declined 8% in the quarter. Value-add revenue for the second quarter was $3.7 billion.
• Second quarter 2019 adjusted net income was $97 million, or $1.20 per diluted share, compared with $96 million, or $1.84 per diluted share last year. Diluted shares outstanding in the second quarter increased 57% to 80.9 million shares, from 51.6 million shares in the second quarter 2018, primarily due to the acquisition of Federal-Mogul.
• Second quarter adjusted EBITDA was $414 million versus $233 million last year.  Adjusted EBITDA as a percent of value-add revenue was 11.1%.  Second quarter performance improved 240 basis points sequentially, compared to first quarter 2019, driven by the ramp up of synergy benefits and cost control initiatives.  Cash generated from operations was $50 million.
• “Tenneco’s revenue growth outpaced industry production by nine percentage points, driven by higher light vehicle, commercial truck and off-highway revenues,” said Brian Kesseler, co-CEO, Tenneco. “We delivered sequential earnings improvement on flat revenue quarter to quarter, with disciplined cost management and effective synergy capture actions.”
• “In the third quarter, we expect our revenues to outgrow the markets we serve,” said Roger Wood, co-CEO Tenneco.  “More importantly, we anticipate higher margins on a year-over-year basis in both divisions supported by operational performance improvements, synergy realization and our continued focus on eliminating waste and cost throughout the business.”
• The company confirmed its targeted timing for the separation of the business into two standalone companies, and expects the DRiV™ spinoff to occur mid-2020. Management remains focused and committed to the separation of the businesses.

(PR Newswire) TRANSDIGM GROUP REPORTS FISCAL 2019 THIRD QUARTER RESULTS 

• Net sales of $1,658.3 million, up 69.1% from $980.7 million. Organic sales growth was 11.8%.
• Net income from continuing operations of $144.5 million, down 33.5% from $217.4 million
• Earnings per share from continuing operations of $2.57, down 34.3% from $3.91
• EBITDA As Defined of $691.0 million, up 41.8% from $487.1 million. EBITDA for the quarter was reduced by $16 million for the payment of a voluntary refund to several U.S. Department of Defense agencies.
• Adjusted earnings per share of $4.95, up 23.4% from $4.01
• Esterline net sales contribution of $545.3 million, EBITDA as Defined contribution of $134.4 million and implied EBITDA as Defined margin of 24.6%
• Upward revision to fiscal 2019 financial guidance. Increased EBITDA As Defined mid-point $90 million to $2,435 million. Increased adjusted earnings per share mid-point $1.28 per share to $18.09.

(Globe Newswire) CoreCivic Reports Second Quarter 2019 Financial Results

Highlights of Second Quarter 2019 vs. Second Quarter 2018:

• Total revenue of $490.3 million, an increase of 9%
• CoreCivic Safety revenue of $440.4 million, an increase of 7%
• CoreCivic Community revenue of $30.7 million, an increase of 24%
• CoreCivic Properties revenue of $19.1 million, an increase of 60%
• Normalized FFO per diluted share of $0.69, an increase of 21%
• Adjusted EBITDA of $115.3 million, an increase of 18%
• Damon T. Hininger, CoreCivic’s President and Chief Executive Officer, said, “During the second quarter we continued to see strong fundamental growth across each of our business segments, and we anticipate these growth trends will continue, as demonstrated by our updated financial guidance and further supported by our recently announced new contract awards.”

Based on current business conditions, the Company is providing the following financial guidance for the third quarter 2019 and the following updated guidance for the full year 2019:

• We have $325.0 million of senior unsecured notes maturing in April 2020. We currently have capacity under our revolving credit facility to repay these notes prior to their maturity, and expect to continue to have such capacity through maturity. We will also monitor the capital markets and may issue debt securities or obtain other forms of capital if, and when we determine that market conditions are favorable, utilizing the net proceeds to refinance such notes.

CAM High Yield Market Note

7/26/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.3 billion and year to date flows stand at $16.3 billion. New issuance for the week was $12.7 billion and year to date HY is at $150.5 billion, which is +34% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bonds are poised for their sixth straight day of gains following a $1.3 billion inflow into high-yield retail funds, rising oil prices and higher stock futures.
• The high-yield bond index hit a new peak yesterday
• The average yield-to-worst is 5.84%, while spreads tightened 5 basis points to 367bps over U.S. Treasuries, according to Bloomberg Barclays data. Spreads are 17bps tighter on the week
• Returns also hit a new peak for the year at 10.42%
• Cash is still pouring into the asset class as investors chase yield
• Lipper reported an inflow of $1.3b for the week ended July 24. That marks seven consecutive weeks of inflows — the first time this has happened since 2013
• New issue July volume is set to top $20b by the end of the day with as many as three issuers set to price deals Friday
• Returns by ratings category:
• BBs returns hit a new 2019 high of 11.067%
• Single-Bs were at 10.578%, also a new high
• CCCs were at 7.611%
• Loan returns were at 6.368% YTD

(PR Newswire) Encompass Health announces plans to build new inpatient rehabilitation hospital in Tampa Bay

• The hospital will be located at the corner of Dale Mabry Highway and Van Dyke Road in Tampa Bay and is expected to open in the second quarter of 2021. It will provide comprehensive rehabilitative services to patients overcoming a variety of debilitating illnesses and injuries such as stroke and other neurological disorders, brain injuries, spinal cord injuries, amputations and complex orthopedic conditions. Patients will receive at least three hours of intensive therapy for five days each week, frequent face-to-face visits with a physician and 24-hour nursing care during their stays.
• “This new hospital will help meet the growing demand for a hospital level of intensive physical rehabilitation in Tampa Bay,” said Linda Wilder, president of Encompass Health’s southeast region. “The new rehabilitation hospital will become part of Encompass Health’s integrated delivery network of 12 hospitals and 17 home health locations throughout Florida, which are focused on not only returning complex patients to their home but helping them remain home through coordinated and connected care.”
• Included in the hospital will be a spacious therapy gym, advanced rehabilitation technologies, an activities of daily living suite, cafeteria and dining room, in-house dialysis, pharmacy and courtyard. The project will bring approximately 100 full-time jobs to the community.  

• (Reuters) Pulte full-year forecast disappoints, higher costs persist

• PulteGroup forecast full-year home sales and gross margins below analyst expectations, as it grapples with rising land costs.
• Homebuilders in the United States have struggled with a lower supply of homes, especially at the lower-price end of the housing market because of land and labor shortages, as well as expensive building materials and sluggish wage growth that has crimped demand.
• U.S home sales fell more than expected in June as a persistent shortage of properties pushed prices to a record high, suggesting the housing market was struggling to regain speed since hitting a soft patch last year.
• Chief Executive Officer Ryan Marshall, however, said he expected demand to pick up in the second half of the year, helped by lower mortgage rates.
• Pulte’s forecast overshadowed better-than-expected quarterly profit.
• Pulte expects to sell 22,300 to 22,800 homes this year, compared with estimates of 22,764 units, according to Refinitiv data.
• The company expects an average sales price of between $425,000 to $430,000 for the remainder of the year, and forecast gross margins to be between 23% and 23.3% for 2019, compared to a consensus of 23.9%.

(Indianapolis Business Journal) Steel Dynamics planning to build $1.9B plant, hire 600

• • An Indiana company is planning to build a $1.9 billion flat-roll steel mill in south Texas and create about 600 jobs.
  • Steel Dynamics Inc. said the electric arc-furnace unit will be in Sinton, about 25 miles northwest of Corpus Christi.
  • The Fort Wayne-based company said in a statement this week that the site is strategically located for the southwestern U.S. and Mexico markets. President and CEO Mark Millett said Steel Dynamics has been developing a flat-roll steel business strategy for those areas for several years.
  • Company officials say the mill will be able to produce up to 52 half-ton coils for the energy, automotive, construction and appliance industries. The site has transport access to railroads, highways and the Port of Corpus Christi.
  • Construction should begin next year.

CAM High Yield Market Note

7/19/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.2 billion and year to date flows stand at $15.0 billion. New issuance for the week was $3.7 billion and year to date HY is at $137.8 billion, which is +24% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. junk bond spreads should see some relief Friday as oil prices bounce back following a recent losing streak and stocks futures rise on expectations of a Fed rate cut later this month.
• The high-yield primary market could see as many as three deals price today, putting it on track for the busiest July in five years if volumes for the month top $15b
• Investor demand for high-yield remains strong despite recent spread widening. Cash continues to pour into funds, and new deals have been inundated with orders
• U.S. high yield funds have seen six straight weeks of inflows
• Sinclair Broadcast Group saw around $19b in investor demand for its $4.9b acquisition deal, including $11b for the secured tranche and $8b for the unsecured tranche
• Trivium Packaging is expected to price a cross- border new issue today. The U.S. dollar tranches have been upsized after orders topped more than $5b
• Junk bond YTD returns are still high, but did fall below 10% for the first time in three weeks on Thursday
• BBs YTD returns stand at 10.626%
• Single-B YTD returns are 10.131%
• CCCs YTD returns are 7.269%
• Loan returns are at 6.257% YTD

(Bloomberg) Sinclair Has $19b of Investor Orders for Sports M&A Junk Bond

• Sinclair Broadcast Group’s high-yield bond offering to finance its acquisition of 21 regional sports networks was inundated with investor demand as order books reached $19b, according to people familiar with the matter who are not authorized to speak publicly and asked not to be identified.
• The $2.55b 7 year senior secured tranche received orders of about $11b, while the $2.325b 8 year unsecured tranche received about $8b, the people said
• The bond — the biggest dollar high-yield offering since Altice France priced a $5.19b deal in 2016 — is expected to price Friday
• Initial whisper talk for the secured tranche is 6%-6.25%, and the unsecured 7.25%-7.5%
• Commitments on $4b term loans that will also finance the acquisition were due July 18
• The $9.6b acquisition announced in May will be financed with $1b of preferred equity and around $1.4b of cash from Sinclair, according to bond documents seen by Bloomberg
• The sale of the sports networks to Sinclair by Walt Disney allowed the company to get the antitrust approval needed for its $71b takeover of Fox 

• (Netflix) Netflix’s Next Big Market Is Crowded With Cheaper Rivals

• Netflix Inc., reported the worst drop in U.S. users since 2011, is looking for new subscriber growth in India, a rapidly expanding streaming market. Trouble is, so are a raft of ambitious local players with cut-rate programming packages.
• Already wrestling with other global giants such as Walt Disney Co. and Amazon.com Inc., Netflix now also contends with broadcasters and Bollywood powerhouses allied with billionaire-backed wireless carriers, who are luring users with free offers
  or as low as 40 cents a month. That tactic has put them directly in the India growth path of the world’s largest paid online streaming service.
• The intense competition could derail Chief Executive Officer Reed Hastings’s goal of 100 million customers in India – almost 25 times Netflix’s estimated subscriber base there this year. The world’s second-most populous country is a priority for the streaming service, which is effectively blocked in China.
• The second-quarter loss of 130,000 users in the U.S., reported Wednesday, makes winning in India all the more pressing.

(Company Report) United Rentals Announces Second Quarter 2019 Results

• • Total revenue increased 21.1% to $2.290 billion and rental revenue increased 20.2% to $1.960 billion. On a GAAP basis, the company reported second quarter net income of $270 million, compared with $270 million, for the same period in 2018. Second quarter 2019 included a pretax debt redemption loss of $32 million
  • Adjusted EBITDA increased 18.3% year-over-year to $1.073 billion, while adjusted EBITDA margin decreased 110 basis points to 46.9%. On a pro forma basis, year-over-year, net income increased 7.1%, adjusted EBITDA increased 6.6% and adjusted EBITDA margin increased 40 basis points.
  • Matthew Flannery, chief executive officer of United Rentals, said, “We were pleased with our solid growth in revenue for both our general rental and specialty segments and our adjusted EBITDA for the second quarter. Importantly, the market outlook for the second half of 2019 remains positive based on feedback from our customers and the field. The multiple integrations we have underway will continue to gain traction in the back part of the year.”
  • Flannery continued, “Our updates to guidance reflect a slightly slower than expected pace for the BlueLine integration, as well as historically bad weather in several key regions this past quarter. As a result, we’ve trimmed the upper ends on total revenue and adjusted EBITDA by approximately 1%, and capex by $150 million, while raising our free cash flow expectation. We remain confident in the health of the cycle and are well positioned to serve our customers with the strongest service offering in our history.”