Category: High Yield Weekly

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.”

CAM High Yield Market Note

7/12/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.7 billion and year to date flows stand at $13.9 billion. New issuance for the week was $0.8 billion and year to date HY is at $134.1 billion, which is +24% over the same period last year.

(Bloomberg) High Yield Market Highlights

• U.S. high-yield bonds are set to open with support from climbing stock futures and optimism that central banks will keep interest rates in check. That may allow the market to end the week on a high note after yields widened in all but one of the past four days.
• The Bloomberg Barclays U.S. Corporate High Yield index returned -0.07% this week through Thursday.
• Retail funds had a fifth consecutive week of inflows
• Month- to-date volume stood at $4.6b and July has traditionally been a light month for issuance averaging about $14b in the last six years
• Yields rose and returns turned negative again across all ratings with Triple-Cs losing the most yesterday
• While the Bloomberg Barclays high yield index dropped 0.05% yesterday, the energy index posted gains of 0.08%
• Junk bond YTD returns stand at 10.149%, the highest across fixed income and the best returns since 2016
• The high yield energy index YTD returns were at 7.359%
• BBs are the strongest performers, with YTD returns at 10.72%, followed by single Bs at 10.29%
• CCCs YTD returns stand at 7.73%
• Loans returns are at 6.016% YTD

(Market Watch) Distress in junk bond prices hit 6-month high in June

• The U.S. junk-bond market may be flashing a new warning that the credit cycle is nearing its end.
• About $52.5 billion of corporate bonds issued by U.S. companies with “junk” credit ratings were trading in June at prices below 70 cents on the dollar, the highest amount in six months, according to a J.P. Morgan note.
• Bonds that trade below par, or face value, can signal concerns about the ability of a borrower, or area of industry, to service its debts. Riskier companies that don’t qualify for top investment-grade ratings are already categorized as high-yield, or junk credits.
• While distressed bonds in June were just 4.3% of the over $1.2 trillion U.S. junk-bond market, the last time the volume was higher was December.
• Back then, U.S. debt and equity markets were reeling from a sharp selloff, which was sparked by fears that the Federal Reserve would keep raising rates, even through the U.S. economy was showing signs of slowing.
• Almost half of the sub-$70 high-yield bonds in June were from the energy sector, while telecommunications added another 21% and health care contributed about 12%, according to J.P. Morgan data.
• There have been growing concerns about slowing manufacturing in the U.S. and around the potential for sweeping health care reforms if a Democratic candidate ends up seizing the White House from Donald Trump.  

• (Globe Newswire) Teleflex Announces Publication of a Large Real-World Study

• Teleflex Incorporated announced the publication of positive results from a multi-center study reaffirming the safety and effectiveness of the minimally invasive UroLift® System for the treatment of benign prostatic hyperplasia (BPH) in real-world patient populations. This is the largest, most comprehensive study to examine a minimally invasive BPH procedure in a real-world setting. Results were published in the Journal of Endourology.
• The Real-World Retrospective study was designed to evaluate the safety and effectiveness of the UroLift System in a real-world setting and to determine whether clinical outcomes are consistent with those found in controlled studies. The multi-center, retrospective study examined the results of 1,413 consecutive patients who received the UroLift System treatment over two years across 14 sites in North America and Australia.
• “Not only are the real-world results from this large, multi-center study consistent with the L.I.F.T study, this study also provides data in populations of patients who were not studied in the L.I.F.T study but are seen in a real-world clinic setting,” said Gregg Eure, M.D., urologist at Urology of Virginia in Virginia Beach, Virginia, a lead investigator and co-author of the study. “These findings should give urologists and patients the confidence to adopt the UroLift System within the broader BPH population.”
• The randomized L.I.F.T. clinical trial demonstrated that treatment with the UroLift System provides patients rapid and durable symptom relief. The minimally invasive procedure, which works without cutting, heating, or removing prostate tissue, demonstrates an excellent safety profile. Unlike BPH thermal therapies such as the most recent steam treatment, the real-world results for the UroLift System treatment showed complication rates and a patient experience that were consistent with controlled clinical trials.  

• (Reuters) U.S. House seeks documents from companies that run immigrant detention centers

• • Lawmakers in the U.S. House of Representatives said they have sent letters seeking documents and information from three companies responsible for detaining illegal immigrants arrested by U.S. immigration agents.
  • The House Oversight Committee and its House Subcommittee on Civil Rights and Civil Liberties sent letters to CoreCivic Inc, Geo Group Inc, and DC Capital Partners LLC seeking information about the facilities they operate under contract from the U.S. government.
  • “The committee is investigating the Trump administration’s rapidly increasing use of for-profit contractors to detain tens of thousands of immigrants, including a troubling series of reports of health and safety,” Representatives Elijah Cummings and Jamie Raskin wrote in the letters.
  • The two Democrats said the Trump administration had “dramatically escalated” spending on contracts with for-profit companies that operate detention centers.
  • In a separate letter to ICE, the two lawmakers asked for copies of the contracts with the three companies and documents detailing how ICE ensures that contractor-operated detention centers comply with standards set by the Department of Homeland Security.

(Reuters) SunTrust to stop financing private U.S. prison operators

• SunTrust Bank will stop financing operators of private prisons and immigration holding facilities, it said on Monday, becoming the latest lender to distance itself from a sector associated with the Trump administration’s policies.
• Banks have been under pressure to cut ties with the private prison industry since U.S. President Donald Trump’s restrictions on immigration raised concerns about detention center conditions. The centers account for about two-thirds of the people held by U.S. Immigration and Customs Enforcement, S&P Global Ratings estimated last year.
• Earlier this year, Wells Fargo, JPMorgan Chase & Co and Bank of America made similar commitments to phase out relationships with private prison companies.
• Executives of big banks have been confronted by activists at annual shareholder meetings and grilled by lawmakers about their role in the industry. Private prison operators have argued that activists mischaracterize the nature of their facilities.
• “It’s unfortunate that misleading political activism has been allowed to impact a decade-long banking relationship,” said Geo Group spokesman Pablo Paez.  

• (CNBC) President Trump gives executive order to transform kidney care

• The executive order lays out ambitious goals for shifting 80% of patients currently on kidney dialysis out of high-cost clinic settings to more convenient and cost-effective home care by the end of the next decade.
• Yet the details of the proposal for achieving that goal appear to be far less threatening to the major dialysis providers than initially feared by many investors.
• The executive order proposes a 3% increase in home care dialysis reimbursement in the first year of a voluntary Medicare demonstration program, starting in 2020, but that extra boost would phase out over the three-year course of the initiative.
• Combined, Davita and Fresenius control more than 80% of the kidney dialysis market with the largest share of their revenues and profits coming from their dialysis clinics.

CAM High Yield Market Note

7/5/2019

(Bloomberg) High Yield Market Highlights

• Retail funds estimated to have received $885m through Tuesday, JPMorgan strategists wrote, citing Lipper data. High-yield bond ETFs recorded inflows of ~$1b in the last four sessions, data compiled by Bloomberg show.
• Issuance slowed ahead of the Fourth of July holiday and is expected to resume next week
• Returns rebounded in a holiday-shortened session Wednesday across ratings, with BBs leading the rally.
• Spreads tightened and yields dropped in thin trading
• U.S. high yield trading on July 3 was the slowest day in 2019 and volumes dropped the most in almost three months
• YTD returns climbed back again to close at 10.257% from 10.146%
• BBs are still the best performers, with a YTD return of 10.832%, followed by single Bs at 10.42%
• Triple-C YTD returns stand at 7.68%
• Loans lag bonds with YTD returns of 5.83%  

• (Wall Street Journal) Oil-Field Services Firm Seeks Chapter 11

• Weatherford International said it would file for bankruptcy protection after bondholders approved a restructuring agreement that will reduce its total debt by about 70%.
• The company said it expected to file its chapter 11 petition in U.S. Bankruptcy Court in Houston in what would be one of the biggest oil patch bankruptcies in years.
• Unsecured bondholders are in line to get all but 1% of the equity in the reorganized business, while shares in the existing company will be canceled.
• Weatherford, which has about 26,000 employees world-wide, had said in May that it planned to file for bankruptcy after having reached an agreement with creditors holding 62% of its bond debt. The balance-sheet restructuring will reduce its total debt to about $2.5 billion from $8.3 billion, nearly all of which is made up of unsecured bonds. Under the proposed plan, which requires court approval, the bondholders are expected to recover about 63% of what they are owed based on the proposed valuation of the company. Weatherford blamed its bankruptcy filing, in part, on volatility in oil and natural gas prices.
• As oil-and-gas companies’ spending on exploration, development and production of oil and natural gas has decreased, so has demand for Weatherford’s services and products, the company said in a filing with the Securities and Exchange Commission. Weatherford said its cash flows from operations have been negative the past three fiscal years.

(Wall Street Journal) OPEC Agrees to Extend Output-Cut Pact

• OPEC agreed to roll over its production cuts into the first quarter of 2020, the cartel’s officials said, but the new pact exposed deepening geopolitical fractures among members of the group.
• The discussions over long-term cooperation plans highlighted the risks of the cartel’s alliance with Russia: OPEC needs the partnership to compete with U.S. shale producers, but longstanding members say they feel ostracized by the alliance.
• OPEC reached a consensus on oil output without much drama Monday, but the cartel hit an impasse when it sought agreement on whether it should continue working with Russia and its allies to balance oil markets once the nine-month plan expires.
• Iran initially objected, but after talks lasting five hours and involving a separate meeting between Iranian and Saudi officials both sides reached a compromise on long-term cooperation with Russia, OPEC officials said.
• Over the weekend, Russian President Vladimir Putin revealed that Saudi Arabia — OPEC’s de facto leader — and Russia had already agreed to maintain the output cuts at current volumes, which run at around 1.2 million barrels a day. The news left some in OPEC feeling overshadowed by two of the world’s largest oil producers, OPEC officials said.

(Bloomberg) T-Mobile on Cusp of Justice Department Approval for Sprint

• T-Mobile U.S. Inc. is on the cusp of securing U.S. Justice Department approval for its $26.5 billion merger with Sprint Corp., after establishing the general outlines of asset sales to Dish Network Corp., according to people familiar with the matter.
• The Justice Department is hammering out final issues with T-Mobile on an agreement aimed at ensuring Dish can become a strong fourth competitor in the U.S. wireless market, said the people, who asked to not be identified because the matter isn’t public. While the sticking points aren’t insurmountable, the Justice Department has yet to bless the arrangement to allow Sprint’s acquisition to proceed.
• T-Mobile is trying to offer just enough concessions to gain approval but not so many that it creates a formidable rival while the Justice Department is aiming to maximize competition, the people said.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.7 billion and year to date flows stand at $10.0 billion.  New issuance for the week was $6.5 billion and year to date HY is at $113.2 billion, which is +19% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• Junk bonds look susceptible to weakness in stock futures and oil, following gains in the prior session amid fund inflows.
• Junk yields dropped, spreads tightened across ratings yesterday amid equity and oil strength
• Lipper’s reported inflow into U.S. high yield funds was the biggest in 10 weeks
• Investors demanding appropriate risk premium was evident in pricing of US Renal Care‘s CCC-tranche
• Priced at the wide end of talk to get investors on board and changed issuer-friendly covenants to protect investors
• Junk bond returns YTD stood at 8.89%
• BBs were at YTD peak of 9.229%
• Single-Bs at 8.986%
• CCCs stood at 7.106%
• Energy returns turned negative for the second straight session, with YTD dropping to 6.089%
• Loans were at 5.698%

(Reuters)  Trump blames Iran for tanker attacks, stoking fears of confrontation

• S. President Donald Trump blamed Iran on Friday for attacks on two oil tankers at the entrance to the Gulf despite Tehran’s denials, stoking fears of a confrontation in the vital oil shipping route.
• Iran has dismissed earlier U.S. charges that it was behind Thursday’s attacks that crippled two tankers and has previously threatened to block the Strait of Hormuz, through which a fifth of globally consumed oil passes, if its oil exports were halted.
• Thursday’s blasts followed a similar attacks a month earlier on four tankers, which Washington also blamed on Tehran.

(Bloomberg)  Dish, Charter and Altice Eye T-Mobile and Sprint Assets

• Dish Network Corp., Charter Communications Inc. and Altice USA Inc. are among bidders for assets T-Mobile US Inc. plans to sell to win regulatory approval for its $26.5 billion takeover of Sprint Corp., according to people familiar with the matter.
• The companies are on a shortlist of bidders favored by the Justice Department, said the people, who asked to not be identified because the matter isn’t public. The antitrust division would be comfortable with cable companies buying the assets because they are better positioned to become viable competitors with their own networks, one of the people said.
• T-Mobile and Sprint have agreed to sell prepaid wireless brand Boost to appease the Federal Communications Commission, which also has to approve the deal. To win over the Justice Department, the companies are also discussing offloading another prepaid brand and enough spectrum to help set up a viable fourth competitor if the deal goes through.
• They are working with a shortlist of potential buyers acceptable to the Justice Department with the aim of having the antitrust enforcer sign off on the winner as part of their approval efforts, the people said.

(Business Wire)  The GEO Group Amends Senior Revolving Credit Facility Extending Maturity to May 2024; Size and Pricing Remain Unchanged

• The GEO Group announced the closing of an extension and amendment to its Senior Revolving Credit Facility. The maturity for the amended Revolver has been extended to May 17, 2024. The borrowing capacity under the amended Revolver will remain at $900 million, and its pricing will remain unchanged currently bearing interest at LIBOR plus 2.25%.
• GEO currently has approximately $492 million in outstanding borrowings along with approximately $62 million set aside for letters of credit under the amended Revolver, leaving approximately $346 million in available borrowing capacity.
• George C. Zoley, GEO’s Chairman of the Board, Chief Executive Officer and Founder, said: “The extension and amendment of our senior revolving credit facility, with consistent terms and unchanged pricing, is indicative of our long-standing ability to access cost-effective capital. Our amended revolver will position our company to continue to pursue quality growth opportunities. We remain optimistic about the strong fundamentals and the increasing demand for our high-quality services across GEO’s diversified business segments.”

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.8 billion and year to date flows stand at $8.2 billion.  New issuance for the week was $3.2 billion and year to date HY is at $106.7 billion, which is +16% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• S. junk bonds have positive momentum after three straight days of gains despite the biggest fund outflows since December. Rising oil and equity markets are supportive and all eyes are on this morning’s U.S. employment report for clues on the strength of the economy.
• The primary looks to be wide open after a number of borrowers, including first-time issuer GrubHub, increased the size of offerings this week
• Five of the seven deals priced this week were drive-by deals, signaling that junk investors were scrambling for supply
• Risk assets got a boost yesterday from reports that U.S.- Mexico talks were progressing towards a deal
• This followed Chair Powell reiterating earlier this week that the central bank is standing by to act if the trade war causes disruption
• Junk bond YTD returns are 8.117%, the best asset in fixed income
• BBs were at 8.344%
• Single-B stood at 8.19%
• CCCs were still the worst performers at 6.767% YTD
• Loans were at 5.578%
• Investment grade bonds were at 7.376%

(CAM Note)  Moody’s Downgraded the Debt of Tenneco by One Notch

• The senior unsecured debt is now rated B3.
• Moody’s cited an expected slower pace of deleveraging, weaker financial performance, and a soft auto production environment.

(Business Wire)  The GEO Group Negotiating with State of Victoria to Increase Capacity at the Ravenhall Correctional Centre by 300 Beds

• The GEO Group, Inc. announced that its subsidiary, The GEO Group Australia Pty Ltd (“GEO Australia”) is currently in negotiation discussions with the State of Victoria to increase the capacity at the Ravenhall Correctional Centre by an additional 300 beds increasing the Centre’s capacity to 1,600 beds. The 300-bed capacity increase is expected to generate incremental annualized revenues of $19 million.
• The Ravenhall Correctional Centre was developed by a GEO led consortium. The $700 million project was financed under a Public-Private Partnership structure, which included a capital investment from GEO of approximately $90 million with returns on investment consistent with GEO’s company-owned facilities. GEO Australia operates the Centre, which opened in late 2017, under a 25-year contract with the State of Victoria.
• George C. Zoley, Chairman of the Board and Chief Executive Officer of GEO, said: “We appreciate the trust placed in our company by the State of Victoria, which is a reflection of our partnership with the State since 1999 with the opening of the Fulham Correctional Centre. We are looking forward to working with the Department of Justice and Community Safety to further strengthen our longstanding partnership.”

(Market Watch)  Junk bond canary soothes fears around yield curve recession signal

• The muted selloff in the market for high-yield corporate debt brings some calm to investors rattled by the Treasury market’s potential signal of a recession.
• Analysts skeptical of calls for a trade-induced economic downturn say the resilience of so-called junk bonds shows the U.S. expansion has room to run, and that the growth worries emanating from an inversion of the Treasury yield have gone too far.
• In recent weeks, the Trump administration’s stridency in pursuing more protectionist trade policies, imposing tariffs on China and threatening to slap levies on Mexico, have cast a shadow over the U.S. economy, on course for its longest period of sustained growth in post-World War II history.
• “So far, credit spreads have remained well behaved, which also suggests to us that the probability of an imminent slowdown is not high,” said Sean Darby, chief equity strategist for Jefferies.
• One reason why some market watchers are dismissing the yield curve’s recession warning is because its predictive powers come from its ability to detect when businesses struggle to find credit. But debt-bloated firms have continued to issue bonds this year, suggesting financial conditions still remain supportive of growth.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $0.02 billion and year to date flows stand at $12.5 billion.  New issuance for the week was $7.2 billion and year to date HY is at $102.1 billion, which is +16% over the same period last year.

(Bloomberg)  High Yield Market Highlights 

• Junk bonds will draw support from stabilizing equity and oil markets today, helped by better fund flows, after the heaviest bout of issuance in 14 months. Futures point to a firm open, following a bruising week for risk assets.
• Yesterday’s close was the lowest since March 8
• Futures on the S&P 500, Dow Jones and Nasdaq rose today in the wake of steep declines a day earlier
• Oil’s also opening firmer this morning, after suffering the biggest weekly drop since December
• However, concerns are mounting that the trade dispute could cripple global growth
• S. corporate high-yield funds swung to a small inflow of about $20mm for the week
• High-yield index fell 0.25% yesterday, the biggest loss since May 13
• Spread widened 10bps to 398bps
• Index yield rose to 6.38% from 6.35%
• The junk market is digesting $25b in new bonds, the most monthly supply since March 2018

(The Street)  Sprint-T-Mobile US Merger Gets FCC Approval After 5G Network Development Pledge

• Sprint Corp. and T-Mobile shares surged Monday after U.S. Federal Communications Commission chairman Ajit Pai said he would recommend approval of their  $26 billion merger plans.
• The FCC agreed to the tie-up following pledges from both companies to build 5G networks around the country, while ensuring “robust” infrastructure in rural areas, and to also enhance in-home broadband offerings to its customer base.
• “Two of the FCC’s top priorities are closing the digital divide in rural America and advancing United States leadership in 5G, the next generation of wireless connectivity,” Pai said in a statement. “The commitments made today by T-Mobile and Sprint would substantially advance each of these critical objectives.”
• “I’m also pleased that the companies have committed to a robust buildout of their mid-band spectrum holdings,” he added. “Demonstrating that 5G will indeed benefit rural Americans, T-Mobile and Sprint have promised that their network would cover at least two-thirds of our nation’s rural population with high-speed, mid-band 5G, which could improve the economy and quality of life in many small towns across the country.”

(Globe Newswire)  Toll Brothers Reports FY 2019 2nd Quarter Results

• Toll Brothers, Inc., the nation’s leading builder of luxury homes, announced results for its second quarter ended April 30, 2019.
• Net income and earnings per share were $129.3 million and $0.87 per share diluted, compared to net income of $111.8 million and $0.72 per share diluted in FY 2018’s second quarter.
• Pre-tax income grew 15% to $176.2 million, compared to $152.7 million in FY 2018’s second quarter.
• Home sales revenues were $1.71 billion, up 7%; home building deliveries were 1,911, up 1%.
• Net signed contract value was $2.00 billion, down 16%; contract units were 2,424, down 9%.
• Backlog value at second-quarter end was $5.66 billion, down 11%; units in backlog totaled 6,467, down 8%.
• Home sales gross margin was 19.7%; Adjusted Home Sales Gross Margin, which excludes interest and inventory write-downs (“Adjusted Home Sales Gross Margin”), was 23.5%.
• Douglas C. Yearley, Jr., Toll Brothers’ chairman and chief executive officer, stated: “We are pleased with this quarter’s results, which exceeded our expectations for revenues, margins, and profits.  Revenues, net income and earnings per share rose 7%, 16%, and 21%, respectively, compared to one year ago.
• “We are encouraged by the improvement in demand as the quarter progressed.  FY 2019’s April contracts surpassed FY 2018’s April on both a gross and per-community basis.  Although the Spring selling season bloomed late, it built momentum.  We view this as a positive sign for the overall health of the new home market.
• “We continue to look for opportunities to grow and leverage our industry-leading brand as we expand our geographic footprint, product lines, and price points. Yesterday, we announced our entry into metro Atlanta with the acquisition of Sharp Residential.  Atlanta was the largest U.S. housing market where we did not operate, and Sharp was one of Atlanta’s largest private home builders. This quarter we also opened our first communities in Salt Lake City, Utah and Portland, Oregon, which are markets we have entered organically and where we are already seeing healthy buyer interest.
• “According to recent reports, builder sentiment in May rose to a 7-month high and single-family housing starts in April were up 6.2% versus March.  The industry is being buoyed by low interest rates, a strong employment picture, and a still-limited supply of new homes in many markets.  With a positive macroeconomic backdrop, record low unemployment, continued wage growth, and solid consumer confidence, we are optimistic about the opportunities ahead.”