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 -$7.3 billion. New issuance for the week was $4.3 billion and year to date HY is at $229 billion, which is up 22% over the same period last year.

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

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

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

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

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

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

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

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

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

(Bloomberg) Refinancings Boost Corporate High Yield Primary Markets

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

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

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

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

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

(Business Wire) HCA Previews 2017 Third Quarter Results

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

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

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

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

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

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

(Bloomberg) Callability and Duration Characteristics of HY Market

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

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

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

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $1.1 billion and year to date flows stand at -$6.5 billion. New issuance for the week was $9.9 billion and year to date HY is at $215 billion, which is up 18% over the same period last year.

(Company Report) United Rentals Completes Acquisition of Neff Corporation

• United Rentals, Inc. announced that it has completed its previously announced acquisition of Neff Corporation for a total purchase price of approximately $1.3 billion. The purchase was funded primarily through newly issued unsecured debt.
• The acquisition will augment the company’s earthmoving capabilities and efficiencies of scale in key market areas, particularly fast-growing southern geographies, and is expected to lead to attractive revenue synergies through the cross-selling of United Rentals’ broader fleet, including its specialty offerings. The assets acquired with Neff include approximately $867 million of fleet based on original equipment cost, and 69 branch facilities serving end markets in the infrastructure, non-residential, energy, municipal and residential construction sectors.
• Michael Kneeland, president and chief executive officer of United Rentals, said, “We’re excited to complete the Neff combination and begin leveraging the many areas where we’re stronger together. Today we welcome approximately 1,200 new colleagues who share our focus on safety and customer service.”
• The company plans to update its 2017 financial outlook to reflect the combined operations when it releases financial results for the third quarter.

(Company Reports) US Concrete makes several acquisitions

• U.S. Concrete has acquired the assets of two independently owned and operated ready-mixed concrete operations, Harbor Ready-Mix and A-1 Materials. The acquisitions include two ready-mixed concrete batch plants and 23 mixer trucks. The acquisitions also include the assets of L.C. Frey Co., Inc., a landscape materials business related to A-1’s operations.
• Both ready-mixed concrete operations serve the commercial and residential sectors in the Peninsula and South Bay areas of San Francisco. These favorably located plants give U.S. Concrete increased capacity to serve an expanded customer base in the Northern California market.
• U.S. Concrete also acquired the assets of Action Supply Co, which supplies the Philadelphia metropolitan market with high-quality, high-strength ready-mixed concrete to commercial and infrastructure construction projects. Action’s proximity to U.S. Concrete’s aggregates production facility, Corbett Aggregates Companies, LLC, offers immediate synergies from the vertical integration of fine aggregates.
• For 58 years, Action has been known for its service and innovation in the delivery of concrete. Action is Pennsylvania Department of Transportation approved and has the capabilities to meet stringent specifications. Action’s well-known projects in Philadelphia include Lincoln Financial Field, Citizens Bank Park, FMC Tower and the South Street Bridge replacement.
• Finally, U.S. Concrete has entered into an arrangement agreement with Polaris Materials, pursuant to which U.S. Concrete will acquire all the issued and outstanding common shares of Polaris for C$3.40 per share in cash by way of a statutory plan of arrangement. The price per share implies an aggregate fully diluted equity value for Polaris of approximately C$309 million.
• “We believe that Polaris is an ideal strategic fit and enables a replication in California of our vertically integrated business model that we successfully operate in New York” said U.S. Concrete’s President, CEO and Vice Chairman William J. Sandbrook. “The acquisition of Polaris will provide U.S. Concrete with long-term, high quality aggregate reserves and is expected to deliver meaningful synergies and strengthen the Company’s strategic position in the highly attractive, aggregate supply-constrained Californian markets. Following completion of the acquisition, U.S. Concrete expects to have the capability to self-supply a large majority of its market leading ready-mixed concrete operations’ aggregate requirements in Northern California and to drive increased production volumes at Polaris’ Orca Quarry.”

(Reuters) Seagate to give $1.25 bln of $18 bln deal to buy Toshiba chip unit

• Seagate Technology said it would contribute up to $1.25 billion towards the purchase of Toshiba Corp’s chip unit by a consortium led by Bain Capital LP.
• Toshiba said it had signed an $18 billion deal to sell the unit to the group, overcoming a key – albeit not its last – hurdle as it scrambles for funds to stave off a potential delisting.
• Seagate also said it expects to enter into a long-term supply agreement with the unit, Toshiba Memory Corp.
• Besides Seagate, Bain’s consortium includes Apple Inc , South Korean chipmaker SK Hynix, Dell Inc and Kingston Technology.

(Barrons) CenturyLink-Level 3 Gains DOJ Approval

• The merger of Level 3 Communications and CenturyLink cleared a key hurdle Monday afternoon when the U.S. Department of Justice gave its approval for the deal, subject to some conditions.
• For the deal to close, it still needs court approval of some provisions and it remains subject to approval from the Federal Communications Commission and the California Public Utilities Commission.
• The muted response of the stocks may reflect that investors had already priced in that the deal would close.

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $0.4 billion and year to date flows stand at -$7.6 billion. New issuance for the week was $8.0 billion and year to date HY is at $204 billion.

(Oil and Gas Journal) US rig count drops for sixth time in 8 weeks

• Baker Hughes’ overall tally of active rigs in the US edged down a unit to 935, down 23 units since a peak of the drilling rebound on July 28. The count is still up 531 units from a modern-day bottom in Baker Hughes data during the weeks ended May 20-27, 2016.
• US oil-directed rigs dropped by 5 to 744, down 22 units since Aug. 11 and up 428 units since May 27, 2016. That loss was mostly offset by a 4-unit gain in gas-directed rigs to 190, their second-highest total since 2015. The highest occurred on July 28. One rig considered unclassified remains drilling.
• Two onshore rigs went offline, with rigs engaged in horizontal drilling losing 5 units to 790, down 20 units since July 28 and up 476 since May 27, 2016. Rigs drilling directionally increased 3 units to 77.
• The count of rigs drilling in inland waters dropped by 1 to 3. Two rigs started work offshore Louisiana, bringing the overall US offshore count to 19.
• The offshore gain propelled Louisiana to No. 1 among the major oil- and gas-producing states in increases. Up 3 units this week, Louisiana now has 65 rigs working.

(Bloomberg) Home Prices in 20 U.S. Cities Increase More Than Forecast

• Home prices in 20 U.S. cities climbed more than forecast in July, reflecting solid demand against a backdrop of modest listings of properties, figures from S&P CoreLogic Case-Shiller showed Tuesday.
• Buyers are competing for a limited number of for-sale homes, allowing sellers to boost asking prices. Property values are consistently outpacing wage growth, helping explain why the share of first-time buyers of previously owned homes in August was at a one-year low. At the same time, owners’ equity as a share of total real-estate holdings climbed in the second quarter to the highest level in 11 years.
• Home prices may also get a boost in coming months after hurricanes Harvey and Irma reduced housing supply in parts of Texas and Florida. Affordability may remain challenging, as both sales and construction are interrupted by clean-up efforts. At the same time, a strong labor market and low-borrowing costs continue to encourage hopeful homebuyers.
• While home prices continued to advance strongly along the northwest part of the country, values were also picking up in Denver, Dallas and Las Vegas — underscoring a broadening of appreciation throughout the U.S. Las Vegas, one of the hardest-hit cities during the housing collapse, registered the third-largest year-over-year advance in July.
• “While the gains in home prices in recent months have been in the Pacific Northwest, the leadership continues to shift among regions and cities across the country,” David Blitzer, chairman of the S&P index committee, said in a statement. “Rebuilding following hurricanes across Texas, Florida and other parts of the south will lead to further supply pressures.”

(Modern Healthcare) Senate Republicans pull plug for now on repeal bill

• There will be no Senate vote this week on the Graham-Cassidy bill to repeal and replace the Affordable Care Act, Senate GOP leaders announced Tuesday.
• That reportedly was a joint decision by Senate Majority Leader Mitch McConnell and the bill’s two chief sponsors, South Carolina’s Lindsay Graham and Louisiana’s Bill Cassidy. They pulled the bill because they lacked enough votes to pass it.
• “We haven’t given up on changing the healthcare system, we just can’t do it this week,” McConnell said at a news conference with Graham, Cassidy and two of the bill’s other co-sponsors. Senate Republicans now will take up a tax reform bill, with markups next week, he added.
• “I hope Republican leaders will let us get back to work on lowering premiums and stabilizing the marketplace,” Washington Sen. Patty Murray, the senior Democrat on the Senate health committee, said at a news conference Tuesday. “I’m ready to go.”

(Reuters) Seagate to give up to $1.25 billion of $18 billion deal to buy Toshiba chip unit

• Seagate Technology PLC said on it would contribute up to $1.25 billion towards the purchase of Toshiba Corp’s chip unit by a consortium led by Bain Capital LP.
• Toshiba said earlier in the day it had signed an $18 billion deal to sell the unit to the group, overcoming a key – albeit not its last – hurdle as it scrambles for funds to stave off a potential delisting.
• Seagate also said it expects to enter into a long-term supply agreement with the unit, Toshiba Memory Corp.
• Besides Seagate, Bain’s consortium includes Apple Inc , South Korean chipmaker SK Hynix, Dell Inc and Kingston Technology.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

(PR Newswire) Steel Dynamics Announces Offering of Notes

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

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

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

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

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

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

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

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

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

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

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

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

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

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.8 billion and year to date flows stand at -$9.2 billion. New issuance for the week was $1.0 billion and year to date HY is at $172 billion.

(Business Wire) Zayo Group Holdings, Inc. Reports Financial Results for the Fourth Fiscal Quarter Ended June 30, 2017

• $638.0 million of consolidated revenue, including $509.1 million from the Communications Infrastructure segments and $128.9 million from the Allstream segment
• Bookings of $7.5 million, gross installs of $7.3 million, churn of 1.2% and net installs of $1.4 million, all on a monthly recurring revenue (MRR) and monthly amortized revenue (MAR) basis, excluding the Allstream segment
• Adjusted unlevered free cash flow of $117.2 million
• The Company completed the acquisition of Castle Access, Inc.’s San Diego data centers. The two data centers, located at 12270 World Trade Drive and 9606 Aero Drive, total more than 100,000 square feet of space and 2 megawatts of critical, IT power, with additional power available. The acquisition was funded with cash on hand and was considered a stock purchase for tax purpose.

(NJB Magazine) B&G Foods to Acquire Back to Nature Foods Company

• B&G Foods, Inc. announced that it has entered into a definitive agreement to acquire Back to Nature Foods Company, LLC, from Brynwood Partners VI L.P., Mondelēz International and certain other entities and individuals for approximately $162.5 million in cash, subject to customary closing and post-closing working capital adjustments. B&G Foods expects the acquisition to close during the third quarter of 2017, subject to customary closing conditions, including the receipt of regulatory approvals.
• “We are very pleased to add Back to Nature® to the B&G Foods family of brands. Consistent with our acquisition strategy and our recent Green Giant®, spices & seasonings and Victoria® acquisitions, we are continuing to diversify our portfolio of brands and invest in brands and products that we believe are most relevant to today’s consumer,” stated Robert C. Cantwell, President and Chief Executive Officer of B&G Foods.
• B&G Foods expects the acquisition to be immediately accretive to its earnings per share and free cash flow and projects that following the completion of a six-month integration period, the acquired business will generate on an annualized basis net sales of approximately $80 million and adjusted EBITDA of approximately $17 million. Based upon the foregoing adjusted EBITDA guidance, the acquisition represents a purchase price multiple of approximately 9.6 times adjusted EBITDA (or 8.4 times adjusted EBITDA net of the present value of expected tax benefits).

(Reuters) United Rentals to buy equipment rental chain Neff for about $1.3 billion

• United Rentals Inc, the world’s largest construction equipment rental company, will buy Neff Corp for about $1.3 billion, the companies said, topping H&E Equipment Services Inc’s about $1.2 billion offer last month.
• “United Rentals is an industry leader in equipment rentals, and as a result of this transaction, our employees and customers will benefit from the combined company’s expanded geographic footprint and diversified offering,” Neff’s Chief Executive Graham Hood said.
• Neff is expected to generate $419 million of total revenue for the full year, the companies said.

(Reuters) Western Digital group to offer $17.4 billion for Toshiba chip unit

• A consortium that includes Western Digital is offering 1.9 trillion yen ($17.4 billion) for Toshiba Corp’s memory chip business, which the Japanese conglomerate is trying to sell to cover losses from its U.S. nuclear business, sources said on Thursday.
• Western Digital is set to offer 150 billion yen through convertible bonds and will not seek voting rights in the business, the sources who were familiar with the deal said.
• The consortium also includes U.S. private equity firm KKR & Co as well as the state-backed Innovation Network Corp of Japan and Development Bank of Japan, all of which will offer 300 billion yen each for the chip business, the sources said.
• Under the proposal, Toshiba’s lenders including Sumitomo Mitsui Banking Corp and Mizuho Bank would also extend around 700 billion yen in loans, they said.
• Other Japanese companies will also invest around 50 billion yen to ensure domestic firms hold a combined 60 percent stake, the sources said, adding that Toshiba itself would keep a 100 billion yen stake in the business.
• Sources have said that Toshiba wants to reach a deal by the end of the month and close the sale by the end of the fiscal year in March to ensure it does not report negative net worth, or liabilities exceeding assets, for a second year running. This could result in a delisting from the Tokyo Stock Exchange.
• Given regulatory approvals could take more than six months, the company has been hoping to reach a deal by the end of the month to ensure it can close the sale in time.

Fund Flows & Issuance: According to a JP Morgan report, flows week to date were -$2.1 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 $171 billion.

(Food Business News) B&G Foods names head of corporate strategy

• Bruce C. Wacha has been appointed to the newly created position of executive vice-president of corporate strategy and business development for B&G Foods, Inc., effective Aug. 21. In this role, Mr. Wacha will oversee the company’s corporate strategy and business development, including mergers and acquisitions, capital markets transactions and investor relations. Additionally, he will serve on B&G Foods’ executive management team.
• “We are very pleased to have Bruce Wacha join our team,” said Robert C. Cantwell, chief executive officer of B&G Foods. “M.&A. and capital markets transactions are vital to our growth strategy, and Bruce is an experienced and talented executive who will be a valuable addition as we continue to execute that strategy.”
• Mr. Wacha joins B&G Foods from Amira Nature Foods Ltd., where he spent three years as the chief financial officer and executive director on the board of directors. Previously, he spent more than 15 years in the financial services industry advising corporate clients across the food, beverage and consumer products landscape at Deutsche Bank Securities, Merrill Lynch and Prudential Securities.

(Business Wire) AES Announces Pricing of $500 Million of Senior Notes in Public Offering

• The AES Corporation announced that it has priced $500 million aggregate principal amount of 5.125% senior notes due 2027. AES intends to use the net proceeds from the offering of the Notes to fund the concurrent tender offer to purchase AES’ outstanding 8.00% senior notes due 2020 and to pay certain related fees and expenses. AES intends to use any remaining net proceeds from this offering after completion of the tender offer to retire certain of its outstanding indebtedness. The closing of the offering of the Notes is expected to occur, subject to certain customary conditions, on August 28, 2017.

(CNBC) Tesla’s first junk bond offering is a hit

• Tesla raised $1.8 billion, $300 million more than expected, in its first high-yield junk bond offering.
• The yield of 5.30 percent was slightly higher than the original guidance of 5.25 percent.
• Goldman Sachs was the lead underwriter of the eight-year bonds. S&P rated the bonds negative B and Moody’s B3.
• “It was well-received,” said Efraim Levy of CFRA. “In a large extent it does show that people are interested in the bonds of the company because they believe in the long-term growth … story.”
• It “speaks to the sheer insanity found in the high-yield market to have a deal like this upsized with terms so unappealing to investors,” said Larry McDonald, author of The Bear Traps Report newsletter. “The deck is stacked for Tesla in bond deal terms, congrats to Elon Musk.”

Meanwhile, away from CNBC, a daily high yield publication ran the headline “Tesla Trades Terribly.”

• The article had many quotes from bond traders on Wall Street. One trader commented that the Tesla deal “was one that a lot of high-yield money managers basically avoided.”
• Another trader said that there was some demand overseas but that “among your regular on-the-run high-yield guys, we couldn’t find anybody that played in it.”
• Finally, a trader went on to say that the “deal was away from the normal high-yield universe” and the order book “was hyped.”

(Bloomberg) Junk-Debt Wrecking Ball Swings Toward Telecom

• Buried in last week’s debt sell-off was an important message to credit investors: Not all bonds are the same, and those of telecommunications companies appear worse off than others.
• While U.S. high-yield bonds lost 0.8 percent last week, debt of companies such as Frontier, CenturyLink and Intelsat were hit even harder. Speculative-grade bonds of telecom companies lost 1.3 percent on average, more than those in any other industry.
• The pronounced industry weakness was due in part to some company-specific issues, such as some disappointing second-quarter earnings and merger speculation. But the disproportionate declines highlight broader investor concern about an increasingly challenging backdrop for these companies.
• While a collapse is hardly imminent for these companies, it’s worthwhile questioning what their futures look like in three, five or 10 years. And from debt investors’ perspective, it’s worth taking note of this, especially in light of current trends in the $1.3 trillion U.S. junk-bond market. Instead of a broad-based sell-off, weakness has cycled through specific sectors, one or two at a time. (Remember when energy bonds were the focus, back in 2014 and 2015, or retail debt of late?)

(Bloomberg) Energy Capital, Investors to Buy Calpine for $5.6 Billion

• Private equity firm Energy Capital Partners and a consortium of investors have struck a deal to buy U.S. power generator Calpine Corp. for $5.6 billion in cash.
• Tyler Reeder, a partner at Energy Capital, said the firm doesn’t expect to make any changes to the way Calpine operates or to the company’s financial policy and previously announced $2.7 billion debt reduction plan.