Category: High Yield Weekly

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were $1.2 billion and year to date flows stand at $2.2 billion.  New issuance for the week was $4.1 billion.

The high yield market is strong out of the gate in 2018. 

 (Bloomberg)  High-Yield Bond Spread at Lowest Since 2007 After Five-Day Rally

• S. high-yield bond spreads hit a post-financial crisis low amid investor euphoria stoked by rising equity and commodity markets. Spreads have fallen for five consecutive sessions, the longest winning streak since February 2017, according to data compiled by Bloomberg.
• Bloomberg Barclays High Yield index spread dropped to 320bps, lowest since July 2007, down 23bps since Jan. 1
• Index compression already exceeds JPMorgan’s projected 20bps of HY spread tightening this year
• BAML predicts HY spread will go as low as 290bps by yearend
• Strong equities, low volatility, firm energy prices are driving the junk bond rally, helped by steady economic growth, low corporate default rates

(Bloomberg)  One-Tenth of High-Yield Communications Bonds Are Distressed

• Led by Frontier, about 9.7% of the market value of high yield communications bonds are distressed, according to analysis by Bloomberg Intelligence analysts Stephen Flynn and Philip Brendel.
• Largest portion belongs to Frontier, with almost $10b in market value of distressed notes, analysts say
• Other large issuers: Windstream with $2.8b principal, iHeart with ~$10b and Intelsat $6b
• While Windstream scrapped its dividend last year, Frontier continues to pay cash dividends on common stock, which Flynn and Brendel call “an odd combination” alongside its distressed debt
• iHeart’s junior creditors will likely be fighting for scraps, as their influence in negotiations is likely minimal; pricing on unsecured debt could be “extremely volatile”

(RTT News)  Sunoco Announces $1.75 Bln Private Offering Of Senior Notes

• Sunoco LP announced a private offering of senior notes due 2023, senior notes due 2026 and senior notes due 2028 in an aggregate principal amount of $1.75 billion. Sunoco Finance Corp., a wholly owned direct subsidiary of Sunoco, will serve as co-issuer of the notes.
• Sunoco said it intends to use the net proceeds from the offering, together with the consideration it receives from its previously announced sale of certain company-operated retail fuel outlets to 7-Eleven, Inc., to redeem in full its 5.500 percent senior notes due 2020 at a call premium of 102.750 percent plus accrued and unpaid interest.
• The company will also redeem each of its 6.250 percent senior notes due 2021 as well as 6.375 percent senior notes due 2023 at a make-whole premium plus accrued and unpaid interest.
• In addition, Sunoco intends to repay in full and terminate its existing senior secured term loan agreement, repay a portion of the outstanding borrowings under its existing $1.5 billion revolving credit facility, pay all closing costs and taxes in connection with the 7-Eleven Transaction, redeem all of its outstanding Series A Preferred Units, and also fund the repurchase of a portion of its outstanding common units.

(CAM Note)  Sunoco ended up pricing $2.2 billion in notes across 5, 8, and 10 year maturities.

(Reuters)  Drahi hits Altice reset button to court wary investors

• Altice founder Patrick Drahi is reshaping his telecoms and cable group for the second time in as many months by splitting its U.S. and European operations, hoping to end a drastic downward share-price spiral.
• Heavily indebted Altice said it would spin off its U.S. arm, which owns the country’s fourth-biggest cable operator, to existing investors, and would prioritize efforts to turn around its European operations including French telecoms operator SFR.
• Altice USA will pay a parting dividend of $1.5 billion to the European arm, to be named Altice Europe. Divestments of non-core assets, some of which are already under way, should also help to pay down debt, Altice said on Tuesday.
• “We’re very focused on the operating story, specifically in France and Portugal,” Dexter Goei, Altice Chief Executive, told reporters during a call. “Over the medium and longer term, I‘m certain this question will be asked again and maybe we’ll have a different response.”
• The two companies will be led by separate management teams with Franco-Israeli billionaire Drahi retaining control of both and garnering a large share of the dividend as well as of a $2 billion share buyback planned by Altice USA.
• Dennis Okhuijsen, Altice’s current chief financial officer, will become CEO of Altice Europe and Dexter Goei will continue to serve as chief executive of Altice USA.
• Altice has grown rapidly through acquisitions in the United States and Europe, helped by cheap debt that has risen to around $60 billion — more than five times its annual core operating profit.
• In the United States, Drahi spent $28 billion in 2015 to buy cable companies Suddenlink and Cablevision, and even flirted with a $185 billion bid for cable giant Charter.

(CNN) White House, GOP celebrate passing sweeping tax bill

• Republican lawmakers joined President Donald Trump on Wednesday afternoon to celebrate their largest legislative achievement of 2017, in a public ceremony spotlighting the most sweeping overhaul of the US tax system in more than 30 years.
• The bill passed the House Wednesday 224-201, with no Democrats backing it. The measure now heads to the Trump’s desk for his signature.
• In a vote in the early Wednesday morning hours, the Senate approved the final version of the first overhaul of the US tax code in more than 30 years. The bill passed along party lines, 51-48, with the final result announced by Vice President Mike Pence, who presided over the vote.
• The plan drops the corporate tax rate down from 35% to 21%, repeals the corporate alternative minimum tax, nearly doubles the standard deduction for individuals and restructures the way pass-through businesses are taxed.
• The bill keeps seven personal income tax brackets and lowers that tax rates for most brackets.

(Reuters) Humana, private-equity firms buy Kindred Healthcare for $4 billion

• U.S. health insurer Humana and two private-equity firms agreed to buy home health-care and long-term care operator Kindred Healthcare on Tuesday for about $4 billion, the latest expansion by a U.S. health insurer into patient care.
• Humana, TPG Capital, and Welsh, Carson, Anderson & Stowe will pay $9 per share in cash for the home health-care provider and hospice operator, a 4.7 percent premium over the stock’s Friday close, and split the company into two parts.
• Humana, the fourth-largest U.S. health insurer, will pay $800 million for a 40 percent stake in Kindred at Home, which will contain Kindred’s 40,000 caregivers that serve about 130,000 patients daily. It will not have a stake in the second Kindred unit, which will contain long-term acute care and rehabilitation assets.
• Humana’s insurance business is focused on individuals in the U.S. government’s Medicare program for the elderly and disabled, and the acquisition builds on Humana’s focus on using health providers in members’ homes to improve health outcomes and save costs.
• The deal comes after deals by competitors Aetna and UnitedHealth that will expand the reach of those insurers into healthcare services in locations and sites that charge less than hospitals.

(Bloomberg) Mattel Pays Up to Refinance Debt at Tough Time for Toymakers

• Mattel Inc. sold $1 billion of bonds due 2025 with a yield of 6.75 percent as investors demanded the struggling toymaker pay a premium to refinance short-term debt.
• While the pricing was at the tighter end of initial talk of up to 7 percent, it’s more than 2 percentage points above the average for similarly rated bonds, according to Bloomberg Barclays indexes. The maker of Barbie dolls and Hot Wheels cars was cut to junk by two major bond-grading firms recently.
• Mattel, in its first bond offering this year, sold the debt at a difficult time for the toy industry. The company lowered its full-year sales and guidance in October, prompting Chief Executive Officer Margo Georgiadis to increase Mattel’s cost-cutting plan by threefold and suspend its dividend. Fourth-quarter sales could also be hurt by underperforming brands and retailers exerting tighter control over their inventories, Mattel said in a filing.
• The proceeds of the bonds, which can’t be bought back for three years, will refinance debt due next year and repay Mattel’s commercial paper borrowings, the filing said. The company also plans to replace its revolving credit facility with a new $1.6 billion credit line secured by assets including its inventory.
• The lower forecasts led Moody’s Investors Service, S&P Global Ratings and Fitch Ratings to downgrade the toymaker. Moody’s, assigning the second-highest junk rating with a stable outlook, cited the bankruptcy of retailer Toys “R” Us Inc. for Mattel’s drop in sales during the several “critical weeks” at the end of the third quarter ahead of the holiday shopping season. S&P cut the company one level to BB-, three steps below investment grade. Fitch rates it one step higher at BB.

(PR Newswire) Crown Holdings Announces Acquisition of Signode Industrial Group Holdings

• Crown Holdings, a global leader in consumer packaging, announced that it has entered into an agreement to acquire Signode Industrial Group Holdings, a leading global provider of transit packaging systems and solutions, from The Carlyle Group, in a cash transaction valued at $3.91 billion subject to customary closing adjustments. The acquisition, which is subject to review by various competition authorities, is expected to close during the first quarter of 2018 and to significantly increase free cash flow. Debt financing has been fully committed in support of the transaction.
• With pro forma sales and adjusted EBITDA of $2.3 billion and $384 million, respectively, for the twelve months ended November 30, 2017, Signode is the world’s leading supplier of transit packaging systems and solutions, which consist of strap, stretch and protective packaging consumables and the application equipment and tooling for each. Based in Glenview, Illinois, Signode’s global footprint includes operations in 40 countries across 6 continents, with sales to customers in approximately 60 countries.
• Commenting on the transaction, Timothy J. Donahue, President and Chief Executive Officer of Crown, stated, “With this acquisition, we add a portfolio of premier transit and protective packaging franchises to our existing metal packaging business, thereby broadening and diversifying our customer base and significantly increasing our cash flow. Signode’s products supply critical in-transit protection to high value, high volume goods across a number of end-markets, including metals, food and beverage, corrugated, construction and agriculture, among others. Combined with its highly engineered equipment and service business, Signode offers full solutions to meet customers’ transit packaging needs. In addition to its equipment and protective packaging businesses, geographic and product mix provide a strong platform for value-creating growth.”

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.4 billion and year to date flows stand at -$18.5 billion.  New issuance for the week was $6.0 billion and year to date HY is at $273 billion, which is up 23% over the same period last year.

(Bloomberg)  Corporate Credit Impacts of Proposed Tax Legistlation

• As Republicans target the passage of tax policy by year-end, high yield issuers may be net losers, while the benefits of accelerated depreciation are irregularly distributed. The potential for a cap on the deductibility of net interest expense will be felt more broadly.
• Capital-intensive industries, including materials and energy, and the highly levered communications sector potentially have the most to lose from tax-reform proposals limiting interest deductibility. Strong cash flow and lower average debt loads vs. revenues leave technology and consumer staples with limited exposure. Carry-forward provisions would benefit more cyclical sectors, allowing companies to apply interest expense not deducted in a low-earnings year to earnings over some future period.
• Issuers such as Sprint and Charter among communications issuers, and Halliburton and Chesapeake within energy, are among those that would lose some interest deductibility under the Senate proposal.
• The percentage of issuers with interest expenses exceeding 30% of operating income, however defined, climbs steadily as ratings fall. While a negligible number of issuers rated between AA and BBB would be unable to deduct the full amount of interest expenses, assuming the use of Ebitda, almost all triple-C issuers would be affected.
• Methodology differences between the House and Senate bills regarding interest deductibility could have wide-ranging effects for issuers. Both Congressional bodies entertain adjusted results, though the House plan to use a measure closer to Ebitda would mean about 25% of all companies would see some effect vs. about 40% under the Senate plan.

(New York Times)  Fed Raises Interest Rates as Focus Turns to 2018

• The Federal Reserve, in a widely expected decision, raised its benchmark rate by a quarter of a percentage point, to a range of 1.25 percent to 1.5 percent.
• The Fed also predicted stronger economic growth over the next three years. It forecast 2.5 percent growth in 2018, well above its previous forecast of 2.1 percent growth in 2018, published in September. Janet L. Yellen, the Fed chairwoman, said the faster growth forecasts reflected an assessment of the $1.5 trillion tax cut moving through Congress.
• Officials did not deviate from their 2018 outlook for interest rates or inflation and continued to signal three interest rate increases next year.

(Business Wire)  T-Mobile announces the acquisition of TV tech pioneer, Layer3 TV, Inc.

• T-Mobile US, Inc. president and CEO John Legere unveiled the next phase in the Un-carrier’s mobile video strategy, announcing plans to launch a disruptive new TV service in 2018. To fuel that, Legere also announced the Un-carrier has signed a definitive agreement to acquire TV technology innovator Layer3 TV, Inc. and will work with Layer3 TV’s leading technology and talent to create T-Mobile’s new TV service.
• “People love their TV, but they hate their TV providers. And worse, they have no real choice but to simply take it – the crappy customer service, clunky technology and outrageous bills loaded with fees! That’s where we come in. We’re gonna fix the pain points and bring real choice to consumers across the country,” said John Legere, president and CEO of T-Mobile. “It only makes sense for the Un-carrier to do to TV what we’re doing to wireless: change it for good! Personally, I can’t wait to start fighting for consumers here!”
• The Un-carrier will build TV for people who love TV but are tired of the multi-year service contracts, confusing sky-high bills, exploding bundles, clunky technologies, outdated UIs, closed systems and lousy customer service of today’s traditional TV providers. And people are tired of all the bull that comes bundled with Big Cable and Satellite TV – America’s #1 most-hated industry. In fact, 8 of the 10 brands with the lowest customer satisfaction scores in America are cable and TV providers1.
• “We’re in the midst of the Golden Age of TV, and yet people have never been more frustrated by the status quo created by Big Cable and Satellite TV,” said Mike Sievert, Chief Operating Officer of T-Mobile. “That’s because the world is changing – with mobile video, streaming services, cord cutting, original content and more — and yet, the old guard simply can’t – or won’t – evolve. It’s time for a disruptor to shake things up and give people real choice like only the Un-carrier can.”

(Bloomberg)  Freeport Returns to Copper Focus, Grasberg Next Hitch

• Resolving its Contract of Work dispute covering its Grasberg mine with the Indonesian government is the key to current operations and Freeport-McMoRan’s future prospects. Grasberg accounted for a third of Ebitda in 2016 and Grasberg Block Cave will be the world’s largest underground mine when developed. Freeport, rated B1/BB-, is on positive outlook from Moody’s, with its bonds trading in-line with Ba2 metals and mining peers.
• Fighting off low commodity prices, Freeport-McMoRan has restructured to return its focus to its leading copper business. Freeport reached its $10 billion net-debt target in 3Q through execution of its operating plans, aided by recovering copper prices. A contract dispute and production shortfalls at its Indonesian Grasberg mine have hampered Freeport’s progress and may affect long-term prospects. Once Grasberg is resolved, the company will evaluate capital allocation among growth projects and dividends.
• Freeport-McMoRan reported 3Q adjusted Ebitda of $1.6 billion as the price of copper increased by 35% vs. 3Q16. This was the company’s best quarter since 4Q14 and put Freeport on pace for its best year since 2014.
• Freeport-McMoRan’s 3Q cash from operations exceeded capital spending and shareholder rewards for the sixth straight quarter as outlays have been significantly reduced. Freeport devoted $314 million to capital expenditures in 3Q and plans to spend $1.5 billion in 2017, down vs. $1.8 billion at the start of the year. This would be the lowest on an annual basis since 2010. Assuming normal operations at Grasberg, Freeport expects 2017 cash from operations of $4.3 billion, based on a copper price of $3 a pound for 4Q.

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$1.0 billion and year to date flows stand at -$17.0 billion.  New issuance for the week was $11.4 billion and year to date HY is at $267 billion, which is up 26% over the same period last year. 

(Bloomberg)  High Yield Corporates Stalled as Monthly Returns Again Flat

• High yield corporate bonds, much like their high grade counterparts, continue to move sideways in 4Q to a U.S. Congress undertaking tax reform for stimulus clues. Communications sector spreads moved wider for the year, while miners and other basic industries remain the best performers for 2017.
• High yield corporates continue to lack direction with the Bloomberg Barclays U.S. High Yield Index total returns almost flat for November and 4Q, much like the investment grade counterpart. Corporate bond gains stalled as interest rates rose under the Federal Reserve’s less accommodative bias, while credit spreads near their tightest in three years exhausted momentum to narrow further, awaiting cues from a Congress debating tax reform.
• High yield gained a solid 7.2% year-to-date in line with the five year average. CCC rated debt has led gains, with 10% in total returns as stronger commodity prices and refinancing-friendly interest rates have benefited distressed issuers.
• Corporate junk spreads retraced early November trends to end just 6 bps wider for the month as gauged by the Bloomberg Barclays U.S. High Yield index OAS to Treasuries. Communications, the most indebted sector at 20% of the index struggled again, averaging spreads that were 41 bps wider for the month. It’s now the only sector trading at wider spreads than at the start of 2017. At the other end, metals and mining issuers led basic industries sector spreads to 150 bps tighter for the year on rising commodity prices.
• Bonds of Frontier Communications, among the largest issuers in the sector, averaged almost 8% total return losses in November as the company continues to struggle with high debt loads following the acquisition of Verizon assets early last year. Frontier returns have fallen 13% year-to-date.

(Wall Street Journal)  Cineworld to Buy Regal in $3.6 Billion Movie Theater Deal

• British movie theater operator Cineworld Group PLC has agreed to buy American counterpart Regal Entertainment Group for $3.6 billion, creating the world’s second-largest cinema operator.
• Cineworld said the deal would give it a meaningful footprint in the U.S.—the biggest box office market—and create a company with more than 9,000 screens.
• It added that the combined group’s scale will help it mitigate any volatility in particular markets and match the global nature of rivals, including industry leader AMC Entertainment Holdings Inc.

(Business Wire)  DAVITA SELLS DAVITA MEDICAL GROUP TO OPTUM FOR ABOUT $4.9B CASH 

• Optum, a leading health services company, and DaVita Medical Group, one of the nation’s leading independent medical groups and a subsidiary of DaVita Inc. are combining. The agreement, entered into on December 5, 2017, calls for Optum to acquire DaVita Medical Group for approximately $4.9 billion in cash. The transaction is expected to close in 2018 and is subject to regulatory approval and other customary closing conditions.
• DaVita Medical Group will join with Optum’s physician-led primary, specialty, in-home, urgent- and surgery-care delivery services business. The combination will improve care quality, cost and patient satisfaction through integrated ambulatory care delivery systems enabled by information technology and supportive clinical services. Optum’s data, analytics, technologies and clinical expertise will help DaVita Medical Group physicians deliver even higher quality care more effectively to the patients they serve. With medical groups in California, Colorado, Florida, Nevada, New Mexico and Washington, DaVita Medical Group will expand the market reach of Optum’s strategic care delivery portfolio, including Surgical Care Affiliates, MedExpress and HouseCalls. Patients will further benefit from the sharing of best practices across both organizations.
• “I am so proud of the DaVita Medical Group accomplishments, including our excellent clinical outcomes as reflected in our star ratings performance, our strong emphasis on growing physician leaders, our teammate engagement and advancing the care model,” said Kent Thiry, chairman and CEO of DaVita Inc.
• “Combining DaVita Medical Group and Optum advances our shared goal of supporting physicians in delivering exceptional patient care in innovative and efficient ways while working with more than 300 health care payers across Optum in ways that better meet the needs of their members,” said Larry C. Renfro, CEO of Optum.

(Reuters)  Toshiba, Western Digital aiming to settle chip dispute next week

• Toshiba Corp and Western Digital Corp have agreed in principle to settle a dispute over the Japanese firm’s plans to sell its $18 billion chip unit and aim to have a final agreement in place next week, sources familiar with the matter said.
• The board of the embattled Japanese conglomerate approved a framework for a settlement on Wednesday, one of the sources said.
• The potential for Western Digital – Toshiba’s partner in its main semiconductor plant and jilted suitor in the auction – to block a deal has been seen as the main obstacle to the planned sale of the unit to a Bain Capital-led consortium.
• The settlement under discussion calls for Western Digital to drop arbitration claims seeking to stop the sale in exchange for Toshiba allowing it to invest in a new production line for advanced flash memory chips that is slated to start next year, two sources said.

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.3 billion and year to date flows stand at -$15.9 billion. New issuance for the week was $6.3 billion and year to date HY is at $255 billion, which is up 22% over the same period last year.

(Bloomberg) Junk Investors Welcomed Debut Offerings as Yields Held Steady

• Junk bond issuers kicked off the week on a busy note, adding $2.5b to the pipeline; Starwood Property drove by and priced $500m at the tight end of talk.
• Two of the four issuers, MATW and MPVDCN, were tapping the debt markets for the first time, suggesting investors were willing to consider unknown credits
• Junk yields were steady as oil prices held firm and were off a tad from the 29-mo. high on Friday; stocks were near new highs
• GNC Holdings dropped its $500m 5NC3 notes offering and boosted its loan as bond investors strongly resisted adding on a retail name to their portfolios indicating investors were cautious in assessing risk
• The supportive environment for high yield continued amid steady stocks, strong oil and light supply
• Other factors that backed high yield remained strong: the Moody’s Liquidity Stress Indicator was at a new record low of 2.6% as of mid-November, suggesting strong corporate liquidity and issuers having ready access to capital markets
• Corporate default rates declined and the covenant stress index slipped to 2.3% in Oct., suggesting low risk of issuers violating financial maintenance covenants
• Steady economy, declining default rates, low volatility, rising oil prices and steady stocks augur well for high yield  

(Bloomberg) Rare Expansion for Corporate Junk on Busy Issuance, Downgrade

• The U.S. corporate high yield market has expanded in November, only the fourth monthly size gain in the past year as gauged by the Bloomberg Barclays U.S. Corporate High Yield Bond Index. Active primary, as well as a number of downgrades, will increase the net roster along with the index capitalization in the Dec. 1 rebalancing.
• Membership in the Bloomberg Barclays U.S. Corporate High Yield Bond Index is due to expand by a net 14 securities in the Dec. 1 rebalancing, only the fourth instance of roster growth in the past 12 rebalancing cycles. The primary market heated up in November on rising oil prices and credit spreads near the tightest levels in three years. The median net membership change over the past 12 rebalancings remains at negative 11 bonds.
• The Bloomberg Barclays U.S. Corporate High Yield Bond Index capitalization will add an estimated $4 billion in the Dec. 1 rebalancing, with $24 billion in bonds joining vs. $20 billion exiting. New issues account for $19 billion, with energy companies particularly active in the primary market as crude oil rose above $55 a barrel. 

(Deal Reporter) Regal, Cineworld Said to Reach Agreement on $23/Share

• Cineworld and Regal reached an agreement in principle on RGC takeout price of $23/share
• Talks are still ongoing and not the final agreement yet, though deal expected in next few days
• Offer price not likely to be further improved, seen as firm
• Funding for Cineworld’s bid for Regal Entertainment looks “stretched,” citing a top Cineworld holder, who said there’s a question of how much leverage the combined company can handle.
• RGC/Cineworld implied post-deal net debt to Ebitda, prior to any equity raise, likely >7x vs AMC’s 5.6x
• Cineworld in process of meeting with large holders this week, holders that will have input on the company’s likely equity offering  

(Modern Healthcare) Healthcare industry braces for multiple hits from Senate tax bill

• The sprawling tax cut legislation speeding through Congress is likely to result in major changes in healthcare, including significant insurance coverage losses, higher premiums, tighter access to capital, and greater margin pressure.
• Experts caution that the legislation will have big downstream effects on funding for Medicare, Medicaid, Affordable Care Act subsidies and other federal and state healthcare programs. That’s because the projected $1.5 trillion increase in the federal budget deficit resulting from the tax cuts would put pressure on Congress to slash healthcare spending.
• Indeed, Sen. Marco Rubio (R-Fla.) said Wednesday that cutting taxes must be followed by restructuring and shrinking spending on entitlement programs, including reducing benefits and raising the eligibility age for Medicare and Social Security.
• Insurers and providers strongly oppose the Senate tax bill’s provision, likely to be adopted by the House, that would immediately repeal the Affordable Care Act’s tax penalty on people who don’t obtain health insurance. They warn that would hurt market stability by leading healthier people to drop coverage, thus driving up premiums and pushing insurers to exit the exchange market. 
• Healthcare industry analysts also are worried about the Senate bill’s repeal of the federal deduction for state and local taxes paid by individuals. That likely would create pressure in states with relatively high state and local taxes, like California and New York, to reduce taxes, leading to less revenue for funding Medicaid and other healthcare programs.
• And that could hurt providers and insurers. “We already are in a world where operating margins are being pressured and are generally declining,” said Martin Arrick, managing director of S&P Global Ratings’ not-for-profit group. “This will be one more event that puts additional pressure on provider margins.” 

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$5.0 billion and year to date flows stand at -$15.3 billion. New issuance for the week was $6.2 billion and year to date HY is at $243 billion, which is up 20% over the same period last year.

 (Bloomberg) Lows Are in for High Yield Spreads as Cycle Moves in Double Time

•  High yield’s 326-bp option-adjusted spread (OAS) of Oct. 24 may mark the lows of this cycle amid muted fundamental gains and low absolute yields. That spread compares with the 323-bp nadir of the last tightening cycle that ended in 2014. The current tightening cycle has been almost twice as rapid as the last.
• A nascent correction in high yield, which saw OAS widen 53 bps from multiyear lows in late October, may have room to run. The progression of the rally from early 2016 wides to today’s levels echoes the prior 2011-14 cycle, albeit at twice the pace. The first leg of the correction from the June 2014 lows pushed spreads back above 400 bps and reached 552 bps within six months, mostly mirroring the early stages of the oil-price unwind. Catalysts for a continued selloff are less explicit this go-round.
• Spread-widening from the Oct. 24 tights has been paced by weakness in communications and non-cyclicals, while energy has led after trailing for much of 2017. Bonds from Frontier and CenturyLink in wirelines, and those of Community Health in healthcare, have shown some of the steepest losses. The two sectors represent about 33% of the overall high yield index.
• Leverage has shown modest improvement vs. year-ago levels, lower by about a quarter turn, though it remains high in historic terms. That contrasts with the spread move from early 2016 that dropped OAS to prior-cycle lows. Further, the pace of improvement in fundamentals — from leverage to interest coverage — has flattened as oil prices have normalized, with leverage across most sectors actually near flat to higher over the last year. 

(PR Newswire) Suburban Propane Announces Financial Results

• Adjusted EBITDA increased $20.0 million, or 9.0%, to $243.0 million in fiscal 2017 from $223.0 million in the prior year. Net income for fiscal 2017 was $38.0 million, compared to $14.4 million in fiscal 2016. Revenues for fiscal 2017 of $1,187.9 million increased $141.8 million, or 13.6%, compared to the prior year, primarily due to higher retail selling prices associated with higher wholesale costs, combined with higher volumes sold. Retail propane gallons sold in fiscal 2017 increased 6.0 million gallons, or 1.4%, to 420.8 million gallons.
• In announcing these results, President and Chief Executive Officer Michael A. Stivala said, “Fiscal 2017 presented another challenging operating environment as a result of the impact on customer demand arising from the unprecedented, second consecutive record warm winter heating season, as well as the devastating effects of the two Category 4 hurricanes.  Through it all, the resiliency of our people, and our preparedness coming into the year, contributed to a meaningful improvement in our operating performance; including a 9% increase in Adjusted EBITDA compared to the prior year.”
• Concluding his remarks, Mr. Stivala said, “As we enter fiscal 2018, one of our goals will be to focus on restoring our balance sheet strength to best position the business for long-term profitable growth.  With the previously announced reduction in our annualized distribution rate, we have reduced our annual cash requirements to a level that provides added downside protection in the event of a sustained period of warm weather and, with an improvement in weather, should provide enhanced flexibility to reduce debt and make investments in line with our strategic initiatives.  We have adapted our business model to the recent warm weather trends, as evidenced by the improvement in earnings for fiscal 2017 and, as we enter a new heating season, our people are prepared to continue providing the highest level of service quality and total value to our customers in each market we serve.”  

(Financial Times) Altice to pull back on acquisitions and focus on cutting debt 

• Altice has promised to get its debt under control after ruling out more blockbuster takeovers and expensive content rights after an alarming collapse in its share price over the past two weeks.
• Dennis Okhuijsen, chief financial officer, told investors at the Morgan Stanley Technology, Media & Telecom Conference that the telecom company would now focus its efforts on deleveraging the business. “We are very focused on no M&A and to go back to the basics,” he said. “We take deleveraging very seriously,” he added, raising the prospect of non-core asset sales, including its mobile masts.   Mr. Okhuijsen also ruled out spending more money on content.
• Altice shares have fallen sharply since it issued a poorly received trading statement two weeks ago. Michel Combes, chief executive, resigned last week as part of a management shake-up that saw founder Patrick Drahi take the reins of the company.
• The collapse in the shares has called its aggressive acquisition strategy into question only months after it was linked with a $185bn bid for US cable company Charter Communications.

(Environment Analyst) Construction boom fuels AECOM 

• AECOM has reported a year of revenue growth, record orders and free cash flow in its latest financial results. However, the strong performance of its construction services offset a decline in design and consulting.
• AECOM’s full year revenue of $18.2bn for the twelve months ending 30 September 2017 was 4.6% up on the prior year, boosted by a particularly strong fourth quarter which saw revenue up 12% year-on-year to $4.9bn. Organic growth of 3% for the twelve month period was boosted by a further $270m contribution from acquisitions.
• Net income jumped 158% to $421m. As a result the firm was able to reduce its debt by 9.9%. Although still a substantial figure at $3.1bn, AECOM’s debt has now fallen by $1.4bn since the closing of the URS acquisition in Q4 2014.    

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$1.1 billion and year to date flows stand at -$9.1 billion. New issuance for the week was $5.1 billion and year to date HY is at $237 billion, which is up 18% over the same period last year.

 (Bloomberg) Junk Bonds on Wait and Watch Mode

•  Junk bonds slowed down a bit amid lack of clarity on the new tax initiatives, together with concerns about rate risk and the future of the monetary policy as William Dudley, the president of NY Fed, announced his retirement.
• The Federal Reserve will miss three of its governors next year, leading to new faces on the committee
• While junk bonds have lost some spring in their step, there has been no material change yet to the supportive backdrop as oil prices saw the biggest jump in more than 3 months and closed at a new 28-mo. High
• The unveiling of the new tax policy by the House rattled highly leveraged companies, as the new proposal considered a cap on interest deductibility
• Clearly, investors are still backing risk as Windstream increased its bond offering and priced at the tight end of talk even as the issuer was dealing with threats of litigation amid an overall struggling communications industry

(Bloomberg) Teva’s Schultz Faces Dwindling Choices as Rating Cut to Junk

• Teva Pharmaceutical Industries Ltd. Chief Executive Officer Kare Schultz is finding himself in the hot seat in his first week on the job with rapidly shrinking options to halt the slide in the Israeli company’s securities after its debt was cut to junk overnight.
• Fitch Ratings cited the “significant operational stress” that the world’s biggest maker of copycat drugs faces at a time when it needs to pay down debt, and pared its rating by two levels to non-investment grade late on Monday. Teva’s debt obligations are almost three times its market value following an ill-timed $40 billion acquisition last year of Allergan Plc’s generics business.
• “We find it troubling that management, which presumably met with Fitch before the downgrade, was not able to convince the rating agency that it would take more dramatic deleveraging actions in order to preserve investment grade ratings,” Carol Levenson, an analyst at bond research firm Gimme Credit, said in a report.

  (Business Wire) B&G Foods to Appoint Bruce C. Wacha as Chief Financial Officer

• B&G Foods, Inc. announced today that it will appoint Executive Vice President of Corporate Strategy and Business Development, Bruce C. Wacha, to Executive Vice President of Finance and Chief Financial Officer, effective November 27, 2017. As Chief Financial Officer, Mr. Wacha will oversee the Company’s finance organization and be responsible for all financial and accounting matters. He will also continue to oversee the Company’s corporate strategy and business development, including mergers & acquisitions, capital markets transactions and investor relations. He will continue to serve on the Company’s executive management team, reporting to President and Chief Executive Officer, Robert C. Cantwell.
• “Since joining our executive team in August, Bruce has demonstrated excellent leadership skills, financial expertise and an excellent work ethic,” stated Mr. Cantwell. “I’m delighted to announce Bruce’s appointment to CFO. Bruce is an experienced and talented executive and after working with Bruce the past few months I am confident that he is the right person to lead our finance organization and help us achieve our growth objectives.”
• Mr. Wacha joined B&G Foods from Amira Nature Foods, where he spent three years as that company’s chief financial officer and executive director of the board of directors. Prior to joining Amira Nature Foods, Mr. Wacha spent more than 15 years in the financial services industry at Deutsche Bank Securities, Merrill Lynch and Prudential Securities, where he advised corporate clients across the food, beverage and consumer products landscape. Mr. Wacha earned a bachelor of arts and a master of business administration from Columbia University’s Columbia College and Columbia Business School.

(Moody’s) B&G Foods Unsecured Debt Rating Raised One Notch to B2

(Variety) Theater Chain AMC Entertainment Slides to $42.7 Million Loss, Blames Box Office

• Citing lousy box office performance, AMC Entertainment Holdings has reported a third-quarter loss of $42.7 million, compared with earnings of $30.4 million for the 2016 quarter.
• “We have been predicting weakness in the third quarter industry box office, due to the quantity and subject matter of the films that were scheduled to be released,” said Adam Aron, president and CEO. “Not surprisingly, our foreshadow was accurate.”
• The third quarter was one of the roughest in recent years for the domestic box office with Sony’s “The Dark Tower” and STXfilms’ “Valerian and the City of a Thousand Planets” falling short of expectations. August box office was the lowest in a decade.
• “In our view, the weakness of the summer box office is not indicative of a long-term trend, especially immediately after two and a half years of record box office performance and just before what we expect will be strong and robust consumer demand through year end,” he said. “We are similarly confident and excited about the film slate that is coming in 2018 and again in 2019. Accordingly, we remain optimistic about the viability and strength of the movie theatre industry generally, and of AMC specifically.”

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

(Bloomberg) Historical Fundamentals: High Yield Corporates

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

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

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

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

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

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

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

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.