Category: Investment Grade Weekly

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of January 4-January 10 were $5.1 billion, the largest inflow in over 3 months. Note that these are total flows across four investment strategies: Short, Intermediate, Long and Total Return. Per Bloomberg, investment grade corporate issuance for the week through January 11 was $25.425bln. As we go to print, the Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 90, relative to the 2017 tight of 93.

(Bloomberg) IG Sales May Rise as Banks Begin to Exit Blackouts

• On the cusp of a long holiday weekend, high-grade issuers may choose to remain on the sidelines to close out the week. Activity has been muted with the week standing at just over $25b, falling shy of estimates calling for at least $30b.
• Expect an increase in sales next week as more U.S. banks emerge from earnings blackouts.
• JPMorgan (JPM) and Wells Fargo (WFC) both reported 4Q earnings this morning. Citibank (C) comes Tuesday, Bank of America (BAC) and Goldman Sachs (GS) report Wednesday and Morgan Stanley (MS) is Thursday.

(Bloomberg) Junk Euphoria Unshaken as Funds See Biggest Inflow Since Dec.’16

• Investors reiterated their confidence in junk bonds by investing in high yield funds. Lipper reported an inflow of $2.65b into U.S. high yield funds, the biggest weekly inflow since Dec. 2016.
  • Investor euphoria led to the return of pay-in-kind notes offering in the primary yesterday, with Ardagh pricing at the tight end of talk with orders of more than $1.25b, about 3x the size of the offering. The Ardagh bonds traded at 102.875 after pricing at par
  • Investors shrugged off aggressive use of proceeds, suggesting risk appetite was strong. Ardagh raised debt to “provide liquidity to shareholders.” CSC Holdings is marketing bonds to fund a dividend to parent Altice USA
  • Recent new issues have been flooded with big orders. Ensco priced through talk and increased the offering size to $1b with orders more than 4x the original size of the offering. Sunoco’s $2.2b 3-part notes got orders for ~$6b earlier in the week
  • Issuance volume was on pace with 2017 with $5.5b pricing MTD
  • While junk yields seemed weary and stalled a bit as they come off 2-mo. lows; there appeared to be no clear catalyst yet that could derail junk bonds in the near term, as stocks climbed to new highs, oil set new 37-mo. high and volatility was still near multi-year lows
  • High yield continued to be backed by an overall supportive environment:Moody’s Liquidity Stress Indicator kicked off 2018 with a new low of 2.5%, suggesting junk issuers were backed by steady economic growth and buoyant credit markets as investors scramble for yield
  • Corporate default rates declined, another critical pillar factor for high yield
  • Steady economy, declining default rates, low volatility, steady oil prices and stocks augur well for high yield
    • ISSUANCE STATS
      • Eight deals for $5.5b MTD
      • 510 deals for $275.393b in 2017

Fund Flows & Issuance: According to Wells Fargo, IG fund flows for the week of December 28-January 3 were $3.0 billion, the largest inflow in six weeks. Per Bloomberg, investment grade corporate issuance for the week through January 4 was $21.05bln. As of today, the Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 94, which is +1 from the 2017 tight of 93. In 2007, spreads bottomed at an OAS of 82. The all-time tight is 54, which occurred in March of 1997.

(WSJ) Who Are the Big Players in the Bond Market? Small Investors

• Ordinary investors are a growing force keeping longer-term bond yields low, even as the Federal Reserve has raised interest rates. They are helping cap borrowing costs for individuals, corporations and state and local governments, while boosting the appeal of riskier assets such as stocks, which have climbed to record after record in recent months.
• John Nederhiser exemplifies the current crop of bond buyers. While professional money managers fret about interest-rate increases, rising budget deficits and inflation, the 58-year-old accountant in Gresham, Ore., said such concerns won’t deter him from continuing to add to his fixed-income holdings. “Pretty much what I’m going to do is stay the course,” he said.
• An aging population means investors like Mr. Nederhiser are likely to remain a factor, as people typically increase bondholdings as they approach retirement. The population of U.S. residents age 65 or older has grown more than 40% since 2000 to 49.2 million in 2016, according to the Census Bureau, which could signal steady demand for the debt. The median age for investors with fixed-income holdings ranging from mutual funds to individual bonds is 53, according to the Investment Company Institute’s annual mutual-fund shareholder survey, up from 49 in 2007.
• Some older investors have lived through periods where inflation climbed above 10% and where it cratered below zero, while watching plunges in technology stocks and home prices dent their accumulated wealth. For some, that has led to a pragmatic appreciation of bonds’ steady income and relative stability.
• The sanguinity of ordinary bondholders stands in contrast with 2017 statements from some more famous investors such as Bill Gross and Jeff Gundlach, both dubbed “the Bond King” at various times. Mr. Gross and Mr. Gundlach each created a stir last year by intimating a broad selloff might be approaching.
• Much of the support individual investors are giving to the Treasury market is as a result of their investments in diversified bond funds, not an insatiable hunger for government debt. That is because government debt now makes up more than one-third of the Bloomberg Barclays U.S. Aggregate bond index, a popular reference point that guides how many portfolio managers assemble their holdings.
• The amount of Treasurys in the index has risen from roughly one-quarter in 2007, before the financial crisis led to an explosion in government borrowing and a slowdown in issuance from corporate and mortgage borrowers. The proportion of Treasurys may rise further as the Fed pares back its $4.2 trillion in holdings of government and mortgage debt, which indexes don’t count since the Fed’s portfolio sits outside of the open market.
• With government bond yields already near modern lows, some analysts see complacency as among the biggest risks. And some investors find it difficult to settle for single-digit bond yields when the S&P 500 index has posted double-digit returns for the seventh time in the past nine years.
• It remains to be seen if retail investors will hang on to bonds should yields start to skyrocket. During the 2013 “taper tantrum,” which followed then-Fed Chairman Ben Bernanke’s statement that the central bank was preparing to stop its bond purchases. Bond funds suffered net outflows for eight consecutive months afterward, while the yield on the 10-year note almost doubled to around 3%.

(Barron’s) Intel: Don’t Anticipate Any Impact to Business

• Intel (INTC) executives this afternoon held a conference call to address reports today, initiated by The Register, that the company had a “bug” or flaw in its chips that raised security issues, a charge the company had this afternoon rejected.
• Led by Intel executive Steve Smith, the head of the company’s data center engineering, the company said repeatedly its chips are “performing as designed” and that info appearing today had contained mis-information.
• “There were some info in media that was, I’ll call it, ahead of time,” said Smith, referring to the fact Intel said it had been working “for some time now” with security researchers and with operating system vendors and computer makers to prepare “mitigation” of security risks. The reports in media were “potentially misleading,” said Smith, “so wanted to clarify.”
• Added Smith, “Since our products are performing to specification, we don’t anticipate a material impact to our business or our products, because they continue to operate properly.”
• “We don’t expect any financial implication around Intel’s products,” Smith later reiterated.

(Bloomberg Markets) Morgan Stanley Wealth Exits Junk Bonds, Warns on Recession Risk

• It’s too late in this market cycle to bet on high-yield bonds, according to Morgan Stanley Wealth Management.
• So, the $2 trillion money management arm is completely slashing junk bond allocation. True, tax cuts are expected to inject fresh momentum into high-flying stocks, but the boost may be short-lived and mask balance-sheet weaknesses, Mike Wilson, chief investment officer, wrote in a note distributed Wednesday.
• “While the tax cuts just enacted in the U.S. may lead to better growth in the short term, they may also bring forth the excesses we typically see before a recession — which is something credit markets figure out before equities,” according to the note. “We recently took our remaining high yield positions to zero as we prepare for deterioration in lower-quality earnings in the U.S. led by lower operating margins.”
• Though Morgan Stanley doesn’t expect a recession in 2018, it sees the risks rising. Between tightening monetary policy and fewer positive surprises in earnings and economic data, any remaining upside is likely to be speculative, according to the firm.
• “We think it will be much tougher to make money in 2018 and 2019 than in 2016 and 2017 as the risk of a recession and outright bear market comes closer,” Wilson wrote. “Late-cycle dynamics have become even more evident.”

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $1.357bln. This brings the YTD total to +$318.643bln in total inflows into the investment grade markets. IG fund flows remain on pace for the strongest year on record. Per Goldman Sachs, year-to-date cumulative inflows into IG mutual funds account for just 13% of AUM while ETFs continue to grow at the expense of mutual funds –ETFs account for 32% of AUM growth thus far in 2017. According to Bloomberg, investment grade corporate issuance for the week through Thursday was $17.315bln, and YTD total corporate bond issuance was $1.32t. Investment grade corporate bond issuance thus far in 2017 is nearly flat, trailing 2016 issuance by 1% year-to-date. The Bloomberg Barclays US IG Corporate Bond Index is trading at an OAS of 97 as we go to press on Friday morning. The OAS hit 94 for 5 sessions in October, so we are still modestly wider than the tightest levels that we have seen thus far in 2017 and within distance of the tightest level since 2007 when spreads bottomed at an OAS of 82. We have quite a ways to go if we were to flirt with all-time tights of 54, last seen in March of 1997.

(Bloomberg) Expect Negative Excess Returns in Global Credit: MS’s Richmond

• Investors can expect negative excess returns across global credit in 2018, and we are later in the credit cycle than people generally realize, Adam Richmond, Morgan Stanley’s head of credit research, said on a panel yesterday at the Bloomberg Intelligence Credit Outlook Forum.
  • “You don’t need a recession to get negative returns late in a cycle,” Richmond said
    • Haven’t been three straight years of positive excess returns in credit since 1996; 2017 will be the third year, so it may be due for a year of negative excess returns
  • Richmond predicts spread widening in credit across the globe. Caution is required, this is a global phenomenon
    • Volatility was artificially compressed by central bank policy and now the dynamics are changing. It’s not just the Fed that is entering rate-hike phases; ECB, PBOC, BOE are moving in that direction too. Even the BOJ is increasing its yield-curve target later next year
  • “But from a valuation perspective it’s a challenge wherever you look in the world”
  • “We can’t tell investors to just sit in cash, so our answer is, be invested, but this is the time in the cycle to be very picky and to be up-in-quality, and so while it’s boring and investors don’t want to hide out in defensive credits, we think you’re supposed to do that”
    • Take IG over HY. Investors may want to be in Single-As over BBBs in IG bonds. Focus on sectors that will be relatively unscathed through a credit cycle, such as U.S. financials. “This is very much not going to be a financially-driven credit cycle, so this sector will behave more defensively”

(Bloomberg Law) Forget AT&T-Time Warner. Watch These Non-Media Mega-Deals

• Media mergers are big news lately with the Justice Department’s lawsuit to stop AT&T Inc. from merging with Time Warner Inc. and Sinclair Broadcast Group Inc.’s effort to buy Tribune Media Co.
• But the laser focus on media consolidation may cause the big mergers in other industries to disappear under the radar. There are notable mega-mergers (well above $10 billion) slated to close next year in agriculture, aerospace, oil, and apparel. CVS Health Corp.’s bid to buy Aetna Inc. for $67.5 billion can be added to that list, although it has not yet had its initial antitrust review.
  • Bayer-Monsanto is the last of three seed-pesticide company pairings announced in 2015-16. The transaction faces continued resistance since it was announced in September 2016. Bayer’s agreed price has since dropped from $66 billion to $63.5 billion.
  • Eyewear giants Essilor International SA and Luxottica Group SPA announced a 45 billion euro ($53 billion) merger in January. Their businesses are largely complementary, but antitrust regulators are still focusing on potential losses in competition. Essilor is the largest supplier of ophthalmic lenses worldwide, and Luxottica is the largest supplier of eyewear worldwide.
  • Industrial gas giants Linde AG and Praxair Inc. announced a deal on June 1, 2017 for $41 billion to create the world’s largest industrial gas supplier. The combined company would leapfrog current market leader Air Liquide SA, which merged with Airgas Inc. in 2016 for $13 billion.
  • United Technologies Corp. announced a $23 billion bid for Rockwell Collins Inc. on Sept. 4, 2017. The deal unites two aerospace behemoths that together equip commercial and military aircraft from “tip to tail.”

(Bloomberg) AT&T Commits to Time Warner Deal Even as Judge Delays Deadline

• The U.S. Justice Department’s antitrust lawsuit to blockAT&T Inc. from buying Time Warner Inc. will go to trial March 19, a later date than the companies had sought to begin their epic legal fight with the government.
• With the trial more than three months off, AT&T and Time Warner will have to extend their self-imposed April 22 deadline for completing the $85.4 billion deal. U.S. District Judge Richard Leon said Thursday in Washington that the companies should push back the cutoff date by 60 to 90 days to give him time to make a decision.
• “We will promptly discuss the court’s post-trial schedule with Time Warner,” AT&T General Counsel David McAtee said in a statement. “We are committed to this transaction and look forward to presenting our case in March.”
• If approved, the deal would reshape the media landscape by uniting a telecom giant with the owner of CNN, Warner Bros., TNT, TBS and HBO. AT&T, the owner of DirecTV, is the largest pay-TV distributor, as well as a powerhouse in mobile phones and landlines. The Justice Department has argued that letting AT&T own the films and TV shows that flow down its pipes would harm consumers and competitors.
• Under their current agreement, if AT&T and Time Warner fail to complete their deal by April 22, they can choose to extend the deadline or either party can walk away. If the judge blocks the deal, AT&T must pay Time Warner a breakup fee of $500 million.
• “This is not a normal case from many perspectives,” Leon said from the bench Thursday. He estimated the trial would take about three weeks. “This is going to be a lot of hard work and a lot of sacrifice.”

(Bloomberg) U.S. Payrolls Rise 228,000; Wages Gain Less Than Forecast

• The U.S. added more jobs than forecast in November and the unemployment rate held at an almost 17-year low, though below-forecast wage gains suggest the labor market still has slack to absorb.
• Payrolls rose 228,000, above the median economist estimate of 195,000, after a downwardly revised 244,000 advance, Labor Department figures showed Friday. Average hourly earnings increased 2.5 percent from a year earlier, less than the 2.7 percent projection, and October’s figures were revised lower.
• The data provide a clearer picture of the labor market after volatility caused by two hurricanes mostly dissipated, though there may have been some lingering effects. While the job market remains a bulwark for the economy and investors see a Federal Reserve interest-rate hike next week as a near- certainty, the lack of acceleration in wages remains a puzzle that could factor into the pace of increases in 2018.
• Average hourly earnings rose 0.2 percent from the prior month following a revised 0.1 percent drop, the report showed. Analysts had penciled in a gain of 0.3 percent for November. The gain from a year earlier followed a downwardly revised 2.3 percent advance for October.
• Economists expect that in time, wages will post a sustained pickup, which has remained elusive in this expansion even though labor-market slack is steadily disappearing. Faster gains in paychecks would boost consumer spending, which accounts for about 70 percent of the economy. Jerome Powell, President Donald Trump’s nominee to head the Fed, said last month at hisconfirmation hearing that he doesn’t see wages signaling any tightness in the labor market.

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $3.590bln. This brings the YTD total to +$311.602bln in total inflows into the investment grade markets which is nearly double the full-year record inflows that occurred in 2012. According to Bloomberg, investment grade corporate issuance for the week through Thursday was $28.005bln, and YTD total corporate bond issuance was $1.267t. Investment grade corporate bond issuance thus far in 2017 is flat y/y when compared to 2016. As we to go to press on Friday morning there is ~$1bln in pending corporate bond issuance slated to print today, as issuers seek to take advantage of a decidedly stronger tone in the market compared to the early portion of the week.

(Bloomberg) Calpers Considers More Than Doubling Bond Allocation to 44%

• The California Public Employees’ Retirement System, the largest U.S. pension fund, is considering more than doubling its bond allocation to reduce risk and volatility as the stock bull market approaches nine years.
• Calpers is looking at a menu of options for its fixed-income target ranging from the current 19 percent to as much as 44 percent, according to a presentation for a board workshop in Sacramento coming up Monday. Equities could be cut to as little as 34 percent from 50 percent. Stocks were the best-performing asset class in fiscal 2017, returning almost 20 percent.
• Bond yields remain at low levels because of persistent weak inflation, central bank easy money policies and global investors chasing income. Raising the allocation would reduce the fund’s discount rate, or average expected return, to 6.5 percent from the 7 percent annual target adopted last year. A lower target would probably require bigger contributions from taxpayers and public agencies to cover pension obligations, a shift that board member JJ Jelincic said he would oppose.
• “We’ve cut the return expectation to the point that employers are screaming, ‘We can’t afford it. We can’t afford it,’ ” Jelincic said. “I personally would be willing to take on a little more risk.”
• The average allocation for public pensions is about 23 percent to fixed income and 49 percent to stocks, according to Nasra data.
• The Calpers board is scheduled to vote on the allocation in December. Almost all of the fixed-income and stock holdings are managed in-house while more complex assets, such as private equity and real estate, are overseen by outside consultants. Allocations to private equity and real assets would stay at 8 percent and 13 percent, respectively, under all scenarios under consideration.
• The allocation revisions occur every four years. Calpers is working to provide for a growing wave of longer-living retirees.

(New York Post) Charter’s CEO butts heads with biggest shareholder

• There’s a battle raging inside Charter Communications, and the outcome could decide whether the cable giant continues its acquisition spree — or gets gobbled up itself.
• Charter’s Chief Executive Tom Rutledge — who last year swallowed Time Warner Cable and renamed it Spectrum, making Charter the nation’s third-biggest pay-TV operator — insists that he can increase Charter’s dominance with still more purchases, sources said.
• The Post reported in June that Charter was weighing an approach to Cox Communications, an Atlanta-based regional cable provider. More recently, rumors have circulated that Charter has been in talks to do a deal with Altice, which most recently scooped up New York-based Cablevision.
• But 76-year-old billionaire John Malone, who is Charter’s biggest shareholder with control of 27 percent of its stock, is meanwhile showing signs that he’s willing to head in the other direction — namely, a sale of Charter at the right price, insiders say.
• “I think Malone is a seller,” one source told The Post. The source added that “Malone, though, doesn’t control Charter,” and “the board is totally behind Rutledge.”
• The Post reported exclusively Nov. 1 that SoftBank, the Japan-based buyout fund that owns Sprint, had rekindled on-again, off-again talks to acquire Charter.
• SoftBank’s billionaire boss Masayoshi Son “has tried in multiple ways to energize Charter,” the source said. “It is an ongoing engagement.”
• High-level talks have occurred, with SoftBank recently offering $540 a share for Charter, a source said.
• Although a deal isn’t imminent, “I wouldn’t count Malone out,” a telecom executive told The Post. “There is a 50-percent chance a SoftBank-Charter deal happens in six months.”
• Apart from keeping his status as a cable bigwig, insiders say, Rutledge appears to be clinging to stock options that, according to securities filings, would pay out tens of millions of dollars if Charter shares rise above the $564 mark.
• “My guess is Rutledge has a few quarters to increase the share price,” the telecom exec said.

(MacTrast) Amazon Said to Have Cancelled Its “Skinny Bundle” TV Service

• Amazon has reportedly cancelled its plans to launch a “skinny bundle” of streaming television channels. Reuters says Amazon was unable to convince networks to allow the online merchant to offer only some of their channels in the base package.
• Apple was reportedly looking to offer a similar type of bundle, but ran into the same issues with content providers. Media firms such as Viacom and Disney, which own multiple networks, do not want streaming services to pick and choose which channels they offer, instead requiring the services to also include their weaker channels along with the more popular channels.
• The online retailer will instead focus on expanding its Amazon Channels service, which offers separate subscriptions such as HBO, Showtime, Starz, and other premium networks to its prime members.

Fund Flows & Issuance: According to Wells Fargo, IG fund flows on the week were $5.362bln. This brings the YTD total to +$282.514bln in total inflows into the investment grade markets. According to Bloomberg, investment grade corporate issuance for the week was $24.35bln, and YTD total corporate bond issuance was $1.19t. Investment grade corporate bond issuance thus far in 2017 is down 3% y/y when compared to 2016.

(WSJ) Mr. Ordinary: Who Is Jerome Powell, Trump’s Federal Reserve Pick?

• When a business-school student sought out Jerome Powell several years ago for career advice, Mr. Powell, President Donald Trump’s pick to become the 16th chairman of the Federal Reserve, offered his philosophy on getting ahead.
• His advice: Keep your head down and work hard, according to the student, Sean Gillispie, today a software product director in the Washington area. Mr. Powell told him he would be surprised “how many otherwise competent people self-sabotage with poor behavior,” Mr. Gillispie recalls.
• In recent years, there have been two kinds of Fed chairmen: commanding personalities such as Paul Volcker and Alan Greenspan, whose views on inflation and interest rates dominated central banking from the 1980s through the mid-2000s; and the consensus-driven leaders, Ben Bernanke and Janet Yellen, who guided the central bank toward more open decision-making and de-emphasized the power of the chairman.
• Mr. Powell, judging by his nearly 40-year career in government, law and banking, is likely to be in the latter group. That means a Powell Fed might look a lot like it has since Mr. Greenspan retired in 2006.
• Such continuity would be welcome in the markets, which don’t like uncertainty, and at the Fed, one of the world’s most powerful economic policy-making bodies. It also could please Mr. Trump, who has spoken approvingly of record stock prices and declining unemployment.
• “I would be surprised if [Mr. Powell] walked away at the end of his term with a huge stamp of reshaping the Fed,” says Charles Plosser, who as president of the Federal Reserve Bank of Philadelphia until 2015 worked closely with Mr. Powell. “He’s not likely to lead Federal Reserve reform and innovation on monetary policy, but that does not mean he won’t be a good chair.”
• Unlike Ms. Yellen and Mr. Bernanke, Mr. Powell doesn’t hold a degree in economics—which would make him the first chairman since the late 1970s without such a credential. Although he has worked as an investor, lawyer and bank regulator, he has no experience leading a large organization.
• The Fed is no simple bureaucracy. It has a seven-member board, 12 regional banks, a secretive decision-making process and 2,700 employees involved in interest-rate decisions, bank regulation and managing the nation’s currency circulation. It also serves as the Treasury’s fiscal agent in managing the nation’s debt.
• It is in the process of raising short-term interest rates from near-zero levels and of gradually winding down a $4.2 trillion portfolio of mortgage and Treasury securities built up during and after the financial crisis. Mr. Powell was part of a group in 2013 that pressed Mr. Bernanke to wind down the bond-purchase programs, although he has never dissented in 44 meetings on the Fed board.
• Mr. Powell’s most notable mark on monetary policy at the Fed was his involvement in bond-buying phase out. Worried that investors believed the programs would continue indefinitely, he joined with two other Fed governors, Betsy Duke and Jeremy Stein, to persuade Mr. Bernanke to scale the program back. The effort was typical of Mr. Powell’s style—conducted almost entirely behind the scenes and with little fanfare.
• One person who has worked with several Fed officials in recent years says he often heard about petty personal rivalries or feuds between board members, but these people never had a bad word for Mr. Powell.
• “He is remarkably undogmatic,” says Jeremy Stein, a Harvard University economics professor, Democrat and former Fed governor whose office was adjacent to Mr. Powell’s. “He listens more than he talks.”
• Mr. Powell has held several different roles on a board that has been plagued with vacancies in several years. He earned respect from colleagues for tackling unheralded operational tasks and technical issues, including managing payment-processing systems. He also boosted morale this summer when he oversaw the implementation of a relaxed summer dress code.

(Moody’s) Moody’s downgrades CenturyLink to Ba3; outlook negative

• Moody’s Investors Service, (Moody’s) has downgraded CenturyLink, Inc.’s (CenturyLink) corporate family rating (CFR) to Ba3 from Ba2, downgraded its senior unsecured rating to B2 from Ba3, and confirmed its senior secured rating at Ba3. The downgrade reflects CenturyLink’s higher leverage related to its imminent acquisition of Level 3 Communications, Inc. (Level 3).
• The senior unsecured ratings of Qwest Corporation and Embarq Corporation were downgraded to Ba2 from Ba1.

(Fitch) Fitch Downgrades CenturyLink’s Ratings to ‘BB’ / Affirms Level 3

• Fitch Ratings has downgraded the Long-Term Issuer Default Ratings (IDRs) assigned to CenturyLink, Inc. (CenturyLink) and its subsidiaries to ‘BB’ from ‘BB+’ and removed the ratings from Negative Watch. In addition, Fitch has affirmed the IDRs for Level 3 Communications, Inc. (LVLT) and its subsidiary, Level 3 Financing, Inc. The Outlook is Stable for all ratings. The rating action is due to CenturyLink’s completion of the acquisition of LVLT, which closed on Nov. 1, 2017 following approval by the Federal Communications Commission.
• The $9.9 billion in secured financing is guaranteed by certain existing CenturyLink subsidiaries (including Embarq Corp.), except for Qwest Corporation (QC), and by a new holding company, Level 3 Parent, LLC, which is now LVLT’s parent. The stock of both LVLT and QC has been pledged as collateral for the facilities. LVLT and its subsidiaries will not provide guarantees to HoldCo or the acquisition debt, and its existing debt will remain outstanding.
• Based on the one-notch downgrade of CenturyLink’s IDR to ‘BB’, Fitch has taken the following rating actions:
  
  • –A one-notch downgrade of CenturyLink’s and Qwest Capital Funding’s senior unsecured debt to ‘BB’/’RR4’. The one-notch downgrade is consistent with Fitch’s notching treatment of issue ratings with ‘RR4’ recoveries, reflecting a rating at the same level as the IDR.

(Bloomberg) Teva Lowers Debt Repayment Forecast to $3.5B: McClellan

• Teva has no current plan to raise new equity; will consider raising equity with new management, Interim CFO Michael McClellan says on conference call with analysts.
  
  • Credit rating downgrade would raise rates on Teva term loans: CFO
  • Teva’s $6b term loans would face 25 basis point rise
  • Asset sales to generate $2.3b in net proceeds, majority to be collected this year: outgoing interim CEO Peterburg
  • CEO Schultz plans to focus on key generic launches, scale of operations, strengthening operations, stabilizing operating profit and cash flow
  • Teva will do “whatever is needed to improve performance:” Chairman Barer

(Bloomberg) Hurricane Rebound Comes Up Short in Payrolls

• The October jobs report was well above trend, as a rebound from hurricane interruptions lifted hiring, albeit by not as much as the consensus of economists anticipated. However, significant upward revisions to August and September mean the net hiring gain was considerably stronger than the October headline would otherwise suggest.
• The important takeaway from this report is that there has been little interruption of the underlying hiring trend due to recent hurricanes. In fact, the categories most impacted by storms — such as leisure and hospitality — posted complete recoveries. The underlying hiring pace of job creation (roughly 160k) exceeds the natural growth rate of the labor force, whereby the unemployment rate continues to grind lower. This is a critical development for policy makers, because unemployment is now running well below their estimate of the neutral level. As a result, Fed officials will be less concerned about the backsliding of inflation, which continues to perplex forecasters.
• Tighter labor conditions will ultimately drive wages and consumer inflation higher. While the level of unemployment at which this occurs may be lower than policy makers currently estimate, it will almost certainly occur if unemployment descends into 3% territory; this appears likely over the next few quarters.
• It is difficult to discern if wage pressures are flaring up in the latest jobs report, as average hourly earnings recoiled from a hurricane-driven surge in September. Nonetheless, other metrics of labor cost pressures, such as the employment cost index reported earlier this week, are reapproaching post-recession highs — thereby signaling that labor inflation is indeed mounting, albeit gradually.
• Unfortunately, the hurricane distortions evident in both the September and October jobs reports leave policy makers with just one clean labor assessment ahead of their Dec. 13 rate decision. However, the latest GDP results, swift post-storm recovery in an array of data and solid employment gains all give the green light to policy makers to continue normalizing interest rates, particularly given that financial conditions continue to ease.