Category: Insight

CAM High Yield Market Note

7/12/2019

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

(Bloomberg) High Yield Market Highlights

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

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

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

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

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

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

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

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

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

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

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

CAM High Yield Market Note

7/5/2019

(Bloomberg) High Yield Market Highlights

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

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

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

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

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

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

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

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

(Bloomberg)  High Yield Market Highlights

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

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

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

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

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

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

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

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

(Bloomberg)  High Yield Market Highlights

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

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

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

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

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

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

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

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

(Bloomberg)  High Yield Market Highlights 

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

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

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

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

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

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$2.5 billion and year to date flows stand at $12.5 billion.  New issuance for the week was $4.0 billion and year to date HY is at $94.9 billion, which is +12% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• S. junk bonds gained 0.19% yesterday, the most in 7 weeks, as stocks rallied and the VIX fell. This morning’s equity retreat and the biggest fund outflows since December call into the question the sustainability of the move higher.
• Junk bond yields dropped across ratings, with the biggest decline in 5 weeks, but nervous investors pulled cash out of retail funds for a second week
• Lipper reported an outflow of $2.57b from U.S. high yield for week ended May 15, the most since December, amid trade war jitters
• Berry Global is set to price a smaller than expected deal today
• Three new deals priced yesterday. All priced at the lower end talk
• Junk bond energy saw the best performance in 6 weeks after posting losses for more than 10 weeks, with 0.25% yesterday
• High-yield energy YTD return was 8.67%
• High-yield returns ex-energy also turned positive, with YTD at 8.086%
• BBs at 7.99%, single-Bs 8.25%
• CCCs at 7.964% YTD
• Loans lag junk bonds, with a 5.67% YTD gain

(Reuters)  U.S. states accuse Teva, other drugmakers, of price-fixing: lawsuit 

• S. states filed a lawsuit accusing Teva Pharmaceuticals USA Inc of orchestrating a sweeping scheme with 19 other drug companies to inflate drug prices – sometimes by more than 1,000% – and stifle competition for generic drugs, state prosecutors said on Saturday.
• Soaring drug prices from both branded and generic manufacturers have sparked outrage and investigations in the United States. The criticism has come from across the political spectrum, from President Donald Trump, a Republican, to progressive Democrats including U.S. Senator Elizabeth Warren, who is running for president.
• The 20 drug companies engaged in illegal conspiracies to divide up the market for drugs to avoid competing and, in some cases, conspired to either prevent prices from dropping or to raise them, according to the complaint by 44 U.S. states, filed on Friday in the U.S. District Court in Connecticut.
• “The allegations in this new complaint, and in the litigation more generally, are just that – allegations,” Teva said in a statement. “Teva continues to review the issue internally and has not engaged in any conduct that would lead to civil or criminal liability.”
• “Apparently unsatisfied with the status quo of ‘fair share’ and the mere avoidance of price erosion, Teva and its co-conspirators embarked on one of the most egregious and damaging price-fixing conspiracies in the history of the United States,” the complaint said.

(Bloomberg)  Looming U.S. Junk Bond Risk May Shrink With Fed’s Help 

• One of the biggest risks in the junk bond market is showing signs of diminishing, with help from the Federal Reserve.
• Nearly a third of the $1.2 trillion U.S. high-yield market matures in the next four years, a record high proportion, according to Barclays Plc strategists led by Bradley Rogoff. Junk-rated companies have to refinance that debt, pay it off, or face bankruptcy.
• They have years to sort out that risk, but many are doing it now: companies have issued more than $80 billion of bonds this year that listed refinancing as one of the uses of proceeds, according to data compiled by Bloomberg, accounting for more than 70% of issuance this year.
• “Companies are extending maturities out, and that’s healthy,” said Scott Roberts, head of high-yield debt at Invesco Ltd. Refinancing is a better use of debt than buying back shares, he added. “I’ve seen frothy before and this is not it.”
• Corporations have ample incentive to deal with future debt maturities soon: on average they can reduce interest costs by issuing securities at current yields, the Barclays strategists said. Those relatively low borrowing costs are in part because of the Fed, which has paused its rate hikes, spurring money managers to pile into junk bonds in search of yield. Even with recent declines in high-yield securities, the debt has gained 8.3% this year through Friday, according to Bloomberg Barclays index data.
• “I feel good about this high-yield market and we are trying to push issuers to take advantage of it,” said Richard Zogheb, global head of debt capital markets at Citigroup Inc. “Investors are so excited now that the underlying rate environment is more dovish, and that’s really good news for high-yield borrowers.”
• Investment bankers say companies are taking notice of the opportunities to issue, and not just for refinancing. Corporations sold around $12 billion of U.S. junk bonds last week, the highest level in around 20 months, according to data compiled by Bloomberg.

(Bloomberg)  China Downplays Chances for Trade Talks While U.S. Plays ‘Little Tricks’

• China’s state media signaled a lack of interest in resuming trade talks with the U.S. under the current threat to escalate tariffs, while the government said stimulus will be stepped up to buttress the domestic economy.
• Without new moves that show the U.S. is sincere, it is meaningless for its officials to come to China and have trade talks, according to a commentary by the blog Taoran Notes, which was carried by state-run Xinhua News Agency and the People’s Daily, the Communist Party’s mouthpiece. The Ministry of Commerce spokesman said Thursday he had no information about any U.S. officials coming to Beijing for further talks.
• The indications that negotiations are paused will focus attention on the next opportunity for Presidents Xi Jinping and Donald Trump to meet — at the Group of Twenty meeting in Japan next month. Their meeting in Argentina in December last year put negotiations back on track, only for them to fall apart again this month in Washington.
• S. Treasury Secretary Steven Mnuchin said this week that American officials “most likely will go to Beijing at some point” in the near future to continue trade talks, before later saying he has “no plans yet to go to China.”

Fund Flows & Issuance:  According to a Wells Fargo report, flows week to date were -$0.7 billion and year to date flows stand at $16.2 billion.  New issuance for the week was $12.8 billion and year to date HY is at $90.8 billion, which is +14% over the same period last year.

(Bloomberg)  High Yield Market Highlights

• S. junk issuers continue to rush in as if the window is closing, pricing another $3 billion in bonds yesterday despite secondary market weakness. This week’s $12 billion total makes it the busiest since September 2017.
• The high-yield index fell 0.22%, the biggest decline since March 8 and the fourth straight day of losses, as stocks fell and VIX rose
• Yesterday’s new issuance was oversubscribed as investors fought for allocation
• Junk bond returns dropped across ratings for 4 straight sessions, the first time since early March, with the exception of BBs which turned positive one day of the week
• Yields surged across the risk spectrum and saw the biggest jump in almost seven weeks
• BB yields rose to a more than 3-month high, saw biggest rise in 12 weeks
• Energy returns were negative for the 10th session with a 1-day break on Friday last, the longest streak since December 13-26
• Energy return YTD 9.040%, ex-energy 8.19%
• CCCs lost most, falling 0.23%
• CCCs are up 8.6% YTD
• Junk bond returns are 8.31% YTD
• BBs have returned 8.03%, single-Bs 8.41%
• Loans have returned 5.61% YTD

(Business Wire)  AmeriGas Reports Second Quarter Results

• GAAP net income of $219.1 million, compared with $191.8 million in the prior-year period; adjusted net income of $203.1 million, compared with $222.7 million in the prior-year period
• Adjusted EBITDA of $290.3 million, compared with $309.5 million in the prior-year period
• AmeriGas expects to be at the low end of its fiscal 2019 Adjusted EBITDA guidance range of $610 million – $650 million
• Hugh J. Gallagher, president and chief executive officer of AmeriGas, said, “Overall, AmeriGas experienced weather that was colder than the prior year, however our results were impacted by warm weather during the critical heating months in the southeastern U.S. During the quarter, we remained focused on our growth drivers and built on our history of solid volume and customer additions in our Cylinder Exchange and National Accounts programs. Our team did a great job managing expenses throughout the entire heating season and we continue to look for additional opportunities to improve efficiencies. AmeriGas remains on pace to deliver adjusted EBITDA towards the low end of its guidance range.
• While degree days for the quarter were 4% colder than normal and 5% colder than last year, January and February were a combined 17% warmer than normal in the southeastern U.S.
• Retail volumes sold decreased by 4% primarily due to warm weather in the southeastern U.S. during critical heating months

(PR Newswire)  TransDigm Group Reports Fiscal 2019 Second Quarter Results 

• During the quarter, on March 14, 2019, TransDigm completed the acquisition of Esterline Technologies Corporation, a supplier of products to the global aerospace and defense industry.
• Also during the quarter, on February 13, 2019TransDigm completed the private offerings of $4.0 billion aggregate principal amount of 6.25% Senior Secured Notes due 2026 and $550 million aggregate principal amount of 7.50% Senior Subordinated Notes due 2027.
• The net proceeds of the $4.0 billionsecured notes were used to both fund the purchase price of the Esterline acquisition and to allow for substantial near term financial flexibility.
• The net proceeds from the $550 millionof subordinated notes were used to redeem all of the Company’s outstanding senior subordinated notes due 2020 and replaced them with notes due 2027.
• These events above significantly impacted certain year-over-year comparisons.
• Net sales for the quarter rose 28.2%, or $262.8 million, to $1,195.9 millionfrom $933.1 million in the comparable quarter a year ago. Organic sales growth was 11.0%. Acquisition sales contributed $160.4 million, of which $122.0 million were from Esterline for the 17 days of ownership in the quarter.
• EBITDA for the quarter increased 15.9% to $509.4 millionfrom $439.4 million for the comparable quarter a year ago.  EBITDA As Defined for the period increased 23.5% to $571.8 million compared with $463.1 million in the comparable quarter a year ago.  EBITDA As Defined as a percentage of net sales for the quarter was 47.8%. Esterline contributed $26.7 million of EBITDA As Defined in the current quarter. Excluding Esterline,  EBITDA As Defined as a percentage of net sales for the quarter was 50.8%.
• “We are pleased with our second quarter results and the strength of our base business,” stated Kevin Stein, TransDigm Group’s President and Chief Executive Officer. “Organic revenue growth was 11% in the quarter driven by good growth across all major end markets. Our core EBITDA As Defined, excluding the dilutive impact of Esterline and the acquisitions completed in fiscal 2018, continued to expand sequentially and over the prior year period to 51.5% in the quarter.
• In addition to the focus on our base business, it was a busy quarter with the completion of the Esterline acquisition, our largest acquisition to date. Our second quarter results include $122 millionof revenue and $27 million of EBITDA As Defined reflecting 17 days of Esterline ownership. Please note the implied Esterline margin from this short period is higher than should be expected for the balance of the fiscal year primarily due to an elevated level of shipments at quarter end.”
• He continued, “Lastly, our decision in the quarter to borrow substantial additional funds impacted our quarterly net income, but we believe the significant near term flexibility and attractive cost will serve us well in the future.”

(Bloomberg)  EQT and Digital Colony Agree to Buy Zayo for $14.3 Billion

• Fiber network owner Zayo Group Holdings Inc. has agreed to be acquired by Digital Colony Partners and EQT Partners for $14.3 billion including debt in a deal that will
  take the fiber-network owner private.
• The deal values Zayo at $35 per share in cash and includes $5.9 billion in debt, Zayo said in a statement Wednesday, confirming an earlier Bloomberg report.
• Zayo struggled through organizational changes and concerns that the market for fiber lines was becoming overcrowded. In March, Zayo announced that they were evaluating strategic alternatives.
• “I am confident this partnership with EQT and Digital Colony will empower Zayo to accelerate its growth and strengthen its industry leadership,” Chief Executive Officer Dan Caruso said in the statement.
• The transaction is scheduled to close in the first half of 2020, pending regulatory clearance and approval by Zayo shareholders.

(Bloomberg)  Investors Suing JPMorgan May Redefine the Leveraged Loan Market

• A group suing JPMorgan Chase & Co. and other Wall Street banks over a loan that went sour four years ago is alleging the underwriters engaged in securities fraud. If successful, the lawsuit could radically transform the $1.2 trillion leveraged lending market.
• The defendants say there’s one key problem — unlike bonds, loans aren’t securities. As a result, they’ve filed a petition asking the court to dismiss the suit on those exact grounds.
• “There are absolutely enormous market consequences if a court determines that leveraged loans are securities,” said J. Paul Forrester, a partner at law firm Mayer Brown who’s not involved in the litigation. “Leveraged loans and lenders would be potentially subject to the same offering and disclosure requirements as securities and would face the same regulatory oversight and enforcement consequences.”
• The suit stems from a $1.8 billion loan that JPMorgan and others arranged for Millennium Health LLC — then owned by private-equity firm TA Associates — and sold to investors in 2014. Within a matter of months, lenders saw the value of their loan plunge as the company disclosed that federal authorities were investigating their billing practices. Millennium agreed to pay $256 million to resolve the probe, and would go on to file for bankruptcy.
• JPMorgan knew U.S. officials were investigating Millennium when it sold the loan, but didn’t tell investors who were about to buy the debt, Bloomberg reported in 2015. The bankers did not provide the information because Millennium told them it wasn’t material at the time.
• “Styled as ‘leveraged loans,’ the debt obligations that defendants sold to the investors back in April 2014 have all the attributes of and, in fact, constituted credit agency-rated and tradeable debt ‘securities,’” the lender trustee wrotein the 2017 suit. As such, the defendants are liable “for sponsoring the materially false presentation of Millennium’s financial condition and business practices.”
• “The sophisticated entities that lent Millennium money now try to classify the loan as a ‘security’ and the loan syndication as a ‘securities distribution’ in an attempt to manufacture a securities fraud claim where none is viable, and to avoid the express language of the contracts into which they willingly entered,” JPMorgan and Citigroup wrote in a memorandum last month.