Insight – Page 36 – Cincinnati Asset Management

27 Sep 2019

Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Spreads and Treasuries were range bound during the week and look likely to finish the week relatively unchanged. It was a quiet week for credit which is unsurprising given that we are headed into quarter end.

The primary market kicked off September with its busiest week ever but the torrid pace of issuance has cooled considerably heading into month end. Weekly new issue volume was $14.5bln pushing the monthly total to $154.9bln according to data compiled by Bloomberg, the fifth busiest month of all time. 2019 issuance trails 2018 by 3.9% on a year over year basis.

According to Wells Fargo, IG fund flows during the week of September 19-25 were +$2.9bln. This brings YTD IG fund flows to +$216bln. 2019 flows are up 8.2% relative to 2018.

(Bloomberg) Sizzling Bond Market Draws Record Number of Blue-Chip Companies

This month has seen a record number of bond sales by blue-chip companies, incentivized by low interest rates and supercharged investor demand to refinance debt.
The market priced 127 deals, surpassing September 2017’s 110 offerings as the busiest month, based on Bloomberg records began going back 20 years. Total volume of $154.9 billion is still short of the $177 billion record set in May 2016. But with two days remaining in September, sales are poised to be the third-highest ever.
The surge in supply came as a growing pile of bonds offer negative yields overseas, driving investors desperate for higher returns into the U.S. corporate credit market. It marks a rare spike in borrowing that’s fueled by a broad-based rush to extend maturities, not driven by large M&A financing.

The first week of the month saw the highest weekly sales volume ever. Almost $75 billion was priced, led by bond sales for Walt Disney Co. and Apple Inc.
September is by far the most popular month for issuers, accounting for the top three months by deal count over the past 20 years. This month’s 127 total high-grade sales compares with 110 in 2017 and 100 in 2016, the second and third busiest months over the past 20 years.
The average deal count for September over the last 10 years is 88.

27 Sep 2019

High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at $18.0 billion. New issuance for the week was $5.9 billion and year to date HY is at $193.9 billion, which is +33% over the same period last year.

(Bloomberg) High Yield Market Highlights

S. junk bonds are headed for their first weekly loss since mid-August after posting negative returns for three straight sessions and seeing fund outflows in the week.
The 0.06% decline Thursday was led by the energy sector and extended a weekly loss to 0.21% and pushing yields to 5.67%, Bloomberg Barclays index data show
Triple-Cs led the slump with a 0.12% drop, their eighth straight decline; yields on the debt climbed 6bps to 10.64%
Single-B yields dropped 1bp to 5.68%
BB yields rose 1bp to 4.10%
Energy index has recorded losses for four consecutive sessions and seven of the last 10
Investor caution spurred demand for higher- quality issuers as was evident in the pricing of AMN Healthcare on Thursday, which priced $300m at a yield of 4.625%, less than the initial talk of a 4.75% area
Earlier in the week, Qorvo and Beacon Roofing, both BB credits, priced at the lower end of talk after drawing orders more than 3x the deal size
On the other end of the spectrum, B1/B rated Shutterfly bonds are now pricing at a discount of 95 with an 8.5% coupon to fund its buyout by Apollo. The acquisition closed Sept. 25

(Bloomberg) New Twist in Red-Hot Junk Debt Market: Some Deals Are Flopping

At a quick glance, everything seems wonderful in the world of risky credit. In September alone, companies have raked in more than $52 billion by tapping the U.S. leveraged-loan and high-yield bond markets.
In recent weeks, a slew of companies — typically those considered the riskiest of the risky — have been forced to either ratchet up interest rates or dangle sweeteners to drum up investor demand and complete deals. A few more — including at least four this month — have been yanked from the market entirely.
One common refrain coming from investors is that they don’t want to touch companies with excessive debt, especially those from struggling sectors or with businesses that could suffer more in a downturn. Particularly problematic: companies rated B3 by Moody’s Investors Service, one step away from the junk market’s riskiest tier.
“If you’re looking to finance an LBO in the wrong sector or a business vulnerable to a slowdown, that’s tougher,” said John Cokinos, co-head of leveraged finance at RBC Capital Markets. “The loan market has limited appetite for new B3 rated deals, and the high-yield market is pushing back on highly levered deals.”
September was the busiest month of the year for leveraged-loan launches as well as for speculative-grade bond pricings. And yields on junk bonds reached the lowest in almost two years. That points to a risk-on market for investors looking for greater returns in a world with $15 trillion of negative-yielding debt.
But those days may be numbered with a slowdown weighing on investors’ minds.
The pushback on recent LBOs is a sharp contrast to a year ago, when multibillion-dollar buyout financings — including those for Refinitiv and Envision Healthcare — were flying off the shelf despite some of the worst investor protections ever seen. Since then, though, there’s been a clear shift toward quality.
To be sure, debt perceived as more resilient in a weaker economy has flown off the shelf, reinforcing the flight-to-quality that has dominated the market for the last few weeks. There was a frenzy, for example, for junk bonds issued by chicken chain Popeyes. They sold earlier this month at one of the lowest-ever yields for eight-year securities at just 3.875%.
“For repeat and seasoned high-quality issuers in both high yield and leveraged loans, there’s a strong investor bid,” Cokinos said.

(Bloomberg) The Unusual Debt Maneuver That Inched Peabody Closer to Coal JV

Peabody Energy Corp.’s plan to merge some of its operations with those of Arch Coal Inc. needed help from investors. They’d either have to agree to refinance its debt or amend its credit agreement to allow the deal.
It struck out on the first option, scrapping proposed loan and bond refinancings after investors pushed back. In the end, it figured out a way to bypass the syndicated loan market altogether — with an unusual move that’s now angering some of the company’s lenders.
The biggest U.S. coal producer increased the size of a revolving credit facility to $565 million, making it the largest slice of the company’s existing loan package and giving those lenders enough clout to approve the loan agreement amendment Peabody needed, according to people with knowledge of the matter. The amendment helps pave the way for Peabody’s planned joint venture with Arch Coal, which it is seeking to help it produce the commodity more competitively amid waning demand from the electricity industry.
Investors in its existing term loan were not impressed by the move, which prevented them from potentially being able to extract a higher interest rate or earning a fee for agreeing to the amendment. The loan’s price dropped to around 95 cents after Peabody announced the completed amendment on Sept. 17, the steepest decline since it obtained the $400 million debt in 2018. In an unusual step, Peabody also announced in a separate filing on that day that it had switched the administrative agent on the loan agreement to JPMorgan from Goldman Sachs Group Inc. The administrative agent typically shepherds through any amendments to borrowing accords.
Peabody’s credit agreements covering its loans had given it leeway to upsize the company’s $350 million revolving facility due in 2020 by $215 million. Peabody said Sept. 17 it had successfully upsized that borrowing and obtained the loan agreement amendment. By upsizing the revolver, the lenders of that facility held the majority of voting power, which allowed the loan amendment to pass without needing consent from existing term-loan investors, said the people familiar with the matter, who asked not to be identified because the matter is private.

20 Sep 2019

Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Spreads are tighter on the week and Treasuries are lower. The OAS on the corporate index opened the week at 116 and is 114 as we go to print on Friday morning while the 10yr Treasury is at 1.767%, 12 basis lower from the previous Friday close. In other news, as expected, the Fed cut the target rate on Wednesday by a quarter-point to 2%. The direction of future cuts is much less clear with plenty of debate as to whether or not the Fed will cut again this year. We tend to think it comes down to economic data and the Fed has been quite clear about this in our view. The Repo market made headlines throughout the week due to a spike in repo-rates amid a supply-demand mismatch. The Fed has since intervened and gotten the rates under control. It remains to be seen as to whether this is much ado about nothing but so long as the Fed liquidity injections can manage to keep rates within the targeted range then we believe that this topic will go by the wayside.

In what seems to be a recurring theme, the primary market had yet another strong week. Monthly volume has topped $140bln for September making it the 8^th busiest month in history with more than a full week to go. Year-to-date supply is now $905bln which is down a smidge less than 4% relative to 2018 supply at this juncture. While it was a busy week in the primary market it was not quite as robust as the previous two –if $37bln manages to price by the end of the month then September 2019 would become the busiest month on record but with just 6 trading days left and quarter end looming we are probably not likely to see enough supply to topple the all-time high.

According to Wells Fargo, IG fund flows during the week of September 12-18 were +$2.5bln. This brings YTD IG fund flows to +$213bln. 2019 flows are up 8 % relative to 2018.

(Bloomberg) The Repo Market’s a Mess. (What’s the Repo Market?): QuickTake

When plumbing works well, you don’t need to think about it. That’s usually the case with a vital but obscure part of the financial system known as the repo market, where vast amounts of cash and collateral are swapped every day. But when it springs a leak, as it did this week, it rivets the attention of the U.S. Federal Reserve, the nation’s largest banks, money-market funds, corporations and other big investors. The Fed calmed things down by pumping in billions of dollars, but it may have a lot more work to do on the pipes.
- What’s the repo market?
  - It’s where piles of cash and pools of securities meet. Repo is short for repurchase agreements, transactions that amount to collateralized short-term loans, often made overnight. Repo deals let big investors — such as mutual funds — make money by briefly lending cash that might otherwise sit idle, and enable banks and broker dealers to get needed financing by loaning out securities they hold in return. A healthy repo market is more than the world’s biggest pawn shop: It helps a wide range of other transactions go more smoothly — including trading in the over $16 trillion U.S. Treasury market.
- How is the Fed involved in it?
  - In a number of ways. For years, central banks around the globe have used their own repo markets to extend credit in tight markets, stabilize financing costs and guide interest rates. But the relationship changed when the U.S. repo market melted down in September 2008, a crucial part of that year’s financial panic. Since then, the Fed has worked with other regulators to put in new rules to prevent a recurrence. And since 2013, the Fed has entered the repo market on a large scale, using transactions there to put a floor under rates.
- What happened this week?
  - A lot of cash flowed out of the repo pipes just as more securities were flowing in — meaning that suddenly there wasn’t enough cash for those who needed it. That mismatch drove overnight repo rates from about 2% last week to over 10% on Tuesday. Perhaps more alarming for the Fed was the way volatility in the repo market pushed the effective federal funds rate to 2.30%, above the 2.25% upper limit of the Fed’s target range — just as the Fed was preparing to drop that ceiling to 2%.
- Why did that all happen?
  - In one view, different events that acted as catalysts just happened to land at the same time and push in the same direction. A big swath of new Treasury debt settled into the marketplace, landing on dealers’ balance sheets just as cash was being sucked out by quarterly tax payments companies needed to send to the government.
- What did the Fed do?
  - In its first direct injection of cash to the banking sector since the financial crisis, it laid out about $200 billion in temporary cash over several days to quell the funding crunch and push the effective fed funds rate down. In what are known as overnight system repos, the Fed lent cash to primary dealers against Treasury securities or other collateral.
- Was that enough?
  - It did calm the markets, eventually bringing the rates down around 2% on Thursday. And the action may be sufficient for a temporary patch, if the liquidity squeeze really just reflected the corporate tax payments and Treasury settlements falling on the same date. But most strategists and economists believe the turmoil is a sign of a longer-term problem. To some, one factor is that the rules regulators imposed to make the market safer led dealers to pull back on their involvement, reducing overall liquidity. And many think these distortions will continue as long as government spending and Treasury’s debt issuance continues to rise. More broadly, some observers say that the repo troubles show that there aren’t enough reserves — excess money that banks park at the Fed — in the banking system to give markets the buffers they need at times of stress.
- What does that mean?
  - To some market observers, it might mean that bank reserves, which currently top $1 trillion, still don’t amount to having enough money in the system. They think the Fed may have to start buying bonds again as a way of boosting reserves. This time the purchases would not be like the quantitative easing of the past, meant to support the broader economy, but just to clear up the mechanics of its balance sheet. As with any corporation, the Fed’s assets and liabilities must balance. The Fed’s liabilities mainly come in the form of currency in circulation and bank reserves. As the nation’s economy expands, as it has since 2009, the amount of currency in use has been growing, too. Without action by the Fed to add to its assets, the growth of currency would reduce the liability represented by reserves.
- What can the Fed do about the repo squeeze?
  - It did one thing at its September meeting, and two other steps are being discussed. It lowered the interest rate it pays on so-called excess reserves — the cash banks park at the Fed beyond what’s needed to meet regulatory requirements — to 1.8% from 2.1%. Lowering the IOER rate — interest on excess reserves — gives banks an incentive to lend out more of their money, which would keep repo and the effective federal funds rate more within the Fed’s target range. The Fed has also considered introducing a new tool, called a standing overnight repo facility, which would amount to a standing offer to lend a certain amount of cash to repo borrowers every day. The most drastic step would be for the Fed to create more bank reserves by expanding its balance sheet and thereby buoying bank reserves. Fed Chairman Jerome Powell said Wednesday that the central bank is monitoring when it’s appropriate to start expanding the balance sheet.

20 Sep 2019

High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $3.2 billion and year to date flows stand at $18.1 billion. New issuance for the week was $9.9 billion and year to date HY is at $188.0 billion, which is +32% over the same period last year.

(Bloomberg) High Yield Market Highlights

After the biggest week of inflows since February, U.S. junk bonds are poised to edge higher again Friday, capping the fifth straight week of gains. The CDX HY index is up slightly as stock futures gain and oil rallies. Another $1 billion of deals are set to price today.
Investors continued to put money into high-yield bond funds with Refinitiv’s Lipper reporting an inflow of $3.2b for the week ended Sept. 18. That’s the most since February.
HYG and JNK — the two-biggest high-yield ETFs, posted a combined $340m of inflows for Thursday
There has been a steady stream of new supply in the market this week
At least three deals are slated to price Friday
Bloomberg Barclays index yields continued to head south, dropping to a new 20-month low of 5.57%; spreads are at a 3-month low of +355
Single-B yields also hit a new 20-month low of 5.57% after falling by 1bps
BB yields dropped 4bps to close at 4.03%
CCC yields bucked the trend and rose for the third straight session to close at 10.62%, up 7bps
Junk bond returns rebounded yesterday as oil recovered and posted a gain of 0.029%, taking YTD returns to 11.757%
BBs were at 12.8% after a gain of 0.05%
Single Bs were at a new 2019 high of 12.394% after a gain of 0.06%
CCCs posted negative returns for the third straight session at 0.17%, taking the YTD down to 6.58%

(Bloomberg) Unhinged Money Markets Trigger Fed Action to Alleviate Stress

The Federal Reserve took action to calm money markets on Tuesday, injecting billions in cash to quell a surge in short-term rates that was pushing up its policy benchmark rate and threatening to drive up borrowing costs for companies and consumers.
While the spike wasn’t evidence of any sort of imminent financial crisis, it highlighted how the Fed was losing control over short-term lending, one of its key tools for implementing monetary policy. It also indicated Wall Street is struggling to absorb record sales of Treasury debt to fund a swelling U.S. budget deficit. What’s more, many dealers have curtailed trading because of safeguards implemented after the 2008 crisis, making these markets more prone to volatility.
Money markets saw funding shortages Monday and Tuesday, driving the rate on one-day loans backed by Treasury bonds — known as repurchase agreements, or repos — as high as 10%, about four times greater than last week’s levels, according to ICAP data.
More importantly, the turmoil in the repo market caused a key benchmark for policy makers — known as the effective fed funds rate — to jump to 2.25%, an increase that, if left unchecked, could have started impacting broader borrowing costs in the economy. Because that’s at the top of the range where Fed officials want the rate to be, they are likely to make yet another tweak to a key part of their policy tool set to try to get things back on track when they meet Wednesday to set benchmark rates.
But the central bank didn’t wait until then to do something, resorting to a money-market operation it hasn’t deployed in a decade. The New York Fed bought $53.2 billion of securities on Tuesday, hoping to quell the liquidity squeeze. It appeared to help. For instance, the cost to borrow dollars for one week while lending euros retreated after almost doubling Monday.

(CNN) Coordinated strikes knock out half of Saudi oil capacity, more than 5 million barrels a day

Coordinated strikes on key Saudi Arabian oil facilities, among the world’s largest and most important energy production centers, have disrupted about half of the kingdom’s oil capacity, or 5% of the daily global oil supply.
Yemen’s Houthi rebels on Saturday took responsibility for the attacks, saying 10 drones targeted state-owned Saudi Aramco oil facilities in Abqaiq and Khurais, according to the Houthi-run Al-Masirah news agency.
Yet key questions about the attacks remain unanswered. US Secretary of State Mike Pompeo pinned the strikes directly on Iran, which backs the Houthi rebels. But he said there was “no evidence the attacks came from Yemen.”
Preliminary indications are that the attacks likely originated from Iraq, a source with knowledge of the incident told CNN. Iran wields significant influence in southern Iraq, which is situated much closer than Yemen to the affected Saudi sites.

16 Sep 2019

Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

Spreads are set to finish the week modestly tighter while Treasuries are at the forefront with the 10yr now 30 basis points higher from last Friday’s close of 1.560%. The OAS on the corporate index closed at 117 on Thursday after closing the prior week at a spread of 119. Equity indices are trading near or above all-time highs as risk markets cling to any glimmer of hope or positive headline that might indicate U.S.-China trade progress. At CAM we remain skeptical of a near term trade resolution and are cautious in our positioning as a result.

The primary market had another strong week after posting its busiest week ever in the previous weekly session. Nearly $42bln of new corporate debt was brought to the market making it the 3^rd busiest week of the year according to data compiled by Bloomberg. Monthly volume has topped $116bln while year-to-date corporate supply stands at $882bln. After having trailed 2018 issuance by as much as 13% in June, 2019 year-to-date issuance is now down just 2% from the prior year. It will be interesting to see how the violent move higher in rates may affect the primary market going forward as higher rates may serve to delay some issuance as borrowers weigh funding costs relative to long term capital allocation plans.

According to Wells Fargo, IG fund flows during the week of September 5-11 were +$7.2bln, the second largest inflow on record. This brings YTD IG fund flows to +$209bln. 2019 flows to this juncture are up 8 % relative to 2018.

(Bloomberg) Investment Grade New Issues Trade Tighter Despite Supply Surfeit

Demand for U.S. investment-grade credit is robust, with this month’s avalanche of high-grade bond sales trading mostly stronger, data compiled by Bloomberg show. Spreads on the vast majority of deals priced last week and sized at $1 billion or more are tighter.
- 20 out of 21 bonds sampled were tighter as of Friday morning
  - Average change in spread was 8 basis points

(Bloomberg) Fed Seen Cutting Rates Twice More in 2019 Before Holding Steady

U.S. central bankers will trim interest rates by a quarter percentage point next week, and again in December, before leaving the target range for their benchmark rate at 1.5%-1.75% for an extended period, according to economists surveyed by Bloomberg.
In the Sept. 9-11 poll of 35 economists, respondents lowered their projections for the path of U.S. rates compared to a similar survey in July. However, they firmly rejected the idea the Federal Reserve had begun a series of moves that will prove more prolonged than the “mid-cycle adjustment” that Chairman Jerome Powell predicted in July, when the Federal Open Market Committee cut for the first time in more than a decade.

(Bloomberg) Elliott’s $3.2 Billion AT&T Bet Signals ‘There Will Be a Fight’

AT&T Inc.’s sweeping transformation from Ma Bell to a multimedia titan has gone both too far and not far enough for Elliott Management Corp.
Billionaire Paul Singer’s New York hedge fund disclosed a new $3.2 billion position in AT&T, taking on one of the nation’s biggest and most widely held companies with a plan to boost its share price by more than 50% through asset sales and cost cutting.
Elliott outlined a four-part plan for the company in a letter to its board Monday. The proposal calls for the company to explore divesting assets, including satellite-TV provider DirecTV, the Mexican wireless operations, pieces of the landline business, and others.
AT&T is the most indebted company in the world — not counting financial firms and government-backed entities — with $194 billion in total debt as of June, a legacy of Stephenson’s steady clip of large acquisitions. The CEO used to keep a spreadsheet of a few dozen companies that he studies on his tablet to plan his next big deal, people familiar with the matter told Bloomberg in 2016.

16 Sep 2019

High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were $2.6 billion and year to date flows stand at $16.0 billion. New issuance for the week was $9.3 billion and year to date HY is at $177.1 billion, which is +31% over the same period last year.

(Bloomberg) High Yield Market Highlights

U.S. high-yield is set for a strong opening with stock futures up after a new round of stimulus from the ECB yesterday, and spreads holding up amid a surge in new issues.
U.S. junk bonds have had a blockbuster week pricing over $9 billion in new issuance
Bankers have tested investor appetite for lower rated debt and riskier structures this week after double B issuers kicked off the primary market after Labor Day. But investors are being selective
Junk bond returns have also rebounded to close at a new peak of 11.58% for the year, after posting a gain of 0.55%
CCCs gained the most for the second straight session at 0.22%, taking YTD returns to 6.79%
BBs YTD stood at 12.75% after gaining 0.023%
Single Bs also hit a 2019 high of 11.9% after gains of 0.05%
Yields dipped 1bps to 5.65%, while spreads tightened to near seven-week lows of +365 after tightening 7bps
CCC yields dropped the most in three weeks to close at a five-week low of 10.69%, while spreads tightened 15bps to +878

(Reuters) China exempts some U.S. goods from retaliatory tariffs as fresh talks loom

China announced its first batch of tariff exemptions for 16 types of U.S. products, days ahead of a planned meeting between trade negotiators from the two countries to try and de-escalate their bruising tariff row.
The exemptions will apply to U.S. goods including some anti-cancer drugs and lubricants, as well as the animal feed ingredients whey and fish meal, the Ministry of Finance said in a statement on its website on Wednesday.
Beijing said in May that it would start a waiver program, amid growing worries over the cost of the protracted trade war on its already slowing economy.
Some analysts view the move as a friendly gesture but don’t see it as a signal that both sides are readying a deal.
Indeed, the exempted list pales in comparison to over 5,000 types of U.S. products that are already subject to China’s additional tariffs. Moreover, major U.S. imports, such as soybeans and pork, are still subject to hefty additional duties, as China ramped up imports from Brazil and other supplying countries.
Beijing has said it would work on exempting some U.S. products from tariffs if they are not easily substituted from elsewhere.

(PR Newswire) Encompass Health prices offering of senior notes

Encompass Health Corporation announced the pricing of its underwritten public offering of $500 million in aggregate principal amount of its 4.500% senior notes due 2028 at a public offering price of 100% of the principal amount and $500 million in aggregate principal amount of its 4.750% senior notes due 2030 at a public offering price of 100% of the principal amount. The Company will pay interest on both series of the notes semi-annually in arrears on February 1 and August 1 of each year, beginning on February 1, 2020. The notes will be jointly and severally guaranteed on a senior unsecured basis by all of its existing and future subsidiaries that guarantee borrowings under the Company’s credit agreement and other capital markets debt.
The Company intends to use the net proceeds from this offering to fund the purchase of equity from management investors of its home health and hospice segment, to fund a call of $400 million of its senior notes due 2024 and to repay borrowings under its revolving credit facility.

(Business Wire) Spectrum Brands Holdings Announces Management Changes

Spectrum Brands Holdings, Inc., a global consumer products company offering a broad portfolio of leading brands and focused on driving innovation and providing exceptional customer service, announced that Jeremy W. Smeltser, 44, will join the Company on October 1 as Executive Vice President. Mr. Smeltser will succeed Doug Martin, 57, as Executive Vice President and Chief Financial Officer on or prior to December 20, 2019. Mr. Smeltser will report to Chairman and Chief Executive Officer David Maura.
The Company also announced two executive leadership promotions. Senior Vice President and Chief Operating Officer Randal D. Lewis, 53, has been promoted to Executive Vice President and COO, effective today, and Rebeckah Long, 45, has been named Senior Vice President, Global Human Resources, effective October 1, and will continue to report to Randy Lewis.
Mr. Smeltser most recently was Vice President and CFO from 2015-2018 for SPX FLOW, Inc. following its spinoff from SPX Corporation, where he was Vice President and CFO from 2012-2015.
“We’re excited to welcome Jeremy to the Spectrum Brands management team as we execute on our strategies to deliver earnings and cash flow growth in 2020 and beyond, and we look forward to his contributions to our Company’s bright future,” said Mr. Maura. “He is a seasoned public company CFO with a well-developed career path over the last 22 years. He has served at several corporations similar in size and global reach to Spectrum Brands. Jeremy shares our passion for servant leadership in building a fully aligned organization, rooted in a culture of ownership and accountability. Jeremy has an impressive track record in delivering major cost and efficiency improvements across the business platform, and brings a wealth of experience in M&A and other capital structure activities.”

(CNN) Ford debt has been downgraded to junk

Moody’s downgraded Ford’s credit to junk Monday evening. It said the automaker faces considerable business challenges, and its poor financial performance badly positions Ford to take on its planned $11 billion restructuring.
“Ford is undertaking this restructuring from a weak position as measures of cash flow and profit margins are below our expectations, and below the performance of investment-grade rated auto peers,” Moody’s said.
During the Great Recession, Ford and other US automakers suffered massive losses and junk bond credit ratings, which can raise the cost of borrowing. But the industry has been profitable for about 10 years.
Ford in 2012 was upgraded to investment grade, which is what a credit rating is called when it is not considered a junk bond.
The company responded that it is taking the proper steps to improve its business, and that it has the cash necessary to do so.
“Ford remains very confident in our plan and progress. Our underlying business is strong, our balance sheet is solid and we have plenty of liquidity to invest in our compelling strategy for the future,” said company in a statement.

06 Sep 2019

High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

CAM High Yield Market Note

9/6/2019

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.2 billion and year to date flows stand at $13.4 billion. New issuance for the week was $2.8 billion and year to date HY is at $167.8 billion, which is +28% over the same period last year.

(Bloomberg) High Yield Market Highlights

U.S. junk bonds are poised to extend their third straight week of gains as stock futures edged higher ahead of the monthly jobs report and remarks by Chair Jerome Powell in Zurich. Yields dropped to an 11-week low on Thursday to 5.7%, and spreads tightened to a five-week low of +388bps.
Investor demand for the debt bolstered issuance even as retail funds faced outflows.
Supply kept up its steady momentum and five of six deals were BB credits; all were drive-by offerings pricing at the lower end of price talk
The primary is expected to maintain momentum this month, with September issuance of about $20-$25b, according to preliminary estimates from three dealers
The Bloomberg Barclays High Yield Index saw the biggest drop in yields in two weeks, with bonds posting gains across all ratings. Returns in the index climbed to a fresh year-to-date high of 11.17%
CCC yields closed at 10.86%, a drop of 3bps
Spreads ended at +913bps, biggest decline in two weeks
BB returns rose to 12.625%, a new 2019 high and the best in high yield, after gaining 0.136%
Single-B yields also dropped to a 11-week low to 5.84%, the biggest fall in two weeks
Single-Bs are at 11.43%, also a YTD high, after +0.18%
CCCs were at 5.672% after a gain of 0.057%

Reuters) To cut or not? Dueling Fed views boost pressure on Powell

The Federal Reserve should use its meeting in two weeks to aggressively cut interest rates, one U.S. central banker said on Tuesday.
Less than an hour later, a second U.S. central banker said he saw no need to use up the Fed’s precious firepower when the economy is growing, inflation looks stable and labor markets are in good shape.
The dueling views – from St. Louis Fed President James Bullard, who called for a half-a-percentage-point rate cut, and Boston Fed President Eric Rosengren, who saw no immediate need for any move – show the tight spot Fed Chair Jerome Powell finds himself in as the Fed’s next policy-setting meeting approaches.
On one hand, the escalating U.S.-China trade war and a global economic slowdown have begun to pinch U.S. business spending and manufacturing output, posing a threat to the broader U.S. economy.
But Americans continue to spend, wages are rising and employers keep adding jobs, suggesting a downturn is not on the horizon.
Although Powell has said the Fed will act “as appropriate” to keep the economy growing, there is plenty of disagreement among his fellow rate-setters about what that two-word phrase means in practice.

(Bloomberg) U.S. Junk Bond Market Springs Back to Life With Three New Deals

High-yield borrowers are jumping back into the market after a three-week hiatus with at least a trio of issuers expected to price bonds on Wednesday.

Restaurant chain operator Yum! Brands, E&P company Murphy Oil and data storage manager Iron Mountain announced new offerings and are each targeting 10-year bonds
The deals follow the reopening of the high-yield market on Tuesday by Icahn Enterprises, which was the first junk bond to price in three weeks
Borrowers are selling new bonds mostly to refinance and repay existing debt following a recovery in spreads from August’s sell-off. High-yield bond spreads have rallied to two-month lows of 396bps over U.S. Treasuries after widening to 444bps last month, according to Bloomberg Barclays data
Icahn’s new $500 million 4.75% 2024 bond edged higher in secondary trading to 100.125, according to Trace pricing. It priced at par.
The deal was well received. It saw investor orders of more than $1.5 billion, helped by its higher double B ratings.
Two of today’s offerings have similar ratings, which will likely appeal to investors looking to buy higher credit quality bonds.

(Bloomberg) With 49 Deals in 30 Hours, U.S. Corporate Bond Market Ignites

A record number of companies borrowed in the U.S. investment-grade bond market this week as plunging yields spurred another wave of refinancing. And the frenzy isn’t letting up. Since Tuesday, corporations including Coca-Cola Co., Walt Disney Co., and Apple Inc. have sold or are selling notes, bringing the total number of sellers to 49.
Completed sales totaled $54 billion through Wednesday, putting this week on track to be the busiest ever for corporate bond deals. At least another $70 billion are projected for the rest of the month, and the activity is spilling over to junk bonds and leveraged loans as well. With more than $16 trillion of bonds in Europe and Asia paying negative yields, investors worldwide are snatching up debt that offers higher returns, keeping demand strong in the U.S.
For investment-grade companies, the average yield on bonds was 2.77% as of Wednesday, according to Bloomberg Barclays index data. In late November, that figure was above 4.3%. For a company selling $1 billion of debt, that amounts to $15.3 million of annual interest savings, before taxes. Junk-bond yields have dropped too, with notes rated in the BB tier, the uppermost high-yield levels, paying a near record-low 4.07%.
It’s not clear how long that will last — on Thursday, U.S. Treasury yields surged, with the 10-year note jumping as much as 0.12 percentage point to 1.59%.
In the leveraged loan market, 17 deals totaling more than $16 billion have launched this week, making it the busiest week since October. Investment-grade and high-yield bankers are telling clients that the good times may not last.
“If someone has near-term financing needs, they should be looking to take advantage of this window,” said Jenny Lee, co-head of leveraged loan and high-yield capital markets at JPMorgan Chase & Co. “Things potentially could shut down or get more difficult as we head toward the back half of this year.”

06 Sep 2019

Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly
9/6/2019

Spreads are set to finish the week tighter, a remarkable feat considering the tsunami of new issue supply. The OAS on the corporate index closed at 120 on Thursday after closing the prior week at a spread of 120 but as we go to print on Friday afternoon spreads have ground tighter throughout the day. The 10yr Treasury is 1.54%, essentially unchanged on the week but it had traded as low at 1.45% on Wednesday before positive headlines related to trade sparked a sell-off into the Thursday open.

The primary market just capped off the busiest week in its entire history, and in a holiday shortened week with a jobs report to boot. Corporate borrowers brought over $75bln in new debt during the week, smashing the previous 2013 record of $66bln. According to data compiled by Bloomberg, year-to-date corporate supply stands at $840bln. After having trailed 2018 issuance by as much as 13% in June, 2019 year-to-date issuance is now down just 2% from the prior year. The fact that secondary market spreads tightened amid such staggering supply speaks to the insatiable demand for IG U.S. corporate credit.

According to Wells Fargo, IG fund flows during the week of August 29-September 4 were +$4.4bln. This brings YTD IG fund flows to +$202bln. 2019 flows to this juncture are up 7.7% relative to 2018.

29 Aug 2019

High Yield Weekly Rich Balestra - Portfolio Manager 0 comment

CAM High Yield Weekly Insights

Fund Flows & Issuance: According to a Wells Fargo report, flows week to date were -$0.1 billion and year to date flows stand at $12.6 billion. New issuance for the week was $0.0 billion and year to date HY is at $165.0 billion, which is +26% over the same period last year.

(Bloomberg) High Yield Market Highlights

U.S. junk bonds have recouped this month’s losses and look set to extend higher as stock futures rise ahead of Chair Jay Powell’s Jackson Hole speech.
Funds have reported net inflows of $10.4b YTD vs outflows of more than $20b for the same period last year
Month to date, the high-yield index is flat, following a 0.15% gain yesterday
Junk bonds gained across the risk spectrum for five straight sessions, with CCCs gaining 0.17%, the most in high yield yesterday, compared to 0.15% for BBs and single-Bs respectively
The energy index led the CCC rally, posting gains for five consecutive sessions for the first time in more than eight weeks, with a YTD return of 3.21% after a gain of 0.4% yesterday
Junk bond yields dropped for five straight sessions to close at a fresh 2-month low of 5.78%
Spreads were steady, tightening around 3-4bps across ratings and moving in tandem with the 5Y UST yields which were up 3bps
Junk bond return YTD is 10.55%, close to the 2019 peak of 10.57%
BB returns hit a new 2019 peak at 11.92% after posting returns of 0.15%
Single-Bs, second best in high yield, were 10.74%, just 2bps off the YTD peak of 10.76%, after gaining 0.15% yesterday
CCC YTD returns were 5.47% after 0.17% returns yesterday
Summer lull descended on the primary
August priced $9.65b over 11 deals, the slowest month of this year
Supply is expected to resume after Labor Day

(Bloomberg) CyrusOne Explores a Sale After Bidder Approach

CyrusOne Inc. is considering a potential sale after receiving takeover interest, according to people familiar with the matter, as digital infrastructure companies such as data center operators increasingly garner buyout interest from rivals and private buyers.
The Dallas-based company is working with an adviser to evaluate strategic options after a recent approach from at least one potential suitor, said the people, who asked to not be identified because the matter isn’t public.
A bidder group including KKR & Co., Stonepeak Infrastructure Partners and I Squared Capital is in the preliminary stages of weighing a bid for the company, said one of the people. Other potential bidders are interested too, the people said. No decision has been made and CyrusOne could opt to remain independent, they said.
CyrusOne rose as high as 16.6% on the news, its biggest gain since going public in 2013. The shares were up 11.7% to $72.79 at 11:36 a.m. in New York on Friday, giving the company a market value of about $8.2 billion.
A representative for KKR declined to comment. Representatives for Stonepeak, I Squared and CyrusOne didn’t respond to requests for comment.
Founded in 2001, CyrusOne has a network of 48 data centers serving about 1,000 customers in the U.S., U.K., Singapore and Germany, according to its annual report. It is one of at least five real estate investment trusts that specialize in data centers, which help companies safely store data. Others include Equinix Inc. and Digital Realty Trust Inc.

(Bloomberg) Junk-Debt Market’s Flight to Quality Is About to Heat Up Again

Companies selling debt in the U.S. leveraged loan and junk bond markets after Labor Day may find investors have a stronger appetite for quality than risk.
The deal pipeline for both types of debt indicates higher rated, well-known companies plan to seek financing in the coming months. They are likely to be well-received by investors worried about a recession yet still looking for yield.
“Investors are likely to remain highly selective but will be buyers in size for the structures that compare favorably to paper available in the secondary market,” said Jeff Cohen, Credit Suisse’s global head of leveraged finance capital markets.
Amid negative sentiment due to the trade war and a possible global recession, riskier loan sales have struggled in the $1.2 trillion market. The loan market has seen five borrowings scrapped in recent weeks: Vewd Software USA LLC, Golden Hippo, Glass Mountain Pipeline Holdings LLC, Life Time Inc. and Chief Power Finance LLC.
High-yield bore the brunt of this month’s sell-off, but has since clawed backsome of those losses.
The high-yield market hasn’t seen a deal price since Aug. 12, yet about $20 billion of issuance may come in September, Bank of America Corp.’s Oleg Melentyev said. That compares to $23 billion in September 2018, and $40 billion in both 2016 and 2017. The market is about $1.24 trillion in size.

(Bloomberg) Cracks Forming in Leveraged Loan Market as Another Deal Pulled

The froth may not be off leveraged loans just yet, but with five deals falling through in the past few weeks, the market is definitely a little less giddy.
This time it’s Vewd Software. The streaming-service provider joins marketing firm Golden Hippo, Glass Mountain Pipeline Holdings LLC, Chief Power Finance LLC and fitness-center builder Life Time Inc. in dipping its toe in the water and finding borrowing conditions too cold.
The leveraged loan market has been a favorite of private equity firms, funding payouts to partners and buyouts of targeted companies at record-low borrowing costs for a decade, doubling in size to about $1.2 trillion. Now it’s experiencing a rare moment of sobriety. Investors who smell a recession are shying away from companies that just a few months ago might have been an easier sell.
It’s not just failed offerings that are flashing yellow caution lights. Some borrowers have come to market and had to pay more than they originally planned. The possibility of continued rate cuts by the Federal Reserve has made floating-rate deals less attractive, and companies vulnerable to trade wars have had to promise higher yields.
The market has seen “widely divergent pricing outcomes,” said Jeff Cohen, global head of leveraged finance capital markets at Credit Suisse Group AG.
DNA-testing firm Ancestry.com Inc., for example, increased the pricing of a loan financing a dividend to its private equity owners and reduced the size of the payout by $200 million.

16 Aug 2019

Investment Grade Weekly Josh Adams - Portfolio Manager 0 comment

CAM Investment Grade Weekly Insights

CAM Investment Grade Weekly
8/16/2019

Spreads are likely to finish wider for the second consecutive week. The OAS on the corporate index is at 124 this morning after closing the prior week at a spread of 120. Spreads opened the previous week at 113, so the move wider in credit has been meaningful over the course of the past two weeks, but this move has largely been overshadowed by lower Treasuries. The 10yr is wrapped around 1.54% as we go to print after having closed the week prior at 1.74%. The 10yr closed the month of July at 2.01%. The move lower in rates has been quick and intraday ranges have been volatile with the 10yr trading below 1.5% on Thursday while the 30yr traded below 2% for the first time in history. For all the volatility in rates and spreads the corporate market has a positive tone as we go to print Friday morning. There are not many sellers of corporate credit while buyers are plentiful. This has made it difficult to find attractive bonds in recent weeks but we at CAM are chipping away and finding select opportunities in credit.

The primary market continues to show resiliency amid a volatile tape. Corporate borrowers brought $23bln in new debt during the week, pushing the month to date total north of $64bln. According to data compiled by Bloomberg, year-to-date corporate supply stands at $754.7bln, which trails 2019 supply by 6%. The primary is set to enter a quiet period for the final two weeks of August before ramping up after Labor Day. September has historically been among the strongest months for the new issue calendar.

Fund flows into investment grade corporates were strong for the second consecutive week. According to Wells Fargo, IG fund flows during the week of August 8-14 were +$5.4bln. This brings YTD IG fund flows to +$174bln. 2019 flows to this juncture are up 6.7% relative to 2018.

(Bloomberg) Investors Rushed to High Grade as Recession Fear Spooked Markets

Investors dove into U.S. investment-grade corporate bond funds during a week when fears of a global economic slowdown rose and trade-related headlines brought wild swings in stocks, credit and Treasuries.
Investors plowed $4 billion into high-grade funds for the week ended Aug. 14, according to Refinitiv’s Lipper. It was the biggest inflow since June, as U.S.-China trade headlines continued to rattle markets and concerns about a slowing global economy inverted a key portion of the U.S. Treasury yield curve for the first time in 12 years. High-yield funds posted a modest inflow of $346 million.
Investment grade has become the best performing asset class in fixed income with returns of over 13% so far this year, according to the Bloomberg Barclays US Corporate Total Return index.
The high-grade primary market has also remained steadfast during the volatility in recent weeks. With the exception of Wednesday, when issuers sidelined themselves during the rout, debt borrowers have been able to sell bonds at cheaper funding costs.
Last week investors yanked over $4 billion from junk bond funds, the most since October, while adding $2.8 billion to high-grade funds.

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