The HY Wire
High Yield Strategy | Global
10 November 2014
Running of the bulls
up and smell the roses
 Wake
With the economy growing slowly but surely and no inflation pressures in sight,
conditions for HY remain supportive. HY company fundamentals are good, volatility
has subsided to late September levels, and technicals within the asset class have
once again become favorable with a substantial decline in issuance and increase in
retail inflows. As such, HY remains well positioned to rally into the year end.
Clients are bullish into year-end
While clients are still concerned about geopolitical risks and China, the overall
sentiment among respondents of our November credit survey appears to be much
more bullish than in September. A larger share of investors indicated that they
expect spread tightening along with net inflows over the next few months. Investors
have increased their net overweight position in high yield from two monhts ago and
view the asset class as poised to offer the best risk-adjusted return over the next
twelve months. Consistent with our view, more investors appear to anticipate a pick
up in defaults during the next year.
Flows: Mutual fund inflows strike back
Inflows into US high yield funds totaled $3.0bn last week, the third highest on record
(for reference, the record was the week-ended October 26, 2011, when $4.4bn
entered high yield funds). Just about the entirety of the inflow can be attributed to
open-ended funds (+$2.9bn), which have lagged ETF’s recovery since July’s
calamity.
Unauthorized redistribution of this report is prohibited. This report is intended for steve@gp-nj.com.
Issuance: A solid start to November
Global high yield issuance was similar to last week as 13 deals for a total of $6.7bn
came to market. $5.7bn came from the US and $1.0bn came from Europe. At the
single name level, the largest last week was the $2bn offering from Dish DBS Corp,
in which the proceeds from the offering will be used for general corporate purposes.
Performance: HY cash declines while CDX HY gains
Returns were mixed last week as EM assets underperformed. The worst one-week
performer was EM equities, which dropped 2.44%. EM sovereigns (-0.59%), high
yield (-0.52%), and IG (-0.25%) did not fare much better. US high yield assets were
a little more mixed—HY cash declined 0.16%, though CDX high yield added 0.14%.
Leveraged loans also gained 0.14%, while European high yield increased 0.42%.
Convertibles: Survey says…
Michael Contopoulos
+1 646 855 6372
Neha Khoda
+1 646 855 9656
Marlane Pereiro
+1 646 855 6362
Rachna Ramachandran
+1 646 855 7927
Michael Youngworth
+1 646 855 6493
Debt Research
William M. Reuter
+1 646 855 6363
HY Credit Strategist
MLPF&S
michael.contopoulos@baml.com
Credit Strategist
MLPF&S
neha.khoda@baml.com
Quant Rel Value Strategist
MLPF&S
marlane.pereiro@baml.com
Quant Rel Value Strategist
MLPF&S
rachna.ramachandran@baml.com
Quant Rel Value Strategist
MLPF&S
michael.youngworth@baml.com
Research Analyst
MLPF&S
william.m.reuter@baml.com
Recent Publications
The High Yield Flow Report: Mutual fund
inflows strike back 06 November 2014
The HY Wire: Dissecting the default rate
04 November 2014
High Yield Strategy: HY Credit Chartbook:
It’s good to be home 06 November 2014
Relative Value Strategist: The dash away
from cash 04 November 2014
Global Convertible Monthly: Survey says…
06 November 2014
Last week we launched our inaugural Global Convertible Investor Survey. Key
takeaways from the survey include 1) investors reported net overweight US and
underweight European and Asian convertibles relative to benchmark, and 2) the
expected trend in valuations in the US, Europe, and Asia is biased towards
richening.
BofA Merrill Lynch does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm
may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their
investment decision.
Refer to important disclosures on page 21 to 24. Analyst Certification on Page 20. COAS Certification on page 20.
11450033
T he H Y Wire
1 0 Nov embe r 201 4
Contents
The View From Above
Wake up and smell the roses
Clients are bullish into year-end
3
4
Flows
12
New Issue Roundup
12
Bonds
12
Loans
14
Performance Summary
15
Rating Actions
17
Fundamental Monitor
18
GameStop: Initiating at OW-30%, William Reuter
Relative Value
18
18
Cash v. CDS
18
CDS Indices
18
Credit v. Equities
19
Convertibles
2
3
19
T he H Y Wire
1 0 Nov embe r 201 4
The View From Above
Wake up and smell the roses
October’s payroll report may look disappointing on the surface, but details are
promising. Granted the headline NFP number was below expectations coming in
at 214K vs 235K consensus, but many of the underlying components in the report
improved. There were net +31K revisions to the prior two months, the
unemployment rate ticked down a tenth of a percent (~19 basis points
unrounded), and the participation rate increased marginally and could well
increase from here on. However, wage growth remains elusive, coming in at
+0.1% MoM for October versus expectations of +0.2%. From the Fed’s
perspective, this means diminishing risks of an earlier rate hike, as it will be hard
to meet inflation targets without any real wage growth. In fact, our economists
recently pushed back rate hike expectations to September 2015. We also had the
ECB meeting this week, where Draghi reiterated ECB’s commitment to expanding
its balance sheet and employing further unconventional policies if need be, which
puts to rest a lot of concerns surrounding monetary policy intervention in the face
of deteriorating conditions in Europe.
These events bode well for HY, as we continue to benefit from the favorable
combination of an improving economic backdrop amid dovish global central bank
policies. And as long as HY fundamentals remain good, volatility remains in
check, and technicals favorable, we believe we have reasons to end the year
tighter from here. In terms of fundamentals, HY companies are putting up a
strong performance in Q3, with a +15% YoY EBITDA growth, although the data is
preliminary. Volatility has subsided too, with VIX dropping from the mid-October
highs to low double digits currently, and barring another exogenous shock seems
to have stabilized. Finally, market technicals have improved tremendously since
September when we first wrote about expecting them to deteriorate. Gross USD
issuance dropped 40% in October, and cash came in through the door in the form
of coupons and retail inflows. In fact, our most recent investor survey detailed
below shows that investor cash cushions have returned back to the pre-selloff
levels. As we expected and wrote about on October 7th during the midst of the
sellof, these are potential catalysts to a year-end rally and solidify our belief in the
upside to HY.
Our November survey shows that investors too have become more bullish on HY.
A larger proportion now expects spreads to tighten in both the short and long
term, and inflows to come in over the next year. Investors believe that high yield
bonds offer the best risk-adjusted return, followed by loans, and have increased
their net overweight position in HY relative to September. We agree with this
assessment, though more so in the short run. However, longer term we remain
cautious as we see increasing default pressures next year, and a return to a
credit-pickers market. Notably, investors have also increased the weight of loans
in their portfolios. We think loans look attractive next year especially if credit
conditions amongst HY issuers deteriorate and interest rate risk increases.
Table 1: 217 HY companies have reported
YoY Pct Change
QoQ Pct Change
EBITDA Debt Rev COGS EBITDA Debt Rev COGS
15.8 14.4 9.1 7.6
10.8
5.0 3.6 2.2
Source: BofA Merrill Lynch Global Research
Weekly Recap
As of November 7th, 217 high yield companies have reported Q3 earnings. On a
year-over-year basis, EBITDA is up 15.8% while debt is up 14.4% and revenue
has increased 9.1%. With about half of companies reporting, on a quarter-overquarter basis, revenue growth has increased 3.6% while EBITDA growth has
increased 10.8%. Since last Thursday, high yield spreads tightened 5bps from
435bps to 430bps while 5y rates increased 11bps from 1.57% to 1.68%. In flows,
3
The H Y Wire
1 0 Nov embe r 201 4
US high yield funds saw very strong inflows (+$3.0bn) as inflows into open-ended
funds totaled $2.9bn while ETFs added only $107mn. US investment grade funds
reported another strong week of inflows, adding another $3.2bn. On a par
weighted basis, 66% of our HY index is now trading inside a yield of 6%, roughly
unchanged from the prior week. US high yield issuance has fallen about $27bn
behind last year’s record pace as $5.7bn came to market last week in the US.
Clients are bullish into year-end
While clients are still concerned about geopolitical risks and China, the overall
sentiment among the 52 high yield respondents of our November credit survey
appears to be much more bullish than during our last survey. Notably, a much
larger share of investors indicated that they expect spreads to tighten in both the
short and long term, and more expect net inflows over the next 12 months.
Additionally, investors think that high yield bonds offer the best risk-adjusted
return over the next 12 months, and they reported that their net overweight
position in high yield credit meaningfully increased relative to September (in fact,
this reading, with a net 55% of investors indicating they are overweight HY, is the
highest it has been in about 2.5 years).
Not surprisingly, investors displayed concern over the rapidly declining Energy
sector, which is the largest sector within the high yield market and one of the
three underweights we had going into 2014 (along with Retail and Materials).
While only 6% of investors viewed oil prices as a concern in September, 38%
now see them as a meaningful risk. In turn, investors have rapidly pulled out of
Energy names. While during September our survey respondents indicated that
they were the most overweight Energy compared to all other sectors, in
November they have repositioned to underweight.
On default rates, investors tend to agree that defaults will pick up during the next
year. Our survey suggests that most high yield investors expect a 2-4% default
rate in the next 12 months, a reversal from September when most investors
expected a 0-2% default rate. This is consistent with our view that the default rate
will rise to 2.5% next year.
Below we discuss in detail the findings from our November 2014 High Yield
Investor Survey.
Market positioning
Investors reported in our November survey that they are overweight high yield
credit. The net overweight positioning among high yield investors rose to 55%
from 32% in September. This is the highest overweight reading we’ve seen since
May 2012 (Chart 1).
4
T he H Y Wire
1 0 Nov embe r 201 4
Chart 1: Market positioning
Net Percent of
Respondents
100
Net Overweight in HY
80
60
40
20
0
Source: BofA Merrill Lynch Global Research
Views on valuation
In our November survey, we saw a notable drop among the investors that found
spreads overvalued as a net 11% of high yield investors found spreads
overvalued in September, down from 36% in July (Chart 2).
Chart 2: Are spreads overvalued?
Net Percent of
Respondents
80
Find HY Spreads Overvalued
30
-20
-70
Source: BofA Merrill Lynch Global Research
Spread views
High yield investors turned significantly more bullish on spreads in the short term,
with a net 44% of respondents expecting spreads to tighten over the next three
months, up from 4% in September. Investors are similarly bullish over the six month
horizon as a net 38% expecting tighter spreads (a net 8% expected wider spreads).
However, investors are neutral in respect to a 12 month horizon as the number of
respondents who expect wider spreads is exactly equal to the number who expect
tighter spreads. In September, a net 27% expected wider spreads over the same
time period (Chart 3, Chart 4, and Chart 5).
5
The H Y Wire
1 0 Nov embe r 201 4
Chart 3: Expect wider spreads in 3mo?
Chart 4: Expect wider spreads in 6mo?
0
-20
`
-60
-80
Source: BofA Merrill Lynch Global Research
40
20
Net Percent of
Respondents
20
-40
Chart 5: Expect wider spreads in 12mo?
40
Net Percent of
Respondents
Net Percent of
Respondents
40
0
-20
-40
-60
-80
20
0
-20
-40
-60
-80
Source: BofA Merrill Lynch Global Research
Source: BofA Merrill Lynch Global Research
Cash levels
The portion of high yield respondents reporting normal cash levels dropped from
62% two months ago to 51% today. At the same time, the share of high yield
investors reporting above normal cash levels increased to 39% in November from
32% in September, while the share reporting below normal cash levels increased
from 6% to 10%. Though both measures rose relative to September, the greater
rise in respondents reporting above normal cash levels suggests an overall net
increase (Chart 6).
Chart 6: What are your current cash levels?
Nov 14
Below normal
Sep 14
Above normal
Normal
0%
10%
20%
30%
40%
50%
60%
70%
Percent of Respondents
Source: BofA Merrill Lynch Global Research
Expectations for net inflows
High yield investors reported a decrease in actual inflows and an increase in
expected inflows in November relative to September. The net share expecting
inflows rose to 38% in November from 24% in September. At the same time, the
net share reporting actual inflows decreased to 20% in November from 24% in
September (Chart 7).
Chart 7: Expectations for net inflows
Net Percent of
Respondents
Actual Net Inflows in HY
80
60
40
20
0
Source: BofA Merrill Lynch Global Research
6
Expected Net Inflows in HY over next 3mo
T he H Y Wire
1 0 Nov embe r 201 4
Supply expectations
Similar to September’s survey, our most recent survey indicates that high yield
investors expect supply volumes to fall in the next 12 months relative to the
previous 12 months. In November, a greater share of investors, a net 39%,
expects lower supply over the next 12 months compared to September, a net
10% (Chart 8).
Chart 8: Supply expectations
Net Percent of
Respondents
40
20
0
-20
-40
-60
-80
Source: BofA Merrill Lynch Global Research
Credit quality trends
Credit investors continue to expect credit quality to deteriorate over the next six
months. Among high yield investors, we saw an increase to 31% of respondents
expecting lower credit quality trends, up from 26% in September (Chart 9).
Net Percent of
Respondents
Chart 9: Views on credit quality
60
40
20
0
-20
-40
-60
Source: BofA Merrill Lynch Global Research
Top asset class pick
High yield investors’ top asset class picks in the November survey in terms of
best risk-adjusted returns were concentrated in high yield, leveraged loans, and
convertibles. High yield investors expect high yield (42%) to deliver the best riskadjusted return over the next 12 months, followed by leveraged loans which
decreased to 29% of the votes in November from 42% in September. Convertible
bonds followed with 11% of votes from 18% in the previous survey. Emerging
market local debt garnered 7% of votes compared to 2% last survey, whereas
agency MBS and CMBS received no votes this time around (Chart 10).
7
The H Y Wire
1 0 Nov embe r 201 4
Chart 10: Top risk adjusted return over the next 12mo?
EM Local Debt
EM External Debt
Agency MBS
CMBS
U.S. Treasuries
Leveraged Loans
Investment Grade Corporates
High Yield Bonds
Convertible Bonds
Cash
Asset Backed Securities
Nov-14
Sep-14
20
30
40
Percent of Respondents
50
`
0
10
Source: BofA Merrill Lynch Global Research
Sector positioning
In high yield net positioning in Industrials, Financials, and Telecom rose relative to
September while net positioning in Energy declined (Chart 11). The net position in
Telecom rose most drastically from the previous survey, going from -20% to 20%
in November. Positioning in the Energy sector fell to -2% in November from 26%
in September while over the same period Finance net positioning became less
negative (-5% from -30%) and Industrials more positive (38% from 22%).
Net Percentage of
Respondents (%)
Chart 11: Sector positioning, net percentage of respondents overweight
Nov-14
60
Sep-14
40
20
0
-20
-40
Industrials
Energy
Telecom
Finance
Source: BofA Merrill Lynch Global Research
Maturity positioning
High yield investor net overweight positioning in the front-end (1-3yr) increased
slightly to 20% in November from 18% in September. At the same time, net
positioning in the belly of the curve (3-7yr) fell to 22% from 31% in the last
survey, while the back end (7+yrs) rose to -47% in November from -59% in
September (Chart 12).
Chart 12: Maturity positioning, net percentage of respondents overweight
Net Percent of
Respondents (%)
40
Nov-14
Sep-14
20
0
-20
-40
-60
-80
1-3 Yrs
Source: BofA Merrill Lynch Global Research
8
3-7 Yrs
7+ Yrs
T he H Y Wire
1 0 Nov embe r 201 4
Default rate expectations
Default rate expectations shifted in this month’s survey. In September, most high
yield investors (50%) expected a default rate of 0-2% in the next 12 months. In
November, the majority of respondents (54%) selected the 2-4% bucket and
fewer selected 0-2% (42%). This is consistent with our view that the default rate
will rise to 2.5% next year. The percentage of high yield respondents expecting
default rates to be between 4-6% declined slightly relative to our September
survey as it moved from 6% to 4% and it still remains the minority response. The
6%+ bucket still remains empty (Chart 13).
Chart 13: Expectations of corporate default rate (LTM issuer scale) in 12mo
6%+ default rate
4-6% default rate
2-4% default rate
0-2% default rate
0%
10%
20%
Nov 14
Sep 14
30%
40%
50%
60%
Jul 14
Source: BofA Merrill Lynch Global Research
Value across ratings
Similar to September, in November the majority of high yield investors expect
single-B rated bonds to offer the most value in 2014 relative to those rated
double-B and triple-C. 54% of the survey respondents thought single-Bs offered
the most value (versus 58% in September), compared to 35% for double-Bs and
11% for triple-Cs (Chart 14).
Chart 14: What do you think will offer the most value for the remainder of the year?
54%
Single Bs
58%
35%
Double Bs
27%
11%
Triple Cs
Nov 14
15%
0%
10%
20%
30%
40%
50%
Share of Respondents
Sep 14
60%
70%
Source: BofA Merrill Lynch Global Research
Leveraged loans as a percent of portfolio
Investors have increased the weight of leveraged loans in their portfolio. The
majority of high yield investors (37%) indicated that their portfolios do not contain
leveraged loans (down from 41% in September), while the second highest
amount (35%) indicated that leveraged loans make up more than 15% of their
portfolios (up from 20% in September). The 5-7% drastically fell from 22% in
September to 8% in the current survey (Chart 15).
9
The H Y Wire
1 0 Nov embe r 201 4
Chart 15: Exposure to loans
37%
None
41%
12%
12%
<5%
8%
5-7%
22%
4%
2%
4%
7-10%
10-15%
Nov 14
>15%
35%
20%
0%
10%
Sep 14
20%
30%
Share of Respondents
40%
50%
Source: BofA Merrill Lynch Global Research
Oil prices have become a large area of concern
Geopolitical risk continues to be the number one concern for high yield credit
survey respondents, though the magnitude has declined from 78% in November
to 57% now. While China has remained a concern, oil price concerns have
increased greatly this month from 6% in September to 38% in November. High
yield investors are now less concerned with rising interest rates than they were
during our last survey (Chart 16).
Chart 16: What are your biggest concerns?
Geopolitical risk
China
Oil prices
Slow recovery
Rising interest rates
Releveraging…
Asset bubbles
Double dip /…
Sovereign crisis
Currency war
US fiscal policy
Other
Inflation
Trade war
0%
Nov 14
20%
40%
60%
80%
Sep 14
100%
Source: BofA Merrill Lynch Global Research
Concern about Europe
Investors continue to remain uncomfortable with the situation in Europe. A
majority (67%) expects the crisis to persist at current levels, down from 71% in
September. The share of respondents expecting things to get worse rose to 22%
from 18%, while those who expect things to get better rose from 10% in
September to 11% in November (Chart 17).
10
T he H Y Wire
1 0 Nov embe r 201 4
Chart 17: How do you think the European sovereign crisis will develop over the next 3mos?
Gets worse
Persists at current level
Nov 14
Improves
0%
20%
40%
60%
Sep 14
80%
Source: BofA Merrill Lynch Global Research
About the November 2014 BofAML High Yield Credit Survey
Our survey was conducted from the 3rd to the 7th of November 2014, with 52 high
yield investors participating. Participating investors consisted of: money
managers (33), hedge funds (9), insurance companies (7), and banks (2). One
respondent did not indicate his classification.
11
The H Y Wire
1 0 Nov embe r 201 4
Flows
This is an excerpt from last night: The
High Yield Flow Report: Mutual fund
inflows strike back 06 November 2014
Inflows into US high yield funds totaled $3.0bn last week, the third highest on
record (for reference, the record was the week-ended October 26, 2011, when
$4.4bn entered high yield funds). Just about the entirety of the inflow can be
attributed to open-ended funds (+$2.9bn), which have lagged ETF’s recovery
since July’s calamity (Chart 19). Globally, the inflow into high yield funds was
nearly $3.2bn as non-US high yield funds reported $153mn of inflows.
Chart 18: Annual flows by asset class
Chart 19: High yield open-ended funds are now catching up to ETFs
HG
Munis
All Fixed Income
Equities
EM Debt
Commodities
Non-US HY
Money Markets
US HY
Loans
+$114
+$16
+$114
+$113
0
-5,000
-$4
-$3
-$6
-$71
-$15
-$13
-50
-10,000
7/2
7/16
7/30
8/13
8/27
HY ETF
0
50
YTD change in Net Assets, %
2013 change in Net Assets, %
Source: BofA Merrill Lynch Global Research, EPFR Global
100
9/10
9/24
10/8
10/22
11/5
HY Non-ETF
Source: BofA Merrill Lynch Global Research, EPFR Global
Additionally, yesterday’s inflow into US high yield was $1.9bn, by far the highest
one-day inflow on record. This represents about 0.98% of AUM, also the highest
on record along with another instance in 2011. While dollars came in across the
board yesterday, the top five funds accounted for about 60% of the inflows.
Other notable flow activity this week includes the 42nd consecutive week of
inflows into IG funds (+$3.2bn), a large inflow into equity funds (+$15.5bn), and a
solid inflow into EM bonds (+$762mn). Munis added $202mn, while loans
declined $245mn and commodities declined $250mn.
Weekly Dollar Flows,
US$mn
Chart 20: Global HY flows distributed between US-domiciled and non US-domiciled funds
3,000
-2,000
-7,000
-12,000
Jan-13
Jun-13
US HY
Dec-13
Non-US HY
May-14
Nov-14
Source: BofA Merrill Lynch Global Research, EPFR Global
New Issue Roundup
Bonds
Global high yield issuance was similar to last week as 13 deals for a total of
$6.7bn came to market. $5.7bn came from the US and $1.0bn came from
Europe. Of the $6.7bn issued last week, $4.8bn was rated BB, $1.6bn was B, and
the remaining $0.3bn was CCC or not rated. The October month-end supply total
was $27.7bn, one of the smaller months we’ve seen this year. Year-to-date we
now stand at $343.7bn, marginally ahead of last year’s pace. For comparison,
12
T he H Y Wire
1 0 Nov embe r 201 4
last year at this time we had seen $336.7bn of issuance globally. While Europe is
about $33bn ahead of last year’s pace, the US is about $27bn behind.
Table 2: Global issuance over time ($bn)
Global
United States
Europe
BB
4.8
2.0
4.8
0.5
1.6
4.9
1.7
0.0
B
CCC/NR
5.7
20.0
32.4
2.5
1.0
5.9
5.5
1.7
4.8
10.8
22.2
0.0
1.6
15.5
12.0
2.5
0.3
1.4
7.9
2.1
211.8
238.7
270.3
280.5
189.3
115.7
83.2
91.5
65.5
57.2
117.3
117.0
128.8
103.6
80.4
170.0
151.9
172.4
198.3
131.9
56.5
67.8
77.2
63.8
45.1
WTD Nov 07
Wk Oct 31
Wk Oct 24
Wk Oct 17
6.7
7.1
6.5
0.5
5.7
6.0
4.0
0.0
MTD Nov
October
September
August
6.7
27.7
42.1
4.7
YTD 2014
YTD 2013
2013
2012
2011
343.7
336.7
378.3
365.7
257.4
1.0
0.8
2.6
0.0
0.3
0.3
0.0
0.0
Source: BofA Merrill Lynch Global Research
A further analysis shows that about 72% of new issues were rated BB, while 23%
were B, 1% were CCC, and 4% were not rated. In terms of seniority, 89% of new
issues were senior unsecured last week, while the remaining 11% were secured.
Finally, about 69% of deals last week were private placements, while 31% were
public. Private placements have consistently outpaced public deals this year.
Table 3: New issue breakdown by week, last 3 months
07/25/2014
08/01/2014
08/08/2014
08/15/2014
08/22/2014
09/05/2014
09/12/2014
09/19/2014
09/26/2014
10/03/2014
10/10/2014
10/17/2014
10/24/2014
10/31/2014
11/07/2014
Ratings
Currency (US$mn equivalents)
Total
6,362
7,623
2,020
975
BB
2,554
1,350
B
1,847
5,447
655
800
CCC NR
1,051 910
825
950 415
175
USD
4,255
5,465
2,020
975
11,565
12,168
6,377
10,957
2,700
11,970
500
6,509
7,083
6,710
8,050
7,535
2,350
4,300
150
3,400
500
4,800
1,950
4,813
2,650
2,652
2,022
3,657
2,550
7,395
865
1,730 250
2,005
3,000
11,565
10,680
5,855
9,700
2,700
11,970
500
6,000
6,800
5,995
1,709
4,883
1,557
275
250
85
900
255
EUR
1,071
1,888
GBP
1,037
840
386
338
648
919
CAD
136
Seniority
Secured
2,157
2,427
855
175
Senior
4,205
5,195
1,165
800
750
500
766
3,127
10,815
11,668
5,611
7,830
2,700
7,825
500
4,800
6,450
5,995
4,145
509
283
715
1,709
633
715
Sub
144a w RR
1,592
3,045
715
475
3,815
6,252
2,200
2,963
1,300
5,300
4,445
1,100
2,529
Deal Type
144a w/o RR
3,666
3,977
1,305
500
Public
1,104
600
1,425
3,948
3,777
4,044
1,250
4,670
500
1,013
2,483
2,093
6,325
1,967
400
3,950
150
2,000
1,050
3,500
2,088
Source: BofA Merrill Lynch Global Research
At the single name level, the largest last week was the $2bn offering from Dish
DBS Corp. The notes pay a 5.875% coupon and mature in 2024, and attained a
Ba3 rating from Moody’s and a BB- rating from S&P. Proceeds from the offering
will be used for general corporate purposes, including refinancing debt. Other
large deals last week include the $1bn two-tranche offering from Navient
Corporation the $800mn offering from MSCI Inc.
Table 4: New issues October 31st – November 6th
Pricing Dt Name
11/6/2014
11/6/2014
11/6/2014
Truven Health Analytics Inc
Omnicare Inc.
Omnicare Inc.
Size ($)
40
300
400
Snr
Sr Nts
Sr Nts
Sr Nts
Cpn Maturity Price Yield Moody's S&P Type
10.63 1-Jun-20 103.00 9.60
5.00 1-Dec-24 100.00 5.00
4.75 1-Dec-22 100.00 4.75
Caa2
Ba2
Ba2
Sector
CCC+ 144A w/RR Commercial Services
BBB- SEC
Pharmaceuticals
BBB- SEC
Pharmaceuticals
Region
United States
United States
United States
13
The H Y Wire
1 0 Nov embe r 201 4
Table 4: New issues October 31st – November 6th
Pricing Dt Name
11/6/2014
11/6/2014
11/5/2014
11/5/2014
11/5/2014
11/5/2014
11/4/2014
11/4/2014
11/4/2014
11/4/2014
11/3/2014
11/3/2014
11/3/2014
10/31/2014
10/31/2014
10/31/2014
Avis Budget Car Rental LLC/Finance Inc
Abengoa Yield PLC
Ontex Group NV
NCL Corporation Ltd (Norwegian Cruise Lines)
MSCI Inc.
Dish DBS Corp
Vougeot Bidco plc (Vue Entertainment International Ltd)
Lock AS (Lindorff)
Lock AS (Lindorff)
York Risk Services Holding Corp
Standard Pacific Corp
Navient Corporation
Navient Corporation
Media General Financing Sub, Inc t/b merged w/ into Lin Television
K. Hovnanian Enterprises Inc
Evraz Inc NA Canada
Size ($)
175
255
313
680
800
2000
88
126
188
45
300
500
500
400
250
350
Snr
Cpn Maturity Price Yield Moody's S&P Type
Sr Nts
5.50 1-Apr-23 99.63
Sr Nts
7.00 15-Nov-19 100.00
Sr Sec Nts 4.75 15-Nov-21 100.00
Sr Nts
5.25 15-Nov-19 100.00
Sr Nts
5.25 15-Nov-24 100.00
Sr Nts
5.88 15-Nov-24 100.00
Sr Nts 525.00 18-Jul-20 97.50
Sr Sec Nts 550.00 15-Aug-20 98.75
Sr Sec Nts 7.00 15-Aug-21 100.75
Sr Nts
8.50 1-Oct-22 100.00
Sr Nts
5.88 15-Nov-24 100.00
Sr Nts
5.88 25-Oct-24 99.07
Sr Nts
5.00 26-Oct-20 99.36
Sr Nts
5.88 15-Nov-22 99.50
Sr Nts
8.00 1-Nov-19 100.00
Sr Sec Nts 7.50 15-Nov-19 100.00
5.56
7.00
4.75
5.25
5.25
5.88
4.85
5.85
6.93
8.50
5.88
6.00
5.13
5.95
8.00
7.50
B1
NR
Ba3
B2
Ba1
B2
B2
B2
Caa2
B1
Ba3
Ba3
B3
Caa1
Ba3
B+ 144A w/RR
NR 144A for Life
BB- 144A for Life
BB- 144A for Life
BB+ 144A for Life
BB- 144A w/RR
B SEC
BB- 144A w/RR
BB- 144A w/RR
CCC+ 144A for Life
B+ SEC
BB SEC
BB SEC
B+ 144A w/RR
CCC 144A for Life
BB 144A for Life
Sector
Commercial Services
Electric
Household Products/Wares
Leisure Time
Software
Media
Entertainment
Diversified Finan Serv
Diversified Finan Serv
Insurance
Home Builders
Diversified Finan Serv
Diversified Finan Serv
Media
Home Builders
Iron/Steel
Region
United States
Europe
Europe
United States
United States
United States
Europe
Europe
Europe
United States
United States
United States
United States
United States
United States
Canada
Source: BofA Merrill Lynch Global Research
Loans
Global loan issuance picked up a bit last week as $5.7bn was priced. Most of the
new supply, about $4.1bn, was B-rated, while $1.5bn was CCC or not-rated and
$0.2bn was BB-rated. Cov-lite issuance totaled $4.0bn and 2nd lien issuance
totaled only $0.5bn. October month-end issuance was $17.3bn, while year-todate we have seen a total of $356.5bn. Last year at this time, we had already
seen $409.8bn of new supply.
Table 5: Global loan issuance over time ($bn)
Global
BB
0.2
0.5
1.4
0.0
4.1
1.1
1.2
2.3
B
CCC/NR
Cov lite
2nd lien
MTD Nov
October
September
August
5.7
17.3
42.3
7.1
0.2
6.2
13.9
0.7
4.1
8.6
25.0
6.0
1.5
2.6
3.4
0.4
4.0
10.4
33.2
3.5
0.5
1.7
3.2
0.1
YTD 2014
YTD 2013
2013
2012
2011
356.5
409.8
454.9
295.3
231.8
104.0
135.3
152.8
105.0
94.3
202.7
238.1
261.7
161.9
117.8
49.8
36.5
40.4
28.4
19.8
252.8
252.4
279.1
97.5
59.1
34.6
26.7
28.9
17.2
7.0
WTD Nov 07
Wk Oct 31
Wk Oct 24
Wk Oct 17
5.7
2.5
3.2
2.6
1.5
0.9
0.5
0.2
4.0
1.0
2.2
1.4
0.5
0.3
0.3
0.2
Source: BofA Merrill Lynch Global Research
Breaking last week’s new supply down further, about 71% of new issues were Brated, 24% were not rated, 3% were BB-rated, and only 2% were CCC-rated. This
is the most single-week issuance we’ve seen from the B-rated segment since
early September. About 70% of this week’s new issues were cov-lite, 92% of new
issuance was term-loan B, and about 8% was 2nd lien.
Table 6: New issue breakdown by week, last 3 months
08/01/2014
08/08/2014
08/15/2014
08/22/2014
08/29/2014
14
Total
14,059
5,638
100
25
BB
8,509
720
Ratings
B
4,660
4,673
CCC
442
80
NR
448
165
100
25
TLb 2nd Lien Cov Lite
13,617
442
8,491
5,558
80
2,240
100
25
T he H Y Wire
1 0 Nov embe r 201 4
Table 6: New issue breakdown by week, last 3 months
Total
6,578
11,393
16,628
3,065
5,362
8,291
2,558
3,179
2,522
5,728
09/05/2014
09/12/2014
09/19/2014
09/26/2014
10/03/2014
10/10/2014
10/17/2014
10/24/2014
10/31/2014
11/07/2014
BB
3,188
2,000
4,740
2,100
1,905
4,275
25
1,400
480
175
Ratings
B
3,090
8,321
10,338
705
2,857
3,511
2,323
1,238
1,137
4,075
CCC
245
645
625
140
200
305
210
344
280
120
NR
55
427
925
120
400
200
198
625
1,358
TLb 2nd Lien Cov Lite
5,728
850
6,203
10,503
890
7,598
15,728
900
13,175
2,925
140
1,895
4,902
460
5,022
7,436
855
5,208
2,348
210
1,350
2,835
344
2,186
2,242
280
1,000
5,257
471
4,000
Source: BofA Merrill Lynch Global Research
At the single-name level, the largest deal last week was the $1.65bn offering from
Tibco Software. The deal is priced to yield 450bps above Libor with a 1% floor,
attained a B1 rating by Moody’s and a B- rating by S&P, and is cov-lite. Proceeds
from the offering are to be used to finance the company’s LBO by Vista Equity
Partners. Other large loan deals last week include the $535mn offering from
CareCore National LLC, the $500mn deal from Mueller Water Products Inc, and
the $325mn offering from HealthPort Technologies LLC.
Table 7: Top 10 largest new issues, October 31st – November 6th
Launch Dt Issuer
11/6/2014
11/5/2014
11/6/2014
11/4/2014
11/5/2014
11/5/2014
11/6/2014
11/6/2014
11/6/2014
11/5/2014
TIBCO Software
CareCore National LLC
Mueller Water Products Inc
HealthPort Technologies LLC
TierPoint LLC
Bridon International Ltd
Creganna-Tactx Medical
Parq Resort & Casino
Cision-Vocus
Total Merchant Services Inc
Deal Name
TIBCO (TL 12/14)
CareCore (Add-on TL 12/14)
Mueller Water (12/14)
HealthPort (TL 12/14)
TierPoint (12/14)
Bridon (12/14)
Creganna (TL 12/14)
Parq Resort & Casino (12/14)
Cision-Vocus (Add-on 12/14)
Total Merchant (12/14)
Deal Size ($) New Institutional Money ($) Moody's S&P Asset Backed Cov Lite Proceeds
1650
535
500
325
360
330
185
175
170
175
1650
535
500
325
320
290
185
175
170
160
B1
B2
B2
NR
NR
NR
NR
Ba3
B1
B2
BNR
BB
B
NR
NR
NR
NR
B+
B+
No
No
No
No
No
No
No
No
No
No
Yes
Yes
Yes
Yes
No
No
Yes
No
No
No
LBO
Acquisition
Refinancing
LBO
Acquisition
LBO
Acquisition
Project Financing
Acquisition
Dividend
Sector
Computers & Electronics
Healthcare
Building Materials
Computers & Electronics
Computers & Electronics
Metals & Mining
Healthcare
Gaming & Hotel
Computers & Electronics
Computers & Electronics
Region
United States
United States
United States
United States
United States
Europe
Europe
Canada
Europe
United States
Source: BofA Merrill Lynch Global Research
Table 8: Total returns across asset classes
Ticker
MXEF
EMGB
EMHB
U0A0
C0A0
EMIB
GA05
H0A0
G0QI
M0A0
CDXIG
LCDI/ALL
CDXHY
HE00
SPX
Name
EM Eqty
EM Govts
EM HY
Municipals
US IG
EM IG
5yr TRSY
US HY
TIPs
Mortgages
CDX.IG
Lev Loans
CDX.HY
EU HY
S&P 500
WTD (%) MTD (%) YTD (%)
-2.44
-0.59
-0.52
-0.33
-0.31
-0.25
-0.19
-0.16
-0.09
-0.08
-0.04
0.14
0.14
0.42
0.65
Source: BofA Merrill Lynch Global Research
-2.44
-0.59
-0.52
-0.33
-0.31
-0.25
-0.19
-0.16
-0.09
-0.08
-0.04
0.14
0.14
0.42
0.65
-1.13
8.94
4.90
8.64
6.65
6.93
2.54
4.62
5.11
5.13
1.36
2.52
2.78
5.32
9.89
Performance Summary
Returns were mixed last week as EM assets underperformed. The worst oneweek performer was EM equities, which dropped 2.44%. EM sovereigns (0.59%), high yield (-0.52%), and IG (-0.25%) did not fare much better. US
equities, as represented by the S&P, were the best performers with a return of
+0.65%. US high yield assets were a little more mixed—HY cash declined 0.16%,
though CDX high yield added 0.14%. Leveraged loans also gained 0.14%, while
European high yield increased 0.42%, the second best return of all asset classes.
Finally, US IG fell 0.31% and 5y treasuries posted a loss of 0.19% (Table 8).
Not surprisingly given the weak cash index performance, rating-bucket returns
were all negative. The worst performing bucket was BBBs, which dropped 0.38%,
followed by CCCs, which lost 0.31%. On the other hand, the best performing
bucket was BBs, which fell only 0.11% (Chart 21).
On sectors, performance was split with 9 out of 18 high yield sectors gaining on
the week. Transportation led, adding 0.33%, followed by Health Care (+0.26%)
and Real Estate (+0.21%). Energy (-1.29%) Telecoms (-0.55%), and Financials (0.14%) underperformed (Chart 22).
15
The H Y Wire
1 0 Nov embe r 201 4
Chart 21: Segment and rating returns, week-to-date
Chart 22: Sector returns, week-to-date
US IG
US HY
Transportation
Health Care
Real Estate
Food
Utilities
Hotels & Leisure
Technology
Capital Goods
Retail
Commercial Services
Materials
Consumer Products
Media
Gaming
Automotive
Financials
Telecommunications
Energy
AAAs
AAs
US As
US BBBs
US BBs
US Bs
CCCs
HY Ndistr
HY Distr
-1.20
-1.00
-0.80
-0.60
-0.40
-0.20
0.00
-1.5
Source: BofA Merrill Lynch Global Research
-1.0
-0.5
0.0
0.5
Source: BofA Merrill Lynch Global Research
Last week’s top performers were led by the Alpha Natural Resources 9.75’s,
which gained 6.6% off a 68.8 price base (Table 9). The name, along with other
coal names, has gained in wake of the Republican victory during Midterm
Elections, which investors think will result in increased coal usage due to GOP
policy. Other leading performers last week include the Gymboree 9.125’s
(+6.5%), the Arch Coal 7’s, and the Quicksilver Resources 11’s (+4.8%).
Table 9: Top 10 performers October 30th – November 6th
Issue
Rating
ANR 9.75 '18 CCC1
GYMB 9.13 '18 CCC3
ACI 7 '19
CCC2
KWK 11 '21 C
RDEN 7.38 '21 B2
ANR 6.25 '21 CCC1
RTSX 9.88 '17 CCC3
ACI 7.25 '21 CCC2
CLF 4.8 '20
BB3
PNK 6.38 '21 B1
Price Yield (%)
68.80
35.36
42.26
53.50
93.90
47.96
99.63
39.05
78.50
108.98
23.50
45.30
31.67
26.07
8.64
21.36
10.04
27.99
9.68
3.66
ZSpread
2219
4384
3006
2419
665
1936
908
2606
774
274
Px Change
4.3
2.2
1.9
2.4
3.8
1.8
3.4
1.2
2.3
2.5
Px Change (%) Volume
6.6
6.5
4.8
4.7
4.2
3.8
3.5
3.3
3.0
2.3
30
29
19
13
44
15
22
23
27
29
Source: BofA Merrill Lynch Global Research
For yet another week, most of the bottom performers were E&P names, including
the Energy XXI Gulf 7.75’s (-7.1%), Samson Investment Co 9.75’s (-6.3%),
Halcon Resources 8.875’s (-5.8%), and Northern Oil 8’s (5.1%). Nonetheless, the
worst performer was the Avon Products 6.95’s, which declined 8.4%. Earlier in
the week, S&P cut the name to high yield (BBB- to BB+) due to slower-thanexpected progress in turning around operating issues and weak operating
performance.
Table 10: Bottom 10 performers October 30th – November 6th
Issue
Rating
AVP 6.95 '43 BB1
VQ 8.88 '19
CCC2
MCP 10 '20
CCC1
EXXI 7.75 '19 B2
SAIVST 9.75 '20 CCC1
HKUS 8.88 '21 CCC1
NOG 8 '20
CCC1
LINE 8.63 '20 B2
EXXI 8.25 '18 B3
LINE 6.5 '21
B2
Price Yield (%) ZSpread Px Change
86.72
79.82
66.70
85.32
70.72
78.78
89.80
97.36
93.26
90.32
Source: BofA Merrill Lynch Global Research
16
8.70
15.51
20.25
12.00
18.72
13.94
10.47
9.25
10.75
8.38
592
1396
1848
1036
1695
1197
863
744
948
633
-8.0
-6.3
-5.1
-6.5
-4.7
-4.8
-4.8
-4.8
-4.3
-4.0
Px Change (%) Volume
-8.4
-7.3
-7.2
-7.1
-6.3
-5.8
-5.1
-4.7
-4.4
-4.2
40
8
26
8
66
64
24
47
20
26
T he H Y Wire
1 0 Nov embe r 201 4
Rating Actions
Last week high yield downgrades outpaced upgrade rating actions, and included
a number of fallen angels. On downgrades, Genworth Holdings Inc, Allegheny
Technology Inc, Leidos Holdings Inc, and Avon Products Inc were downgraded
from investment grade to high yield last week. Avon recently lost its investment
grade status when Moody’s reduced its rating on the company’s senior secured
note to Ba1 amid “meaningful deterioration in operating trends”. Last week, S&P
followed suit and downgraded the company given slower than expected progress
in turning around operating issues and weak operating performance. Genworth
was also cut to high yield status from investment grade by S&P as the rating
agency cited the company’s need to rebuild capital strength among other
concerns. Moody’s placed Genworth’s main unit on review for downgrade and
Fitch noted that it expects the firm to record additional pretax charges.
Regarding notable upgrades, SESI LLC was upgraded to investment grade status
last week by Moody’s. The rating agency upgraded the company’s senior
unsecured notes from Ba2 to Baa3, while also withdrawing the firms Ba1
corporate family rating, Ba1-PD probability of default rating, and SGL-1
speculative grade liquidity rating. The rating upgrade reflects Moody’s view that
the firm’s management will remain committed to maintaining low leverage and
better manage shareholder returns.
Table 11: Rating actions on HY issuers
Date
10/31/2014
11/3/2014
11/4/2014
11/4/2014
11/5/2014
11/6/2014
10/31/2014
10/31/2014
11/3/2014
11/3/2014
11/3/2014
11/3/2014
11/4/2014
11/5/2014
11/6/2014
11/6/2014
11/6/2014
10/31/2014
10/31/2014
10/31/2014
11/3/2014
11/4/2014
11/6/2014
11/6/2014
10/31/2014
11/3/2014
11/3/2014
11/4/2014
11/5/2014
11/5/2014
11/6/2014
11/6/2014
Action
Upgrade
Upgrade
Upgrade
Upgrade
Upgrade
Upgrade
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Dropped
Dropped
Dropped
Dropped
Dropped
Dropped
Dropped
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Company Name
CyrusOne LP
Pittsburgh Glass Works LLC
Freescale Semiconductor Inc
Freescale Semiconductor Inc
Level 3 Communications Inc
SESI LLC
AMAG Pharmaceuticals Inc
Dave & Buster's Entertain Inc
Twinkle Pizza Holdings PLC
Blue Racer Midstream LLC
Blue Racer Midstream LLC
Nexteer Automotive Group Ltd
HC2 Holdings Inc
Ontex Group NV
Cequel Data Centers LLC
Education Realty Trust Inc
HC2 Holdings Inc
DineEquity Inc
Dave & Buster's Inc
Providence Service Corp/The
Nuance Group AG/The
Reichhold Industries Inc
Symbion Inc/DE
Windsor Quality Food Co Ltd
DynCorp International Inc
Leidos Holdings Inc
Avon Products Inc
Venoco Inc
Allegheny Ludlum Corp
Allegheny Technologies Inc
Titan International Inc
Genworth Holdings Inc
Rating Type
Senior Unsecured Debt
LT Local Issuer Credit
Senior Unsecured Debt
Senior Secured Debt
LT Local Issuer Credit
Senior Unsecured Debt
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
Senior Unsecured Debt
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
Senior Secured Debt
LT Local Issuer Credit
LT Local Issuer Credit
Senior Unsecured Debt
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
LT Local Issuer Credit
Senior Unsecured Debt
Senior Unsecured Debt
LT Local Issuer Credit
LT Local Issuer Credit
Senior Unsecured Debt
Senior Unsecured Debt
Senior Secured Debt
LT Local Issuer Credit
Agency Curr Rtg Last Rtg
Moody's
S&P
Fitch
Fitch
S&P
Moody's
S&P
S&P
S&P
S&P
Moody's
S&P
S&P
S&P
S&P
S&P
Moody's
S&P
S&P
Moody's
S&P
S&P
S&P
S&P
Moody's
Moody's
S&P
S&P
Moody's
Moody's
Moody's
S&P
B1
B+
BBBBBBaa3
B
B+
B
B+
B3
BB+
B
BBB
BB+
Caa1
NR
NR
WR
NR
NR
NR
NR
Caa2
Ba1
BB+
CCC+
Ba1
Ba1
B2
BB+
B2
B
CCC
B
B+ *+
Ba2
NR
B
B+
B3
BB+
D
B
B+ *+
Caa1
Baa3
BBBB- *Baa3 *Baa3 *B1 *BBB-
Source: BofA Merrill Lynch Global Research
17
The H Y Wire
1 0 Nov embe r 201 4
Fundamental Monitor
GameStop: Initiating at OW-30%, William
Reuter
GameStop: Wii initiate on GME at OW30% 05 November 2014
Earlier in the week, Retail, Consumer Products, and Food & Beverage analyst
William Reuter initiated coverage on GameStop with an OW-30% rating. He
believes that GameStop appears better positioned to adapt to changes in
technology than companies such as Blockbuster and RadioShack. However, a
concern is that digital software downloads will increase at the expense of physical
copies sold by GameStop. Nonetheless, William thinks that GameStop can
protect itself against such a threat due to: (1) the company’s strong position in
downloadable games; (2) being the leader in used games (digital copies are
currently not able to be traded in); (3) offering payment solutions (cash and trade)
for those customers without credit/debit cards; (4) providing the opportunity to
demo games; and (5) engaging customers through the company’s enthusiastic
and knowledgeable sales staff. On company fundamentals, William notes that
GameStop has very little leverage, and he believes that financial results will be
solid for the next several years. His biggest concern is that financial covenants
allow for substantial debt to be incurred and cash to be paid out in the form of
dividends or share repurchases. Given the short tenor of the notes, he believes
current yields more than compensate investors for its risks, and hence initiate at
OW-30%. For his William’s full analysis, refer to the report linked in the sidebar.
Table 12: CDX vs. ML Cash Indices
Index Spread 1W-Chng 1M-Chng 3M-Chng
CDX IG
HG Cash
CDX HY
HY Cash
65
129
342
430
-1
2
-11
-5
-5
9
-31
4
-8
15
-26
9
Relative Value
Cash v. CDS
Source: BofA Merrill Lynch Global Research, 5y spreads for CDX, OAS for
cash
CDX indices tightened more than cash over the week (Table 12). While HY cash
tightened 5bps, CDX HY came in 11bps. In IG, the cash index widened 2bps
relative to a 1bp tightening for CDX IG. The average cash-CDS basis for the CDX
HY issuers we track became more positive (Chart 24). The average basis now
stands at -46bps, about 9bps wider over the week.
Chart 23: Average cash and CDS spreads for CDX HY issuers
500
450
400
350
300
250
Nov-13
450
Chart 24: Average cash-CDS basis for CDX HY issuers
0
400
-25
350
-50
300
-75
250
Feb-14
May-14
Avg. Cash Spread
-100
Nov-13
Aug-14
Avg. CDS Spread (RHS)
Source: BofA Merrill Lynch Global Research, Average spreads for a selection of issuers in the On The Run CDX
HY index. Currently includes 82 HY20 constituents.
Feb-14
May-14
Avg. HY Basis
Aug-14
Source: BofA Merrill Lynch Global Research, Average basis for a selection of issuers in the On The Run CDX
HY index. Currently includes 82 HY20 constituents.
CDS Indices
CDS indices were all tighter on the week (Table 13). CDX IG and iTraxx Main
tightened 1bp and 4bps respectively, while CDX HY and iTraxx XO tightened
11bps and 14bps. The spread ratio between HY and IG is now 5.27, a bit lower
than last week (Chart 25). The XO-HY spread differential is now 9bps, 3bps
tighter than last week’s differential (Chart 26).
18
T he H Y Wire
1 0 Nov embe r 201 4
Table 13: CDS Indices – spread, intrinsic and skew
Index
5y Spread 1W-Chng 1M-Chng 3M-Chng
CDX IG
CDX HY
iTraxx Main
iTraxx XO
65
342
64
351
-1
-11
-4
-14
-5
-31
-4
2
5y Intrinsic
-8
-26
-15
-65
72
342
67
353
1W-Chng
0
-4
-2
-2
1M-Chng
-2
-6
1
20
3M-Chng Skew 1W-Chng
-1
-3
-9
-36
-7
0
-3
-2
-1
-7
-2
-12
1M-Chng
-3
-25
-5
-18
3M-Chng
-6
-22
-6
-30
Source: BofA Merrill Lynch Global Research
Chart 25: HY/IG
6.1
Chart 26: XO-HY
50
25
0
-25
-50
-75
-100
-125
Nov-13
5.6
5.1
4.6
Nov-13
Apr-14
Sep-14
Source: BofA Merrill Lynch Global Research
Feb-14
May-14
Aug-14
Source: BofA Merrill Lynch Global Research
Credit v. Equities
Average spread for our HY universe and equity-implied credit risk each tightened
3bps over the week (Chart 27). The US HY COAS value was mostly unchanged
over the week and its 3m z-score is now at -0.68 indicating that credit screens
only slightly rich to equities (Chart 28).
Chart 27: US HY COAS Risk vs. Spread
Chart 28: US HY COAS & Z-Score
450
290
400
240
350
190
300
140
Nov-13
250
Feb-14
COAS Risk
May-14
Aug-14
Credit Spread (RHS)
Source: BofA Merrill Lynch Global Research
175
4.0
Credit cheap
2.0
140
0.0
105
70
Nov-13
-2.0
Credit rich
Feb-14
COAS
-4.0
May-14
Aug-14
3M Z-Score (RHS)
Source: BofA Merrill Lynch Global Research
Convertibles
The results are in
This is an excerpt from our recently
published: Global Convertible Monthly:
Survey says… 06 November 2014
Last week we launched our inaugural Global Convertible Investor Survey aimed
at institutional and hedge fund convertible investors across regions and the
outcome was better than we could have expected as we received 106 investor
responses in total. Key takeaways from the survey include 1) investors reported
net overweight US and underweight European and Asian convertibles relative to
benchmark, 2) the expected trend in valuations in the US, Europe, and Asia is
biased towards richening, 3) over the next twelve months investors expect supply
volumes to increase across regions, 4) US, European, and Asian investors expect
net inflows over the next three months, and 5) investors view a global growth
slow-down and geopolitical tensions as the biggest near-term macro risks to
convertible markets.
19
The H Y Wire
1 0 Nov embe r 201 4
Q3 earnings are off to a good start
Given that we are in the midst of the Q3 earnings season, we wanted to revisit
our quarterly analysis of convertible issuer earnings results across regions. As we
highlighted in last month’s publication, strong fundamentals are a key tailwind for
sustained positive performance. Based on the Q3 earnings available through
yesterday, US convert issuers are on pace to match Q2’s strong results, Europe
is ahead of last quarter, Asia is slightly lagging, and Japan is in front of its Q2
results.
Global markets rebound as earnings and growth outweigh
oil
By month-end October proved to be somewhat of a reprieve from September’s
calamity for global markets as returns were generally positive across our global
asset classes. Perhaps the most prominent theme during October was the rapid
decline of oil prices to multi-year lows due to a global supply glut. Despite the
gloomy tone, markets benefitted from strong US corporate earnings, improved
Eurozone manufacturing activity, and a rebound in Chinese industrial production.
As such, global convertibles gained 0.93% USD in October, relative to a 0.73%
USD gain for global equities.
Weakest month for issuance so far this year
In October, global convertible issuance totaled only $3.3bn, the lowest monthly
issuance amount we’ve seen in 2014. The US and Asia were the sole
contributors to supply as Europe and Japan offered no issuance. As of the end of
October, global convertible issuance now equals $76.6bn, still comfortably ahead
of last year’s pace despite last month’s slowdown.
Analyst Certification
We, Michael Contopoulos and William M. Reuter, hereby certify that the views
each of us has expressed in this research report accurately reflect each of our
respective personal views about the subject securities and issuers. We also
certify that no part of our respective compensation was, is, or will be, directly or
indirectly, related to the specific recommendations or view expressed in this
research report.
COAS Certification
To the extent that any of the views expressed in this report have been produced
as a result of the application of the Credit OAS quantitative proprietary model, the
BofA Merrill Lynch Global Research Lighthouse Portfolio group certifies that (1)
the views expressed in this report accurately reflect the Credit OAS quantitative
model as to the securities and companies mentioned in the report and (2) no part
of the firm’s compensation from any company mentioned in this report was, is or
will be, directly or indirectly, related to the views or results produced by the Credit
OAS quantitative model. The projections or other information generated by Credit
Option Adjusted Spread (COAS) and Lighthouse regarding the likelihood of
various investment outcomes are hypothetical in nature, do not reflect actual
investment results and are not guarantees of future results. Results generated by
COAS and Lighthouse vary with each use and over time. For a description of the
Credit OAS proprietary credit evaluation model, including the data input into the
model, please see Introduction to Lighthouse: Credit Option Adjusted Spread,
Portfolio Analytics and Data Analysis, dated 07 January 2014.
20
T he H Y Wire
1 0 Nov embe r 201 4
Security pricing
GameStop / GME
Security
5.5, Senior, USD, 2019:B
5.5, Senior, USD, 2019:B
Amt
(Millions)
350
350
Maturity date
01-OCT-2019
01-OCT-2019
Ratings
Moody's/S&P/Fitch
Ba1/BB+/N.A.
Ba1/BB+/N.A.
Next call
Call date Call price
01-Oct-2016
01-Oct-2016
104.13
104.13
Price
101.50
101.50
Price date
07-Nov-2014
07-Nov-2014
YTW*
(%)
5.07
5.07
STW
(bps)
376
376
Prices are as of date indicated and are from various sources, including BofA Merrill Lynch Global Fixed Income Indices and BofA Merrill Lynch trading desks. CDS spreads are sourced from the Markit Group Limited. Prices are indicative and for
information purposes only.
* For loans, YTW reflects yield to maturity.
B=Bond; CS=Capital Security (Not including Equity Preferred); CDS=Credit Default Swap; EP=Equity Preferred
Important Disclosures
Opinion history
GameStop / GME
Company
Date^
Action
Recommendation
Security
Date^
Action
Recommendation
GameStop / GME
05-Nov-2014
Initial
Overweight-30%
5.5, Senior, USD, 2019:B
05-Nov-2014
Initial
Overweight-30%
5.5, Senior, USD, 2019:B
05-Nov-2014
Initial
Overweight-30%
Table reflects credit opinion history as of previous business day's close. ^First date of recommendation within last 12 months. The BofA Merrill Lynch Credit Opinion key is contained
below.
B=Bond; CS=Capital Security (Not including Equity Preferred); CDS=Credit Default Swap
BofA Merrill Lynch Credit Opinion Key
The BofA Merrill Lynch Global Research Credit Opinion Key is designed to allow BofA Merrill Lynch Global Credit Research to provide recommendations on an issuer’s bonds, capital
securities, equity preferreds and CDS as described below. An issuer level recommendation may also be provided in respect of an issuer as explained below. BofA Merrill Lynch Global
Research credit recommendations are assigned using a three-month time horizon.
Issuer Recommendations: If an issuer credit recommendation is provided, it is applicable to all bonds of the issuer except bonds specifically referenced in the report with a different
credit recommendation. Where there is no issuer credit recommendation, only individual bonds with specific recommendations are covered.
Issuer credit recommendations do not cover equity preferreds or CDS related to the issuer. Issuer credit recommendations do not cover capital securities of the issuer unless a
statement to that effect is provided in the relevant research report.
CDS Recommendations: CDS are recommended on an individual basis under the Credit Opinion Key. Issuer credit recommendations do not apply to CDS.
Capital Securities: Capital securities are recommended individually unless the research report specifically states that the issuer credit recommendation applies to such securities. In
cases where the issuer credit recommendation applies to capital securities of the issuers, it is not applicable to capital securities that we classify as equity preferreds.
Equity Preferreds: Equity preferreds are recommended on an individual basis under the Credit Opinion Key. Issuer credit recommendations do not apply to equity preferreds.
Recommendation
Overweight-100%
Overweight-70%
Overweight-30%
Investor Action Points (Cash and/or CDS)
Up to 100% Overweight of investor's guidelines
Up to 70% Overweight of investor's guidelines
Up to 30% Overweight of investor's guidelines
Primary Investment Return Driver
Compelling spread tightening potential
Carry, plus some spread tightening expected
Good carry, but little spread tightening expected
Underweight-30%
Underweight-70%
Underweight-100%
Down to 30% Underweight of investor's guidelines
Down to 70% Underweight of investor's guidelines
Down to 100% Underweight of investor's guidelines
Unattractive carry, but spreads unlikely to widen
Expected spread underperformance
Material spread widening expected
Time horizon – our recommendations have a 3 month trade horizon
Credit Opinion History Tables for the securities referenced in this research report are available at http://pricecharts.ml.com, or call 1-800-MERRILL to have them
mailed.
MLPF&S or an affiliate was a manager of a public offering of securities of this company within the last 12 months: GameStop.
The company is or was, within the last 12 months, an investment banking client of MLPF&S and/or one or more of its affiliates: GameStop.
MLPF&S or an affiliate has received compensation from the company for non-investment banking services or products within the past 12 months: GameStop.
The company is or was, within the last 12 months, a non-securities business client of MLPF&S and/or one or more of its affiliates: GameStop.
MLPF&S or an affiliate has received compensation for investment banking services from this company within the past 12 months: GameStop.
MLPF&S or an affiliate expects to receive or intends to seek compensation for investment banking services from this company or an affiliate of the company
within the next three months: GameStop.
MLPF&S together with its affiliates beneficially owns one percent or more of the common stock of this company. If this report was issued on or after the 8th day
of the month, it reflects the ownership position on the last day of the previous month. Reports issued before the 8th day of a month reflect the ownership position at
the end of the second month preceding the date of the report: GameStop.
21
The H Y Wire
1 0 Nov embe r 201 4
The company is or was, within the last 12 months, a securities business client (non-investment banking) of MLPF&S and/or one or more of its affiliates:
GameStop.
BofA Merrill Lynch Research personnel (including the analyst(s) responsible for this report) receive compensation based upon, among other factors, the overall
profitability of Bank of America Corporation, including profits derived from investment banking revenues.
BofA Merrill Lynch Global Credit Research analysts regularly interact with sales and trading desk personnel in connection with their research, including to
ascertain pricing and liquidity in the fixed income markets.
Other Important Disclosures
MLPF&S or one of its affiliates has a significant financial interest in the fixed income instruments of the issuer. If this report was issued on or after the 15th day of
the month, it reflects a significant financial interest on the last day of the previous month. Reports issued before the 15th day of the month reflect a significant
financial interest at the end of the second month preceding the report: GameStop.
Readers should assume that MLPF&S and/or one or more of its affiliates may, at any time, have a meaningful financial exposure to the fixed income instruments
of the issuers discussed herein.
Rule 144A securities may be offered or sold only to persons in the U.S. who are Qualified Institutional Buyers within the meaning of Rule 144A under the
Securities Act of 1933, as amended.
SECURITIES DISCUSSED HEREIN MAY BE RATED BELOW INVESTMENT GRADE AND SHOULD THEREFORE ONLY BE CONSIDERED FOR
INCLUSION IN ACCOUNTS QUALIFIED FOR SPECULATIVE INVESTMENT.
Recipients who are not institutional investors or market professionals should seek the advice of their independent financial advisor before considering
information in this report in connection with any investment decision, or for a necessary explanation of its contents.
The securities discussed in this report may be traded over-the-counter. Retail sales and/or distribution of this report may be made only in states where these
securities are exempt from registration or have been qualified for sale.
Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related
investments.
From time to time research analysts conduct site visits of covered companies. BofA Merrill Lynch policies prohibit research analysts from accepting payment or
reimbursement for travel expenses from the company for such visits.
This report, and the securities discussed herein, may not be eligible for distribution or sale in all countries or to certain categories of investors.
Information relating to Affiliates of MLPF&S and Distribution of Affiliate Research Reports:
BofA Merrill Lynch includes Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S") and its affiliates. Investors should contact their BofA
Merrill Lynch representative or Merrill Lynch Global Wealth Management financial advisor if they have questions concerning this report.
"BofA Merrill Lynch" and "Merrill Lynch" are each global brands for BofA Merrill Lynch Global Research.
MLPF&S distributes, or may in the future distribute, research reports of the following non-US affiliates in the US (short name: legal name): Merrill Lynch (France):
Merrill Lynch Capital Markets (France) SAS; Merrill Lynch (Frankfurt): Merrill Lynch International Bank Ltd., Frankfurt Branch; Merrill Lynch (South Africa): Merrill
Lynch South Africa (Pty) Ltd.; Merrill Lynch (Milan): Merrill Lynch International Bank Limited; MLI (UK): Merrill Lynch International; Merrill Lynch (Australia): Merrill
Lynch Equities (Australia) Limited; Merrill Lynch (Hong Kong): Merrill Lynch (Asia Pacific) Limited; Merrill Lynch (Singapore): Merrill Lynch (Singapore) Pte Ltd.;
Merrill Lynch (Canada): Merrill Lynch Canada Inc; Merrill Lynch (Mexico): Merrill Lynch Mexico, SA de CV, Casa de Bolsa; Merrill Lynch (Argentina): Merrill Lynch
Argentina SA; Merrill Lynch (Japan): Merrill Lynch Japan Securities Co., Ltd.; Merrill Lynch (Seoul): Merrill Lynch International Incorporated (Seoul Branch); Merrill
Lynch (Taiwan): Merrill Lynch Securities (Taiwan) Ltd.; DSP Merrill Lynch (India): DSP Merrill Lynch Limited; PT Merrill Lynch (Indonesia): PT Merrill Lynch
Indonesia; Merrill Lynch (Israel): Merrill Lynch Israel Limited; Merrill Lynch (Russia): OOO Merrill Lynch Securities, Moscow; Merrill Lynch (Turkey I.B.): Merrill Lynch
Yatirim Bank A.S.; Merrill Lynch (Turkey Broker): Merrill Lynch Menkul Değerler A.Ş.; Merrill Lynch (Dubai): Merrill Lynch International, Dubai Branch; MLPF&S
(Zurich rep. office): MLPF&S Incorporated Zurich representative office; Merrill Lynch (Spain): Merrill Lynch Capital Markets Espana, S.A.S.V.; Merrill Lynch (Brazil):
Bank of America Merrill Lynch Banco Multiplo S.A.; Merrill Lynch KSA Company, Merrill Lynch Kingdom of Saudi Arabia Company.
This research report has been approved for publication and is distributed in the United Kingdom to professional clients and eligible counterparties (as each is
defined in the rules of the Financial Conduct Authority and the Prudential Regulation Authority) by Merrill Lynch International and Bank of America Merrill Lynch
International Limited, which are authorized by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation
Authority, and is distributed in the United Kingdom to retail clients (as defined in the rules of the Financial Conduct Authority and the Prudential Regulation Authority)
by Merrill Lynch International Bank Limited, London Branch, which is authorised by the Central Bank of Ireland and subject to limited regulation by the Financial
Conduct Authority and Prudential Regulation Authority - details about the extent of our regulation by the Financial Conduct Authority and Prudential Regulation
Authority are available from us on request; has been considered and distributed in Japan by Merrill Lynch Japan Securities Co., Ltd., a registered securities dealer
under the Financial Instruments and Exchange Act in Japan; is distributed in Hong Kong by Merrill Lynch (Asia Pacific) Limited, which is regulated by the Hong Kong
SFC and the Hong Kong Monetary Authority is issued and distributed in Taiwan by Merrill Lynch Securities (Taiwan) Ltd.; is issued and distributed in India by DSP
Merrill Lynch Limited; and is issued and distributed in Singapore to institutional investors and/or accredited investors (each as defined under the Financial Advisers
Regulations) by Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. (Company Registration No.’s F 06872E and
198602883D respectively). Merrill Lynch International Bank Limited (Merchant Bank) and Merrill Lynch (Singapore) Pte Ltd. are regulated by the Monetary Authority
of Singapore. Bank of America N.A., Australian Branch (ARBN 064 874 531), AFS License 412901 (BANA Australia) and Merrill Lynch Equities (Australia) Limited
(ABN 65 006 276 795), AFS License 235132 (MLEA) distributes this report in Australia only to 'Wholesale' clients as defined by s.761G of the Corporations Act 2001.
With the exception of BANA Australia, neither MLEA nor any of its affiliates involved in preparing this research report is an Authorised Deposit-Taking Institution
under the Banking Act 1959 nor regulated by the Australian Prudential Regulation Authority. No approval is required for publication or distribution of this report in
Brazil and its local distribution is made by Bank of America Merrill Lynch Banco Múltiplo S.A. in accordance with applicable regulations. Merrill Lynch (Dubai) is
authorized and regulated by the Dubai Financial Services Authority (DFSA). Research reports prepared and issued by Merrill Lynch (Dubai) are prepared and issued
in accordance with the requirements of the DFSA conduct of business rules.
Merrill Lynch (Frankfurt) distributes this report in Germany. Merrill Lynch (Frankfurt) is regulated by BaFin.
This research report has been prepared and issued by MLPF&S and/or one or more of its non-US affiliates. MLPF&S is the distributor of this research report in
the US and accepts full responsibility for research reports of its non-US affiliates distributed to MLPF&S clients in the US. Any US person receiving this research
report and wishing to effect any transaction in any security discussed in the report should do so through MLPF&S and not such foreign affiliates.
General Investment Related Disclosures:
Taiwan Readers: Neither the information nor any opinion expressed herein constitutes an offer or a solicitation of an offer to transact in any securities or other
financial instrument. No part of this report may be used or reproduced or quoted in any manner whatsoever in Taiwan by the press or any other person without the
express written consent of BofA Merrill Lynch.
This research report provides general information only. Neither the information nor any opinion expressed constitutes an offer or an invitation to make an offer, to
buy or sell any securities or other financial instrument or any derivative related to such securities or instruments (e.g., options, futures, warrants, and contracts for
22
T he H Y Wire
1 0 Nov embe r 201 4
differences). This report is not intended to provide personal investment advice and it does not take into account the specific investment objectives, financial situation
and the particular needs of any specific person. Investors should seek financial advice regarding the appropriateness of investing in financial instruments and
implementing investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realized.
Any decision to purchase or subscribe for securities in any offering must be based solely on existing public information on such security or the information in the
prospectus or other offering document issued in connection with such offering, and not on this report.
Securities and other financial instruments discussed in this report, or recommended, offered or sold by Merrill Lynch, are not insured by the Federal Deposit
Insurance Corporation and are not deposits or other obligations of any insured depository institution (including, Bank of America, N.A.). Investments in general and,
derivatives, in particular, involve numerous risks, including, among others, market risk, counterparty default risk and liquidity risk. No security, financial instrument or
derivative is suitable for all investors. In some cases, securities and other financial instruments may be difficult to value or sell and reliable information about the
value or risks related to the security or financial instrument may be difficult to obtain. Investors should note that income from such securities and other financial
instruments, if any, may fluctuate and that price or value of such securities and instruments may rise or fall and, in some cases, investors may lose their entire
principal investment. Past performance is not necessarily a guide to future performance. Levels and basis for taxation may change.
BofA Merrill Lynch is aware that the implementation of the ideas expressed in this report may depend upon an investor's ability to "short" securities or other
financial instruments and that such action may be limited by regulations prohibiting or restricting "shortselling" in many jurisdictions. Investors are urged to seek
advice regarding the applicability of such regulations prior to executing any short idea contained in this report.
This report may contain a trading idea or recommendation which highlights a specific identified near-term catalyst or event impacting a security, issuer, industry
sector or the market generally that presents a transaction opportunity, but does not have any impact on the analyst’s particular “Overweight” or “Underweight” rating
(which is based on a three month trade horizon). Trading ideas and recommendations may differ directionally from the analyst’s rating on a security or issuer
because they reflect the impact of a near-term catalyst or event.
Foreign currency rates of exchange may adversely affect the value, price or income of any security or financial instrument mentioned in this report. Investors in
such securities and instruments effectively assume currency risk.
UK Readers: The protections provided by the U.K. regulatory regime, including the Financial Services Scheme, do not apply in general to business coordinated
by BofA Merrill Lynch entities located outside of the United Kingdom. BofA Merrill Lynch Global Research policies relating to conflicts of interest are described at
http://www.ml.com/media/43347.pdf.
Officers of MLPF&S or one or more of its affiliates (other than research analysts) may have a financial interest in securities of the issuer(s) or in related
investments.
MLPF&S or one of its affiliates is a regular issuer of traded financial instruments linked to securities that may have been recommended in this report. MLPF&S or
one of its affiliates may, at any time, hold a trading position (long or short) in the securities and financial instruments discussed in this report.
BofA Merrill Lynch, through business units other than BofA Merrill Lynch Global Research, may have issued and may in the future issue trading ideas or
recommendations that are inconsistent with, and reach different conclusions from, the information presented in this report. Such ideas or recommendations reflect
the different time frames, assumptions, views and analytical methods of the persons who prepared them, and BofA Merrill Lynch is under no obligation to ensure that
such other trading ideas or recommendations are brought to the attention of any recipient of this report.
In the event that the recipient received this report pursuant to a contract between the recipient and MLPF&S for the provision of research services for a separate
fee, and in connection therewith MLPF&S may be deemed to be acting as an investment adviser, such status relates, if at all, solely to the person with whom
MLPF&S has contracted directly and does not extend beyond the delivery of this report (unless otherwise agreed specifically in writing by MLPF&S). MLPF&S is and
continues to act solely as a broker-dealer in connection with the execution of any transactions, including transactions in any securities mentioned in this report.
Copyright, User Agreement and other general information related to this report:
Copyright 2014 Merrill Lynch, Pierce, Fenner & Smith Incorporated. All rights reserved. This research report is prepared for the use of BofA Merrill Lynch clients
and may not be redistributed, retransmitted or disclosed, in whole or in part, or in any form or manner, without the express written consent of BofA Merrill Lynch.
BofA Merrill Lynch Global Research reports are distributed simultaneously to internal and client websites and other portals by BofA Merrill Lynch and are not publiclyavailable materials. Any unauthorized use or disclosure is prohibited. Receipt and review of this research report constitutes your agreement not to redistribute,
retransmit, or disclose to others the contents, opinions, conclusion, or information contained in this report (including any investment recommendations, estimates or
price targets) without first obtaining express permission from an authorized officer of BofA Merrill Lynch.
Materials prepared by BofA Merrill Lynch Global Research personnel are based on public information. Facts and views presented in this material have not been
reviewed by, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch, including investment banking personnel. BofA
Merrill Lynch has established information barriers between BofA Merrill Lynch Global Research and certain business groups. As a result, BofA Merrill Lynch does not
disclose certain client relationships with, or compensation received from, such companies in research reports. To the extent this report discusses any legal
proceeding or issues, it has not been prepared as nor is it intended to express any legal conclusion, opinion or advice. Investors should consult their own legal
advisers as to issues of law relating to the subject matter of this report. BofA Merrill Lynch Global Research personnel’s knowledge of legal proceedings in which any
BofA Merrill Lynch entity and/or its directors, officers and employees may be plaintiffs, defendants, co-defendants or co-plaintiffs with or involving companies
mentioned in this report is based on public information. Facts and views presented in this material that relate to any such proceedings have not been reviewed by,
discussed with, and may not reflect information known to, professionals in other business areas of BofA Merrill Lynch in connection with the legal proceedings or
matters relevant to such proceedings.
This report has been prepared independently of any issuer of securities mentioned herein and not in connection with any proposed offering of securities or as
agent of any issuer of any securities. None of MLPF&S, any of its affiliates or their research analysts has any authority whatsoever to make any representation or
warranty on behalf of the issuer(s). BofA Merrill Lynch Global Research policy prohibits research personnel from disclosing a recommendation, investment rating, or
investment thesis for review by an issuer prior to the publication of a research report containing such rating, recommendation or investment thesis.
Any information relating to the tax status of financial instruments discussed herein is not intended to provide tax advice or to be used by anyone to provide tax
advice. Investors are urged to seek tax advice based on their particular circumstances from an independent tax professional.
The information herein (other than disclosure information relating to BofA Merrill Lynch and its affiliates) was obtained from various sources and we do not
guarantee its accuracy. This report may contain links to third-party websites. BofA Merrill Lynch is not responsible for the content of any third-party website or any
linked content contained in a third party website. Content contained on such third-party websites is not part of this report and is not incorporated by reference into this
report. The inclusion of a link in this report does not imply any endorsement by or any affiliation with BofA Merrill Lynch. Access to any third-party website is at your
own risk, and you should always review the terms and privacy policies at third-party websites before submitting any personal information to them. BofA Merrill Lynch
is not responsible for such terms and privacy policies and expressly disclaims any liability for them.
All opinions, projections and estimates constitute the judgment of the author as of the date of the report and are subject to change without notice. Prices also are
subject to change without notice. BofA Merrill Lynch is under no obligation to update this report and BofA Merrill Lynch’s ability to publish research on the subject
company(ies) in the future is subject to applicable quiet periods. You should therefore assume that BofA Merrill Lynch will not update any fact, circumstance or
opinion contained in this report.
Certain outstanding reports may contain discussions and/or investment opinions relating to securities, financial instruments and/or issuers that are no longer
current. Always refer to the most recent research report relating to a company or issuer prior to making an investment decision.
23
The H Y Wire
1 0 Nov embe r 201 4
In some cases, a company or issuer may be classified as Restricted or may be Under Review or Extended Review. In each case, investors should consider any
investment opinion relating to such company or issuer (or its security and/or financial instruments) to be suspended or withdrawn and should not rely on the analyses
and investment opinion(s) pertaining to such issuer (or its securities and/or financial instruments) nor should the analyses or opinion(s) be considered a solicitation of
any kind. Sales persons and financial advisors affiliated with MLPF&S or any of its affiliates may not solicit purchases of securities or financial instruments that are
Restricted or Under Review and may only solicit securities under Extended Review in accordance with firm policies.
Neither BofA Merrill Lynch nor any officer or employee of BofA Merrill Lynch accepts any liability whatsoever for any direct, indirect or consequential damages or
losses arising from any use of this report or its contents.
24