The HY Wire
High Yield Strategy | Global
23 June 2014
Don’t fight the bull
summertime sadness
 No
On Friday our High Yield Index reached an all-time low yield to worst of 4.86%.
Regular readers will hardly be surprised. We continue to remain bullish on high yield
given the low default rate environment and expect further spread tightening and
yield decreases over the summer, even as rates rise. Janet Yellen’s comments at
the post-FOMC press conference on Wednesday confirmed our view from winter
through spring that market volatility should remain benign for the foreseeable future.
Credit only stands to benefit from the current modest growth and low rate
environment. To this end, we revise lower our spread target down from 350bp to
315bp to better match our belief of 7-8% total returns on the year.
Transitory Factors
Last week’s economic data and FOMC meeting confirmed our beliefs that though
the recovery is underway - and the asset purchase program will end this fall Chairwoman Yellen is in no rush to raise front-end rates. On Monday the week
started on a positive note as Industrial Production and Empire Manufacturing
exceeded consensus forecasts. However, one of the key measures in the Fed’s
policy calculus, housing, disappointed once again. Also of significance in that
process is inflation, and last week marked the third straight month of an increase in
CPI relative to expectations. However, during Yellen’s press conference it was clear
that she believes the modest tick higher has more to do with the reversal of
transitory factors than a prolonged increase resulting in policy action.
Unauthorized redistribution of this report is prohibited. This report is intended for steve@gp-nj.com.
Flows: Taking a breather
Flows were generally mixed this week as equities, high grade, and EM funds
continued to see gains, while high yield and loans reported outflows. Global high
yield funds saw outflows this week totaling $699mn as $408mn exited non-US funds
and $291mn exited US funds.
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
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
Recent Publications
The High Yield Flow Report: Taking a
breather 19 June 2014
High Yield Strategy: HY Credit Chartbook:
Q1 Earnings Analysis 05 June 2014
Credit Derivatives Strategist: Europe vs.
US: three trades 18 June 2014
Issuance: Europe still ahead of last year’s pace, US behind
Global high yield issuance slowed down this week as 10 deals for a total of $4.8bn
came to market. $4.0bn came from the US and $0.8bn came from Europe. While
the US still trails last year’s pace by about $15bn, Europe is ahead by about $21bn.
Similarly, global loan issuance was moderate as $8.0bn was priced.
Performance: US HY rallies on dovish Fed
US HY rallied last week returning 0.34% on the back of a dovish fed which
dismissed recent inflationary CPI numbers and reaffirmed their directive of keeping
rates low.
Convertibles: Strong returns, strong issuance
Convertibles have posted monthly gains in all regions barring Europe, and the US
has done particularly well not only on an absolute basis but relative to broader
equity and debt market indicators. In terms of issuance, this month’s pace of
$12.7bn is the strongest since November last year.
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 16 to 18. Link to Definitions on page 15.
11399936
T he H Y Wire
2 3 Jun e 201 4
Contents
The View From Above
Transitory Factors
3
No summertime sadness
3
Flows
6
New Issue Roundup
7
Bonds
7
Loans
8
Performance Summary
2
3
9
Rating Actions
11
Relative Value
12
Cash v. CDS
12
CDS Indices
12
Credit v. Equities
13
CLOs
13
Convertibles
14
Strong returns abound
14
Best month of issuance this year
15
The H Y Wire
2 3 Jun e 201 4
The View From Above
Transitory Factors
Last week’s economic data and FOMC meeting confirmed our beliefs that though
the recovery is underway - and the asset purchase program will end this fall Chairwoman Yellen is in no rush to raise front-end rates. On Monday the week
started on a positive note as Industrial Production and Empire Manufacturing
exceeded consensus forecasts. However, one of the key measures in the Fed’s
policy calculus, housing, disappointed once again. The housing recovery
continues to disappoint this year - Housing Starts missed estimates - and our
mortgage strategist feels that more declines in homeownership seem inevitable.
The challenging landscape surrounding housing is one we believe the Fed will
continue to monitor closely, as we believe Yellen made clear that the impact of
home ownership on the broader economy is weighed heavily in the Fed’s
decision making process.
Also of significance in that process is inflation, and last week marked the third
straight month of an increase in CPI relative to expectations. However, during
Yellen’s press conference it was clear that she believes the modest tick higher
has more to do with the reversal of transitory factors than a prolonged increase
resulting in policy action. Our economists tend to agree, as slack in the labor
market and weak wage growth don’t point to a sharp increase in inflation
expectations. We also believe it is important to note that our economics team
believes the Fed will eventually overshoot their inflation target, as policy makers
have significant tools to battle inflation, but few tools to spur growth. To this end,
we expect rate increases to remain benign and the dovish stance of Chairwoman
Yellen to continue to be positive for spreads and returns in high yield.
Table 1: 394 HY companies have reported
YoY Pct Change
QoQ Pct Change
EBITDA Debt Rev COGS EBITDA Debt Rev COGS
10.0
8.9 6.7 6.7
3.6
2.0 0.6 1.6
Source: BofA Merrill Lynch Global Research
Weekly Recap
As of June 19th, 394 high yield names have reported earnings. On a year-overyear basis, EBITDA is up 10.0% while debt is up 8.9% and revenue has
increased 6.7%. With just about all companies reporting, on a quarter-overquarter basis, revenue growth has increased 0.6% while EBITDA growth has
increased 3.6%. Since last Thursday, high yield spreads tightened 11bps from
350bps to 339bps while 5y rates were unchanged at 1.68%. On flow activity, US
high yield funds saw outflows (-$291mn) as outflows from open-ended funds
totaled $33mn and outflows from ETFs totaled $257mn. However, US investment
grade funds reported another strong week of inflows, adding another $1.0bn. On
a par weighted basis, 78% of our HY index is now trading inside a yield of 6% and
62% is trading inside of 5%. US high yield issuance is now about $15bn behind
last year’s record pace as $4.0bn came to market this week in the US.
No summertime sadness
On Friday our High Yield Index reached an all-time low yield to worst of 4.86%.
Regular readers will hardly be surprised. We continue to remain bullish on high
yield given the low default rate environment and expect further spread tightening
and yield decreases over the summer, even as rates rise. Janet Yellen’s
comments at the post-FOMC press conference on Wednesday confirmed our
view from winter through spring that market volatility should remain benign for the
foreseeable future. Credit only stands to benefit from the current modest growth
and low rate environment. Our biggest fear right now is that Yellen has been too
good at communicating her dovishness. We worry that the market is potentially
set up for some pain should inflation continue to march higher. If the reversal of
“transitory factors” that the Chairwoman mentions becomes more than just a
3
The H Y Wire
2 3 Jun e 201 4
reversal of an anomaly, then our call for low vol and solid credit returns could be
challenged. In our view, this is likely to be a fall event, though with the rally we
have seen over the last several weeks, we would consider taking a few chips off
the table, particularly in the long duration, high quality sectors of the market.
Not your grandfather’s chase for yield
We think the extent of the credit rally this year can be explained by the lack of
volatility and low growth expectations. On the first reason, very simply, the credit
market hates uncertainty. At the most basic level, investors want the certainty of
earning their coupon payment and ultimate payment of principle. Any uncertainty
surrounding this concept leads to fear and potential mark-to-market losses. This
is why credit spreads don’t widen simply due to higher rates (Chart 1 shows a
lack of correlation between the level of rates and credit spreads) but rather sell-off
when market volatility spikes (Chart 2 shows a much stronger relationship
between implied volatility and credit spreads). In fact, credit has managed to
tighten quite easily into the rate rise this month.
Chart 2: …but high correlation between rate volatility and spreads
2500
2000
HY OAS, bps
HY OAS, bps
Chart 1: Low correlation between spreads and level of rates…
2500
1500
R² = 0.1493
1000
500
0
0.0
1.0
2.0
3.0
4.0
5y Treasury Rate, %
Source: BofA Merrill Lynch Global Research
5.0
6.0
2000
1500
1000
R² = 0.577
500
0
0
50
100
150
200
250
Rate Volatility (Move Index, %)
300
Source: BofA Merrill Lynch Global Research
We also think that the market’s growth expectations are relatively bleak. A fact
that bolsters this view is that high grade has outperformed high yield this year (on
a beta-adjusted basis and nearly from an absolute perspective) despite the latter
being a lower duration product with a coupon that is 30% higher. Even within HY,
what has outperformed is double B long duration paper. This is not a reach for
yield behavior but rather shows that investor sentiment is skewed towards lower
growth; hence the preference to pick up yield by extending duration in higher
quality rating buckets rather than going lower in credit quality.
Though we have certainly seen some modest reaching for yield among high
grade accounts into this segment - as insurance companies in particular need
yield and duration to match liabilities - we would hardly call it systemic.
Additionally, such behavior is a consequence of low vol (higher vol would create
opportunities in triple B). With higher growth and a small uptick in volatility, we
think the ‘reach for yield’ will be more prevalent, as investors gain comfort with
reaching down the risk spectrum for greater returns.
4
The H Y Wire
2 3 Jun e 201 4
Table 2: Long duration BBs, have outperformed, a sign of modest growth expectations
EffDur
BB1
BB2
BB3
B1
B2
B3
CCC1
CCC2
CCC3
CC/C
<1
2.7
2.8
2.1
2.2
2.5
3.0
3.6
3.7
1..
2.4
2.3
3.0
3.8
2.9
3.7
3.7
7.6
2..
3.7
2.9
2.9
3.7
3.5
3.7
5.8
5.7
Effective Duration, years
3..
4..
5..
6..
5.0
6.5
7.3
9.8
4.2
6.4
6.4
8.2
3.9
5.7
6.8
8.9
5.3
5.8
6.2
8.2
5.5
5.6
7.1
8.2
6.0
2.9
7.2
7.9
6.6
5.5
6.1
9.7
4.1
9.9
8.9
7..
8.6
8.7
9.0
8.9
8.9
8..
11.1
11.6
9+
14.5
15.4
12.5
13.1
Source: BofA Merrill Lynch Global Research
The “bubble” remains elusive
There has been a fair amount of talk in the press about investors’ ‘reach for yield’
behavior as a result of the market tightening to its lows. The Fed has added to the
chorus, mentioning “bubble like excess” in the credit markets. We wonder though,
what is excess when interest coverage ratios are at all-time highs (Chart 3),
leverage is well below the early part of the decade (Chart 4), global central banks
continue to pump liquidity into the markets, depressing “risk-free rates”, and the
Fed is likely to remain on hold for the foreseeable future?
Chart 3: Leverage, though up, is below early decade levels...
4.5
3.5
2.5
1998 2000 2002 2004 2006 2008 2010 2012 2014
Including TXU,CCU,CZR and FDC
Source: BofA Merrill Lynch Global Research
HY Leverage Ratio
Chart 4: …while interest coverage is near all-time highs
4.4
4.1
3.8
3.5
3.2
2.9
2.6
2.3
2.0
1998 2000 2002 2004 2006 2008 2010 2012
Excluding TXU,CCU,CZR and FDC
Source: BofA Merrill Lynch Global Research
On a related note, we found it interesting that Chairwoman Yellen specifically
mentioned regulation as a tool to mitigate financial bubbles and increase financial
stability rather than using monetary policy for this purpose. This comment stands
in contrast to talks in some pockets that the Fed may tighten prematurely to
dampen market excess and bolsters our view that raising rates will not be in
response to the perception of credit excess. To that end, we don’t see inflation or
the jobs and growth picture presenting a compelling case to the Fed to hike any
time soon either, as the Chairwoman is clearly convinced that the pickup in CPI
over the last several months is simply a reversal of the transitory factors that led
to low inflation during the early part of the recovery.
We’ve written recently that on a multiple basis (HY YTW/5y UST yield), high yield
may in fact look reasonably priced. Couple this with continued strong inflows,
limited USD issuance (we forecasted down 10-15% on the year, and continue to
maintain this view), and our 7-8% total return scenario from January 27th may turn
out to be too low. Consider that at peak levels, investors tend to demand about
90-135bp over the next 12 months of credit losses. With a market spread of
336bp today, and assuming what we feel would be an extremely unlikely scenario
of a 2% default rate next year with a 35% recovery over the next twelve months,
5
The H Y Wire
2 3 Jun e 201 4
investors are earning 202bp more than the next 12 months of credit losses. To
this end, we revise lower our spread target down from 350bp to 315bp to better
match our belief of 7-8% total returns on the year. Ultimately, though, we stress
that our view on spreads shouldn’t be considered significantly important. What we
think is much more valuable is the expression that we believe high yield can
tighten into a move higher in rates, possibly one-for-one, as long as rate volatility
and the move in rates remains muted. To this point, we believe it is entirely
possible we see spreads this year as low as 300bp at some point if rates
gradually move towards 2% with little volatility. However, given our view that there
will likely be some volatility surrounding Fed communication hurdles later this
year (around the path and timing of rate hikes, inflation, or something to-bedetermined), as well as the significant outperformance of spread tightening
relative to the recent increase in treasuries, we believe our new spread forecast is
reasonable. We believe the market should be prepared for further summer
tightening, followed by the possibility of modest widening in the fall or early winter,
before another rally as the beta compression trade comes back into vogue.
Flows
This is an excerpt from last night: The
High Yield Flow Report: Taking a
breather 19 June 2014
Chart 5: Annual flows by asset class
Non-US HY
Loans
HG
All Fixed Income
US HY
Munis
Equities
EM Debt
Commodities
Money Markets
+$18
+$2
+$49
+$56
+$4
+$7
+$78
Global high yield funds saw outflows this week, pausing the inflow momentum
that had been building since the beginning of February. Outflows totaled $699mn
as $408mn exited non-US funds and $291mn exited US funds. Within the US,
$257mn came from ETFs, while the remaining $33mn came from open-ended
funds.
-$7
-$5
-$171
-50
0
50
YTD change in Net Assets, %
2013 change in Net Assets, %
100
Behind high yield were loans, which sustained $294mn of outflows. This now
marks 10 straight weeks of negative flow activity. Finally, commodity funds
reported outflows of $89mn.
Chart 6: Global HY flows distributed between US-domiciled and non US-domiciled funds
Weekly Dollar Flows,
US$mn
Source: BofA Merrill Lynch Global Research, EPFR Global
Flows were generally mixed this week as equities, high grade, and EM funds
continued to see gains, while high yield and loans reported outflows. The inflow
leader was equities, which added about $10.2bn on top of last week’s inflow of
$9.7bn. US high grade funds maintained inflow momentum, this week to the tune
of about $1.0bn. High grade funds have now seen 22 consecutive weeks of
inflows as the last weekly outflow was reported on January 15. EM bonds added
$620mn since last week, marking 12 continuous weeks of positive flows. While
blended currency (+$369mn) and hard currency funds (+$274mn) reported
inflows, local currency funds (-$22mn) reported outflows. Muni funds saw minor
inflow activity this week totaling $7mn.
3,000
-2,000
-7,000
Jan-13
Jun-13
US HY
Source: BofA Merrill Lynch Global Research, EPFR Global
6
Dec-13
Non-US HY
May-14
The H Y Wire
2 3 Jun e 201 4
New Issue Roundup
Bonds
Global high yield issuance slowed down this week as 10 deals for a total of
$4.8bn came to market. $4.0bn came from the US and $0.8bn came from
Europe. Of the $4.8bn issued this week, $3.6bn was rated B and $1.3bn was
CCC or not rated. Month-to-date, we have seen a total of $23.7bn come to
market in June, which is on pace with May’s volume. Year-to-date we now stand
at $206.9bn, ahead of where we were at this time last year ($197.7bn). However,
as we’ve emphasized in past weeks, Europe is ahead of last year’s pace while
the US is behind.
Table 3: Global issuance over time ($bn)
Global
United States
Europe
BB
0.0
0.6
0.8
2.4
3.6
8.6
4.0
1.5
B
CCC/NR
16.8
28.5
22.2
22.4
5.9
13.5
31.9
9.8
1.3
19.1
9.4
14.7
16.2
17.9
36.0
17.7
6.2
7.9
9.4
3.6
119.0
133.5
270.3
280.5
189.3
78.5
57.3
91.5
65.5
57.2
62.9
71.2
128.8
103.6
80.4
108.8
89.8
172.4
195.5
131.9
35.2
36.6
77.2
66.6
45.1
WTD Jun 20
Wk Jun 13
Wk Jun 06
Wk May 30
4.8
12.5
6.4
4.2
4.0
9.2
3.6
1.3
MTD Jun
May
April
March
23.7
44.9
54.8
36.0
YTD 2014
YTD 2013
2013
2012
2011
206.9
197.7
378.3
365.7
257.4
0.8
3.0
2.1
1.8
1.3
3.3
1.7
0.4
Source: BofA Merrill Lynch Global Research
A further analysis shows that about 74% of new issues were rated B, while only
18% were CCC, and 8% were not rated. No issues were BB-rated this week.
While unusual to see no BB issuance, B’s have outpaced BB’s just about every
week in the past several months. In terms of seniority, 63% of new issues were
senior unsecured this week, while the remaining 37% were secured. Finally, all
deals this week were private placements, 39% with reg rights and 61% without
reg rights. Private placements have consistently outpaced public deals this year.
Table 4: New issue breakdown by week, last 3 months
03/14/2014
03/21/2014
03/28/2014
04/04/2014
04/11/2014
04/18/2014
04/25/2014
05/02/2014
05/09/2014
05/16/2014
05/23/2014
05/30/2014
06/06/2014
06/13/2014
06/20/2014
Total
7,434
5,056
7,583
9,775
15,493
8,372
18,362
7,703
13,796
11,250
12,871
4,231
6,410
12,506
4,810
Ratings
BB
B
CCC NR
2,895 3,927
575
38
650
2,979 1,350 78
1,350 5,314
850
69
2,573 5,296 1,858 48
5,400 7,238 2,855
2,132 3,136 3,104
300 17,414 440
207
2,716 4,137
850
5,234 5,692 2,701 170
5,086 5,558
606
4,504 4,321 4,046
2,399 1,478
239
115
750
3,999 1,661
575
8,634 2,214 1,083
3,552
853
405
Currency (US$mn equivalents)
USD
4,958
3,628
6,660
7,470
12,195
6,075
12,065
5,050
10,375
8,555
10,210
1,915
4,820
9,040
4,035
EUR
1,386
1,140
923
1,349
3,021
2,115
6,297
2,315
2,668
1,350
1,706
1,947
1,361
2,621
632
GBP
1,090
289
957
276
338
754
1,207
771
297
CAD
182
138
184
369
229
275
Seniority
Secured
3,152
1,614
959
1,637
2,358
3,008
11,203
1,319
6,034
5,466
2,574
674
800
2,979
1,782
Senior Sub
4,282
3,442
6,624
8,138
13,135
4,114 1,250
7,158
6,384
7,762
5,784
7,597 2,700
3,557
4,340 1,270
9,527
3,028
144a w RR
3,709
1,665
3,085
3,018
2,600
1,757
711
3,399
5,092
4,248
5,589
1,845
2,251
4,867
1,853
Deal Type
144a w/o RR
1,525
2,691
4,498
5,378
9,093
5,365
17,351
4,304
7,804
4,414
6,031
2,017
3,139
4,569
2,957
Public
2,200
700
1,380
3,300
1,250
300
900
2,588
1,250
369
1,020
3,070
Source: BofA Merrill Lynch Global Research
7
The H Y Wire
2 3 Jun e 201 4
At the single name level the largest this week was the $1.0bn offering from West
Corp. The bonds are senior unsecured, yield 5.375%, and retire in July 2022.
Proceeds from the offering will be used to repay outstanding debt including its
2018 and 2019 notes. Other large deals this week include the $790mn twotranche offering from Cenveo Corporation, the $750mn offering from SBA
Communications Corporation, and the $428mn offering from Dometic Group AB.
Table 5: New issues June 13th – June 19th
Pricing Dt Name
6/19/2014
6/19/2014
6/19/2014
6/19/2014
6/19/2014
6/19/2014
6/18/2014
6/18/2014
6/18/2014
6/17/2014
6/17/2014
6/17/2014
6/13/2014
R&R Ice Cream plc
R&R Ice Cream plc
Dometic Group AB
Global Partners LP Capital LP and GLP Finance Corp.
Cenveo Corporation
Cenveo Corporation
West Corporation
Wave Holdco LLC/ Corp
SiTV LLC/ Finance Inc (NUVOtv)
SBA Communications Corporation
Acadia Healthcare Co Inc.
AAR Holdings LLC & AAF Finance Co (All Aboard Florida)
Sanchez Energy Corporation
Size ($)
143
204
428
375
250
540
1000
175
240
750
300
405
850
Snr
Sr Sec Nts
Sr Sec Nts
Sr Nts
Sr Nts
Sr Sec Nts
Sr Sec Nts
Sr Nts
Sr Nts
Sr Sec Nts
Sr Nts
Sr Nts
Sr Sec Nts
Sr Nts
Cpn Maturity Price Yield Moody's S&P Type
8.25
4.75
9.50
6.25
8.50
6.00
5.38
8.25
10.38
4.88
5.13
12.00
6.13
15-May-20
15-May-20
26-Jun-19
15-Jul-22
15-Sep-22
1-Aug-19
15-Jul-22
15-Jul-19
1-Jul-19
15-Jul-22
1-Jul-22
1-Jul-19
15-Jan-23
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
99.18
100.00
100.00
100.00
8.25
4.75
9.50
6.25
8.50
6.00
5.38
8.25
10.38
5.00
5.13
12.00
6.13
B2
B2
Caa2
B2
Caa2
B3
B3
Caa1
B3
B3
NR
B3
B
B
CCC
B+
CCC
B
B+
BBB
B
NR
B-
144A for Life
144A for Life
144A w/RR
144A w/RR
144A for Life
144A for Life
144A for Life
144A for Life
144A for Life
144A w/RR
144A w/RR
144A for Life
144A w/RR
Sector
Food
Food
Home Furnishings
Distribution/Wholesale
Commercial Services
Commercial Services
Telecommunications
Media
Media
Telecommunications
Healthcare-Services
Real Estate
Oil&Gas
Region
Europe
Europe
Europe
United States
United States
United States
United States
United States
United States
United States
United States
United States
United States
Source: BofA Merrill Lynch Global Research
Loans
Global loan issuance was moderate this week as $8.0bn was priced. Most of the
new supply, about $4.1bn was B-rated, while $3.5bn was CCC or not rated and
$0.3bn was BB-rated. Cov-lite issuance was lower compared to last week as only
$6.0bn was priced since last Friday, and 2nd lien issuance totaled only $1.2bn.
Month-to-date, we’ve seen a total of $36.9bn come to market in June while yearto-date we have seen a total of $234.5bn. Last year at this time, we had already
seen $265.1bn of new loan supply.
Table 6: Global loan issuance over time ($bn)
Global
BB
0.3
3.7
5.5
3.4
4.1
9.7
7.7
2.3
B
CCC/NR
Cov lite
2nd lien
MTD Jun
May
April
March
36.9
26.5
42.6
46.8
9.5
9.1
13.1
9.3
21.5
11.8
23.4
32.4
5.9
5.5
6.1
5.2
23.4
16.9
31.2
35.3
3.6
2.9
4.1
4.4
YTD 2014
YTD 2013
2013
2012
2011
234.5
265.1
454.9
295.3
231.8
68.2
81.4
152.8
105.0
94.3
131.3
159.1
261.7
161.9
117.8
35.0
24.7
40.4
28.4
19.8
162.8
149.2
279.1
97.5
59.1
22.4
15.9
28.9
17.2
7.0
WTD Jun 20
Wk Jun 13
Wk Jun 06
Wk May 30
8.0
15.0
14.0
6.3
3.5
1.7
0.7
0.6
6.0
10.0
7.4
4.5
1.2
1.5
0.9
0.7
Source: BofA Merrill Lynch Global Research
Breaking this week’s new supply down further, about 52% of new issues were Brated, 19% were CCC-rated, 4% were BB-rated, and 25% were not rated. About
75% of new supply this week was cov-lite, while about 86% of new issuance was
term-loan B and about 14% was 2nd lien.
8
The H Y Wire
2 3 Jun e 201 4
Table 7: New issue breakdown by week, last 3 months
Total
10,795
11,795
9,728
15,226
8,381
4,714
8,885
12,794
10,536
4,004
2,595
6,269
13,980
14,969
7,978
03/14/2014
03/21/2014
03/28/2014
04/04/2014
04/11/2014
04/18/2014
04/25/2014
05/02/2014
05/09/2014
05/16/2014
05/23/2014
05/30/2014
06/06/2014
06/13/2014
06/20/2014
BB
1,485
75
2,040
8,310
1,000
350
2,000
3,690
2,775
1,210
1,400
3,380
5,525
3,669
300
Ratings
B
8,072
10,030
6,210
5,807
6,882
2,230
5,145
8,059
3,893
2,585
735
2,310
7,745
9,650
4,142
CCC
710
1,540
515
730
73
1,059
1,365
1,045
3,040
209
285
579
710
1,200
1,516
NR
528
150
963
379
426
1,075
375
828
175
450
2,020
TLb 2nd Lien Cov Lite
9,785
1,010
8,792
10,105
1,690
9,920
8,838
890
7,490
14,496
730
13,130
8,153
228
6,585
3,805
909
2,239
5,620
1,665
5,335
11,749
1,045
10,100
9,246
1,290
6,933
3,795
209
905
2,310
285
1,920
5,540
729
4,489
13,070
910
7,435
13,469
1,500
9,995
6,827
1,151
5,971
Source: BofA Merrill Lynch Global Research
At the single-name level, the largest deal this week was the $1.8bn senior
secured offering from ServiceMaster Co. The loans are priced to yield between
325bp and 350bps above LIBOR and will mature in 2021. Proceeds from the deal
will be used to repay and redeem existing debt. Other large loan deals this week
include the $1.7bn offering from Jacobs Douwe Egberts and the $1.3bn offering
from TI Automotive Ltd.
Table 8: Top 10 largest new issues June 13th – June 19th
Launch Dt Issuer
6/16/2014
6/13/2014
6/18/2014
6/17/2014
6/17/2014
6/17/2014
6/18/2014
6/17/2014
6/17/2014
6/16/2014
ServiceMaster Co
Jacobs Douwe Egberts
TI Automotive Ltd
Solenis
Altegrity Inc
Solenis
Novitex Enterprise Solutions
Tribune Publishing
TeamViewer
TerraForm Power
Deal Name
ServiceMaster (TL 7/14)
Jacobs Douwe Egberts (US 7/14)
TI Automotive (7/14)
Solenis (US 7/14)
Altegrity (7/14)
Solenis (US 2nd Lien 7/14)
Novitex (7/14)
Tribune Publishing (TL 7/14)
TeamViewer (US TL 7/14)
TerraForm Power (7/14)
Deal Size ($) New Institutional Money ($) Moody's S&P Asset Backed Cov Lite Proceeds
1825
1619
1250
630
550
470
355
350
310
425
1825
1619
1250
630
550
470
355
350
310
300
B2
Ba3
NR
B2
B3
Caa1
NR
B1
B1
NR
B
BB
NR
NR
CCCNR
NR
B+
B
BB
No
No
No
No
No
No
No
No
No
No
Yes
No
Yes
Yes
No
Yes
No
Yes
Yes
No
Refinancing
Acquisition
Dividend
LBO
Refinancing
LBO
Dividend
Acquisition
LBO
Bridge to IPO
Sector
Services & Leasing
Food & Beverage
Automotive
Chemicals
Services & Leasing
Chemicals
Computers & Electronics
Printing & Publishing
Computers & Electronics
Utilities
Region
United States
Europe
Europe
United States
United States
United States
United States
United States
Europe
United States
Source: BofA Merrill Lynch Global Research
Table 9: Total returns across asset classes
Ticker Name
WTD (%) MTD (%) YTD (%)
MXEF
EMGB
C0A0
GA05
EMIB
U0A0
LCDI/ALL
CDXIG
HE00
M0A0
H0A0
EMHB
G0QI
CDXHY
SPX
EM Eqty
EM Govts
US IG
5yr TRSY
EM IG
Municipals
Lev Loans
CDX.IG
EU HY
Mortgages
US HY
EM HY
TIPs
CDX.HY
S&P 500
-0.50
-0.08
-0.03
-0.01
0.00
0.06
0.10
0.16
0.19
0.30
0.34
0.43
0.56
0.58
1.38
1.57
0.04
-0.57
-0.74
-0.12
-0.44
0.39
0.30
0.98
-0.08
0.85
1.36
-0.60
0.94
2.04
4.11
7.71
5.17
1.41
5.39
6.12
2.41
1.08
5.80
3.68
5.64
7.10
5.40
3.27
6.20
Performance Summary
US HY rallied last week returning 0.34% on the back of a dovish fed which
dismissed recent inflationary CPI numbers and reaffirmed their directive of
keeping rates low. In fact CDX HY was the second best performer returning 0.6%
significantly outperforming cash. S&P 500 was the best performer with ~1.5%
returns over the week, while EM assets underperformed, except for EM HY which
returned 0.43% ahead of US and EU HY. Within US HY, all sectors were in the
green: Technology bagged the top spot with 0.9%, led by FDC which came in at
2.2% over last week. Gaming underperformed all others at 0.2%. Once again we
saw a barbelled performance at the ratings level although less so as compared to
YTD figures. CCCs were the best performers by a wide margin at 0.5% while BBs
and Bs came in near ~0.3% respectively.
Source: BofA Merrill Lynch Global Research
9
The H Y Wire
2 3 Jun e 201 4
Chart 7: Segment and rating returns, week-to-date
Chart 8: Sector returns, week-to-date
Technology
Utilities
Retail
Media
Food
Energy
Materials
Consumer Products
Capital Goods
Hotels & Leisure
Real Estate
Telecommunications
Transportation
Commercial Services
Financials
Automotive
Health Care
Gaming
US IG
US HY
AAAs
AAs
US As
US BBBs
US BBs
US Bs
CCCs
HY Ndistr
HY Distr
-0.20
0.00
0.20
0.40
0.60
0.0
Source: BofA Merrill Lynch Global Research
0.2
0.4
0.6
0.8
1.0
Source: BofA Merrill Lynch Global Research
At the single name level, FD’s 11.75% notes rallied the most jumping up nearly
4.5 points after the company announced it has raised $3.5bn in private equity
money from existing and new investors. A large portion of the funds (~$2.2bn) will
be used to redeem four of its outstanding securities (including the 11.75% notes)
at an average premium of ~10% which stands to reduce the company’s net
leverage by almost a full turn. Both S&P and Moody’s placed FDC on credit watch
positive following the debt reduction announcement. Toys-R-Us was also
amongst the best performers for a change, its 7.375% bond returning 3.9% in
price return on news that the company has hired the ex-Autonation CFO. Coal
companies got a bit of a bounce with Walter Energy, Arch Coal, Alcoa and Coeur
Mining all making the best performance list for the week.
Table 10: Top 10 performers June 13th – June 20th
Issue
Rating Price Yield (%) ZSpread
FDC 11.75 '21
TOY 7.38 '18
DYN 6.3 '20
WLT 8.5 '21
FDC 12.63 '21
ACI 7.25 '21
XCO 8.5 '22
CZR 11.25 '17
CVO 8.88 '18
NIHD 10 '16
CCC2
CCC2
CCC1
CCC2
CCC1
CCC2
CCC1
CCC2
CCC1
CCC3
118.39
81.11
97.99
56.31
124.29
73.99
108.38
91.77
104.79
31.58
5.82
13.26
6.72
20.76
4.25
13.04
6.73
14.80
4.41
83.55
617
1175
479
1872
581
1092
478
1380
606
8265
Px Change
4.5
3.0
3.3
1.8
2.9
1.7
2.1
1.7
1.6
0.4
Px Change (%) Volume
3.9
3.9
3.5
3.2
2.4
2.4
2.0
1.9
1.6
1.2
130
12
21
12
69
16
11
44
41
12
Source: BofA Merrill Lynch Global Research
On the other side of the spectrum, Telecom was the single sector with most
laggards including CenturyLink, Sprint, Level3 and IntelSat. Another
underperformer was Caesars on reports of a soon to be filed lawsuit on behalf of
some of its largest bondholders regarding the company’s recent asset sales,
citing the transaction was fraudulent. The company was also in the news recently
on a notice of default served to it by a small group of investors. Specialty retailer
Gymboree continued to disappoint- the company reported a drop in YoY EBITDA
for Q1 2014 on the back of lower same store sales, which were down 10% due to
unseasonable weather and low foot traffic.
10
The H Y Wire
2 3 Jun e 201 4
Table 11: Bottom 10 performers June 13th – June 20th
Issue
Rating Price Yield (%) ZSpread Px Change
CZR 10 '18
C
GYMB 9.13 '18 CCC3
CTL 7.6 '39
BB2
VRSN 4.63 '23 BB1
ADT 4.13 '23 BB2
BEAV 6.88 '20 BB2
AMGFIN 6 '20 B3
S 6 '22
B1
WLL 6.5 '18 BB3
PVA 8.5 '20 CCC1
39.47
71.32
101.59
99.65
93.49
109.10
103.00
103.30
104.50
111.93
40.18
18.97
7.46
4.67
5.04
2.24
5.40
5.50
1.71
5.33
3866
1742
434
215
249
311
342
308
379
412
-1.6
-1.9
-0.7
-0.6
-0.5
-0.6
-0.5
-0.5
-0.5
-0.5
Px Change (%) Volume
-4.0
-2.7
-0.7
-0.6
-0.5
-0.5
-0.5
-0.5
-0.5
-0.5
38
42
11
28
28
10
5
38
2
11
Source: BofA Merrill Lynch Global Research
Rating Actions
Rating actions on high yield issuers last week included more downgrades than
upgrades, coverage initiated on nineteen names and dropped on eight. There
was also a fallen angel reported. On upgrades, both DR Horton Inc. and CBRE
Services Inc. were upgraded to BB+ from BB, while Cenveo Corp was upgraded
from Caa1 to B3. DR Horton was upgraded by Fitch based upon the company’s
well executed business model, product diversity, and stable capital structure,
while CBRE Services upgrade by S&P was predicated on reduced leverage.
On downgrades, RadioShack Corp, the embattled electronics retailer, was cut to
CCC from CCC+ by S&P amid weak operating trends and subsequent liquidity
usage. S&P revised the company’s liquidity assessment to less than adequate
from weak as a result of extended cash usage. The fallen angel The Williams Cos
was downgraded from an investment grade rating of BBB to speculative grade
BB+ by S&P on their move to HoldCo. The rating agency stated that the firm’s
intention to become a pure-play general partnership upon completion of this
transaction results in a weaker credit profile.
Table 12: Rating actions on HY issuers
Date
6/17/2014
6/18/2014
6/19/2014
6/13/2014
6/13/2014
6/16/2014
6/16/2014
6/16/2014
6/16/2014
6/16/2014
6/16/2014
6/16/2014
6/17/2014
6/17/2014
6/18/2014
6/18/2014
6/18/2014
6/18/2014
6/18/2014
6/18/2014
6/18/2014
6/19/2014
6/13/2014
6/16/2014
6/16/2014
6/17/2014
6/17/2014
6/17/2014
Action
Upgrade
Upgrade
Upgrade
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Initiated
Dropped
Dropped
Dropped
Dropped
Dropped
Dropped
Company Name
Cenveo Corp
CBRE Services Inc.
DR Horton Inc.
Premier Trailer Leasing Inc.
Wave Holdco LLC
Accor SA
Altegrity Inc.
Altegrity Inc.
BUT SAS
Global Partners LP/MA
Global Partners LP/MA
Tribune Publishing Co
Jazz Acquisition Inc.
La Quinta Holdings Inc.
AV Homes Inc.
AV Homes Inc.
AV Homes Inc.
AV Homes Inc.
L'Isolante k-flex Srl
Solenis International LP
US Ecology Inc.
World Endurance Holdings
Oil States International Inc.
Aker Solutions ASA
Atlanta Gas Light Co
GenTek Inc.
IMG Worldwide Holdings Inc.
James River Coal Co
Rating Type
Senior Secured Debt
LT Local Issuer Credit
Senior Unsecured Debt
LT Local Issuer Credit
Senior Unsecured Debt
Subordinated Debt
Senior Secured Debt
Senior Secured 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
LT Local Issuer Credit
Senior Unsecured Debt
Senior Unsecured Debt
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
LT Local Issuer Credit
Agency
Moody's
S&P
Fitch
S&P
Moody's
Fitch
Moody's
Moody's
Fitch
S&P
Moody's
S&P
S&P
S&P
S&P
S&P
Moody's
Moody's
Fitch
S&P
S&P
S&P
S&P
Fitch
Moody's
S&P
S&P
S&P
Curr Rtg Last Rtg
B3
BB+
BB+
BCaa1
BB
B3
B3
B
B+
B2
B+
B
B+
BBCaa1
Caa1
B+
B
BB
B
NR
WD
WR
NR
NR
NR
Caa1
BB
BB
BB
BB
A2
B
B
D
11
The H Y Wire
2 3 Jun e 201 4
Table 12: Rating actions on HY issuers
Date
6/17/2014
6/18/2014
6/13/2014
6/16/2014
6/16/2014
6/16/2014
6/17/2014
6/17/2014
6/17/2014
6/17/2014
6/18/2014
6/18/2014
Action
Company Name
Dropped
Dropped
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Downgrade
Milagro Oil & Gas Inc.
AGY Holding Corp
iPayment Inc.
Altegrity Inc.
RadioShack Corp
Williams Cos Inc./The
NeuStar Inc.
NeuStar Inc.
SBA Communications Corp
SBA Telecommunications Inc.
Allen Systems Group Inc.
R&R Ice Cream PLC
Rating Type
Senior Secured Debt
Senior Secured Debt
LT Local Issuer Credit
Senior Unsecured Debt
LT Local Issuer Credit
LT Local Issuer Credit
Senior Unsecured Debt
Senior Unsecured Debt
Senior Unsecured Debt
Senior Unsecured Debt
Senior Secured Debt
Senior Secured Debt
Agency
Moody's
Moody's
S&P
Moody's
S&P
S&P
Moody's
Moody's
Moody's
Moody's
Moody's
Moody's
Curr Rtg Last Rtg
WR
WR
CCC
Ca
CCC
BB+
B2
B2
B3
B3
C
B2
Ca
Caa3
BCaa3
CCC+
BBB
Ba3
Ba3
B2
B1
Ca
B1
Source: BofA Merrill Lynch Global Research
Relative Value
Cash v. CDS
CDX indices outperformed their cash counterparts this week (Table 13). CDX IG
outperformed CDX HY (relative to beta), tightening by 4bp relative to a 12bp
tightening in the latter. HG cash was the laggard, tightening by 1bp while cash HY
kept pace with an 11bp tightening over the week. The average basis between
cash and CDS for the HY22 issuers we track increased by 5bp over the week and
now stands at -20bp (Chart 10).
Table 13: CDX vs. ML Cash Indices
Index Spread 1W-Chng 1M-Chng 3M-Chng
CDX IG
HG Cash
CDX HY
HY Cash
57
108
297
339
-4
-1
-12
-11
-10
-5
-56
-37
-14
-13
-48
-35
Source: BofAML Global Research, 5y spreads for CDX, OAS for cash
Chart 9: Average cash and CDS spreads for CDX HY issuers
500
450
400
350
300
250
Jun-13
Chart 10: Average cash-CDS basis for CDX HY issuers
0
450
400
-25
350
-50
300
-75
250
Sep-13
Dec-13
Avg. Cash Spread
-100
Jun-13
Mar-14
Sep-13
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.
Dec-13
Avg. HY Basis
Mar-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
For once, US CDS indices outperformed iTraxx indices over the week (Table 14).
iTraxx Main tightened by 3bp relative to -4bp for IG. And Xo tightened by 10bp
compared to -12bp for HY. Skews decreased across the board as singles lagged
the index rally. The HY/IG ratio ticked higher to 5.24 from 5.14 last week (Chart
11). The XO-HY spread increased by 2bp over the week and now stands at -72bp
(Chart 12).
Table 14: CDS Indices – spread, intrinsic and skew
Index
5y Spread 1W-Chng 1M-Chng 3M-Chng
CDX IG
CDX HY
iTraxx Main
iTraxx XO
57
297
57
224
Source: BofA Merrill Lynch Global Research
12
-4
-12
-3
-10
-10
-56
-15
-59
-14
-48
-22
-82
5y Intrinsic
58
290
58
222
1W-Chng
-2
-2
-1
-6
1M-Chng
-8
-40
-13
-48
3M-Chng Skew 1W-Chng
-12
-35
-21
-78
-2
6
0
2
-2
-9
-2
-4
1M-Chng
-2
-16
-1
-11
3M-Chng
-2
-13
-1
-4
The H Y Wire
2 3 Jun e 201 4
Chart 11: HY/IG
5.6
Chart 12: XO-HY
75
50
25
0
-25
-50
-75
-100
Jun-13
5.4
5.2
5.0
4.8
4.6
Jun-13
Nov-13
Apr-14
Source: BofA Merrill Lynch Global Research
Sep-13
Dec-13
Mar-14
Source: BofA Merrill Lynch Global Research
Credit v. Equities
Average spread for our HY COAS universe tightened by 4bp while equity implied
risk rose by 5bp (Chart 13). The subsequent 9bp fall in COAS brings it more in
line with its recent average The 3m z-score of COAS is now at 0.1 indicating that
HY credit and equity have moved largely in line over the last three months (Chart
14).
Chart 13: US HY COAS Risk vs. Spread
Chart 14: US HY COAS & Z-Score
450
300
400
250
350
200
300
150
Jun-13
250
Sep-13
COAS Risk
Dec-13
Mar-14
Credit Spread (RHS)
Source: BofA Merrill Lynch Global Research
175
4.0
Credit cheap
2.0
140
0.0
105
70
Jun-13
-2.0
Credit rich
Sep-13
COAS
-4.0
Dec-13
Mar-14
3M Z-Score (RHS)
Source: BofA Merrill Lynch Global Research
CLOs
This is an excerpt from our recently
published: CLO Weekly: European CLO
Manager Diversity 20 June 2014
Market View
Secondary activity was relatively light this week with BWIC volumes totalling
about $370mn in the US, tilted slightly towards 2.0 deals. With a number of newissue CLO deals having priced through 150 DMs, we also saw slightly tighter AAA
spreads in the 2.0 space. 2.0 mezzanine tranches also saw decently strong
demand. Given the continued heavy supply in the primary market, spread levels
held in fairly well across the capital stack and were overall unchanged over the
week.
The main theme in the secondary market for European CLOs this week was
some tightening at the top of the capital structure, but continuing disparity lower in
the capital structure. Some shorter duration AAA bonds traded at sub 100bps
discount margin, while shorter duration AA bonds mainly traded in the mid-100s.
Further down in the capital structure, spreads for single-A bonds were generally
steady, while the tone was varied for BBB and BB bonds depending on the name.
A couple of late vintage equity items traded in line with expectations at
approximately 9-10% IRR. No new deals priced in the primary market.
The primary market in the US continued to stay strong with three new deals
pricing including Och-Ziff Loan Management’s $825mn OZLM VII, Covenant
Credit Partners’ $528mn CLO I and Neuberger Berman’s $570mn CLO XVII.
13
The H Y Wire
2 3 Jun e 201 4
Neuberger Berman CLO XVII was reported to have priced at 147, 210, 320, 435
and 635 DMs from triple-A down to double-B. All three of these deals have four
years in reinvestment and two year non-call periods. Total 2014 issuance has
already surpassed $56bn and may be poised to be the largest year on record.
Loan funds continued to see outflows this week although the size of outflows this
week is much reduced at $294mn as compared to last week’s total of $1.28bn.
Activity in the primary CLO market has been further supported by consecutive
weeks of outflows from loan. As we have reiterated, we expect this cool-down in
the leveraged loan market to have helped managers ramp up their portfolios at
more attractive levels. However, with CLO liability spreads remaining relatively
wide, we do not believe the additional excess spread obtained should have a
material impact on equity returns. Furthermore, supported by the demands
coming from CLOs, prices in the secondary loan market rallied to post-crisis highs
according to data provided by LPC at the end of last week.
With spreads having moved out by 5-15bp since the beginning to the year, we
think that value remains across the entire stack for new-issue CLOs as the
tightening in CLOs has generally lagged other securitized credit sectors.
However, due to the heavy supply, we see limited tightening potential in the near
future. In the legacy space, shorter-WAL CLO 1.0 tranches should continue to
see good demand as they roll down the curve. Relative to January, triple-A and
double-B tranches are about 25-35bp tighter tiered by WALs. The last batch of
deals from the 2007 vintage exiting reinvestment, in the legacy space, could
provide good opportunities as these deals also begin to delever.
Convertibles
Strong returns abound
Chart 15: Convert issuance through June, $bn
25
20
15
10
5
0
US
Europe Asia
2014 2013
Japan
Source: BofA Merrill Lynch Global Research
Note 2013 represents the full month of June issuance whereas 2014
represents what has been issued thus far this month.
Convertible performance this month so far has been strong across regions
barring Europe which is down 0.7% (Table 14). US convertibles in particular have
done well this month not only on an absolute basis but relative to broader equity
and debt market indicators. Through June 19th convertibles in the US, as
measured by our VXA0 index, are up 2.1% compared to +2.0% in the S&P,
+0.8% in high yield, and versus negative returns in investment grade and
sovereign debt. Convertibles in Asia-ex Japan have been buoyed by equity gains,
but have lagged on a relative basis due to the comparatively low delta profile of
the region, whereas Japanese convertibles have finally rebounded along with the
broader market which had slumped earlier this year. On the year, US convertibles
(+8.9%) have outperformed the S&P, and sovereign and corporate debt markets.
Further the US has outperformed convertibles in the European and Asian regions
this year thus far.
Table 15: Cross asset total returns MTD and YTD through June 19, 2014 in USD
Global
US
Europe
Asia
Japan
Govt
IG
HY
Equity
Converts
YTD
4.2%
4.8%
5.7%
6.7%
5.4%
Jun '14
-0.1%
-0.2%
0.9%
2.1%
0.8%
Source: BofA Merrill Lynch Global Research
14
YTD
2.6%
5.1%
5.6%
7.1%
8.9%
Jun '14
-0.8%
-0.6%
0.8%
2.0%
2.1%
YTD
5.4%
3.6%
4.7%
6.8%
1.1%
Jun '14
0.5%
0.4%
0.9%
1.1%
-0.7%
YTD
6.0%
5.0%
5.1%
6.5%
4.1%
Jun '14
-0.8%
-0.4%
1.0%
1.1%
0.5%
YTD
4.5%
4.0%
-1.6%
1.4%
Jun '14
-0.1%
0.0%
-5.6%
1.3%
The H Y Wire
2 3 Jun e 201 4
Best month of issuance this year
Global issuance this month through the 19th has totaled an impressive $12.7bn,
compared to $7.9bn issued in all of June last year. Further, this month’s issuance
pace is the strongest since November last year when a total of $21bn was issued.
The majority of issuance this month has come out of the US and Europe, which
has accounted for $6.0bn and $4.4bn respectively, while supply out of Asia-ex
Japan has been negligible ($1.0bn) and virtually non-existent in Japan. Year-todate, the global issuance total stands at $48bn, ahead of last year’s January
through full-June total of $40bn (Chart 15). Outside of Europe, all regions are
ahead of last year’s supply totals.
Link to Definitions
Credit
Click here for definitions of commonly used terms.
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The H Y Wire
2 3 Jun e 201 4
Important Disclosures
BofA Merrill Lynch Credit Opinion Key
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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
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The H Y Wire
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