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Banking Industry Report 06-27 03:26 GMT  
(Report with Analyst's Data Sheet) 
There was no drama concerning the Dodd-Frank stress tests this year. All 34 of the banks that participated in the Federal Reserve's annual...
No-Stress Tests by Kathleen Shanley, CFA
Pinnacle Entertainment, Gaming and Leisure Properties, Inc. 06-27 03:00 GMT  
(Report with Analyst's Data Sheet) 
Pinnacle Entertainment (PNK) has been reporting weaker revenue recently despite the more...
Unlucky by Kim Noland
American Electric Power, Indiana Michigan Power Co 06-27 02:47 GMT  
(Report with Analyst's Data Sheet) 
Yesterday, Indiana Michigan Power Co. a subsidiary of American Electric Power (AEP), priced a new...
Crossroads Franchise by Philip C. Adams, CFA
Hanesbrands, Inc. 06-27 02:36 GMT  
(Report with Analyst's Data Sheet) 
Hanesbrands (HBI) announced first quarter results in line with company guidance and launched a new multi-year strategic plan to reduce costs, invest in...
New Strategic Plan by Evan Mann, CFA
Naspers Limited 06-26 23:42 GMT  
(Report with Analyst's Data Sheet) 
Naspers Limited (NPNSJ) reported its results for FY16/17 ended March 31, 2017. For the second consecutive year, the company's results were negatively...
Tencent-dependent by Alexandre Dray
Arconic 06-26 23:08 GMT
(Comment)
Arconic stock and bonds are down today after weekend headlines (prompted by a Reuters story) saying the...
Legal Development by Carol Levenson, CFA
Arconic stock and bonds are down today after weekend headlines (prompted by a Reuters story) saying the company "knowingly" supplied flammable panels used in the cladding system of the Grenfell Tower block in London, the locale of a horrendous fatal high-rise fire. As one would expect in a major construction project, it's complicated. This evening, long after the market closed, Arconic finally issued a statement, saying it would no longer provide the product, Reynobond PE, in any high-rise applications, regardless of local codes and regulations. Arconic earlier had told the press it was not responsible for deciding what was compliant with building regulations. In this evening's statement, Arconic noted it was several degrees of separation from the decision to install the cladding using flammable materials, as it supplied the material (not the insulation) to a fabricator (Arconic's customer), and it became one component of the cladding "system" on the tower via the installer via the general contractor. The company notes that its products are sold with the expectation they will be used in compliance with local building codes and regulations. This seems a bit weasely, and Arconic will no doubt be viewed as a good company to sue in this mess, given its size and deep pockets. We can't predict the outcome of any such lawsuits (or others) in this matter. But we think it's clear the company will suffer at a minimum from reputational damage merely from having its (flammable) product associated with this tragedy. Any legal settlement is likely to be years away and covered by insurance to some extent. Thus given what we know today we would not expect the incident to be material to Arconic's credit profile in the near term. Nevertheless, we reiterate our "underperform" on the bonds for a variety of other reasons, mostly the influence of activist shareholders and management turmoil. Arconic was on our May Bottom Ten.
Valeant Pharmaceuticals 06-26 18:20 GMT
(Comment)
The recent rally in Valeant Pharmaceuticals stock seems to be based on the idea...
Rumor by Vicki Bryan
The recent rally in Valeant Pharmaceuticals stock seems to be based on the idea that the company has been floating opportunities over the past month for debt-for-equity exchanges with certain bondholders as a means of whittling down the company's massive $28.5 billion in debt. Even if the rumors are true, implied outcomes of such transactions don't seem to support such enthusiastic optimism. For one thing, it would take a massive transaction near $4 billion to even nudge Valeant's high leverage lower by just 1 turn, and even that help wouldn't stick given how fast EBITDA is falling. Indeed leverage had spiked to 7x by the end of the March quarter and is tracking 8x by yearend, by our estimates (see our last report "Hold The Applause" on 5/11/17 and our research comment about the pending iNova sale on 6/9/17)). We seriously doubt Valeant can pull this off, especially since such an implausibly large transaction also would dramatically dilute the very equity taken on since current market cap stands at just $5.85 billion. Instead, any debt-for-equity swap Valeant might actually achieve likely will be comparatively small and of nominal benefit at best toward easing the company's critically stressed financial condition. This rumor does seem to be detracting from the long awaited close of the $820 million Dendreon sale to Sanpower Group. That deal was announced back in January and has been projected by management ever since to close "by mid-year" which technically is up in 4 days. We have been skeptical since the Dendreon deal was announced that it will close by now, or ever, but if it does close we have projected that Valeant's financial condition likely will worsen as it eliminates yet another high margin asset and thus potentially drives up leverage. So it still seems to us that rumors that may have recently boosted Valeant's stock and bonds could yet again evaporate in a flash of disappointing news--or no news at all, as also has been typical for Valeant--to bely hopeful expectations. Maintain "underperform."
Melco Crown Entertainment Ltd 06-26 17:59 GMT
(Comment)
Melco Resorts & Entertainment Limited announced its intention to tap its...
New Issue by Alexandre Dray
Melco Resorts & Entertainment Limited announced its intention to tap its 4.875% senior notes due 2025, via its wholly-owned subsidiary Melco Resorts Finance Limited. The net proceeds will be used to repay in full a drawdown in the amount of US$350 million from a revolving credit facility. The proposed additional notes will be issued under the indenture, dated June 6, 2017, pursuant to which Melco Resorts Finance issued US$650 million aggregate principal amount of 4.875% senior notes due 2025. The transaction will have a neutral impact on the company's leverage ratios but it enables the firm to free up its revolving credit facility in case it needs to use it in the future.
American Electric Power 06-26 13:42 GMT
(Comment)
AEP subsidiary Indiana Michigan Power is in the market for $300 million of 30-year...
New Issue by Philip C. Adams, CFA
AEP subsidiary Indiana Michigan Power is in the market for $300 million of 30-year unsecured notes. The issue size will not grow. Use of proceeds is "GCP" including capex, working capital replenishment and/or redeeming/repurchasing outstanding debt (external and advances from affiliates. Indiana Michigan Power unsecured ratings range from mid-triple B to low single A. Initial price talk (per Bloomberg) is T+130-135 bps. The existing 2046 issue is not actively trading in size, but has printed small trades around T+112-115 bps in the last month. Indiana Michigan is a "traditional" utility, owning generating stations (3,596 MW) as well as transmitting and delivering power. I&M owns and operates the Donald C. Cook nuclear plant, a two-unit 2,191 MW plant located on the shore of Lake Michigan in southwest Michigan. We like AEP and the new issue appears to be priced to sell. More in an upcoming report.
Weatherford International 06-26 13:03 GMT
(Comment)
Weatherford International has reopened its 9.875% 144A notes issue due 2/15/24,...
New Financing by Philip C. Adams, CFA
Weatherford International has reopened its 9.875% 144A notes issue due 2/15/24, issuing an additional $250 million to the $540 million issued in November. Use of proceeds is to repay borrowings under WFT's revolving credit facility, provide additional liquidity through 2017, and provide added assurance of covenant compliance under its revolver and term loan agreements. The issue traded Friday at $102.75, for a yield of 9.287% (T10+731 bps).
HealthSouth 06-26 01:31 GMT  
(Report with Analyst's Data Sheet) 
The Senate's controversial healthcare reform bill finally unveiled last week offered little encouragement for anyone hoping for changes versus the wildly...
The Neutral Zone by Vicki Bryan
McKesson 06-26 01:15 GMT  
(Report with Analyst's Data Sheet) 
Peering into the murk of the future path of healthcare reform and possible drug pricing controls, McKesson has taken a conservative stance with regard to the...
Clear As Mud by Carol Levenson, CFA
Diageo plc 06-26 00:58 GMT  
(Report with Analyst's Data Sheet) 
Diageo has agreed to purchase Casamigos, a tequila brand best known for one of its co-founders - actor George Clooney. The acquisition will expand the...
Famous Actors For $700 by Dave Novosel, CFA
Vedanta Resources PLC 06-25 17:46 GMT  
(Report with Analyst's Data Sheet) 
The timing of the last bond issuance by Vedanta Resources PLC (VEDLN) was well timed for the issuer, but bondholders have not been rewarded with...
Strong Topline  by Cedric Rimaud, CFA
Staples 06-22 21:31 GMT
(Comment)
Staples stock is up 6% today after several news sources reported that a deal to be acquired by private...
Rumor by Carol Levenson, CFA
Staples stock is up 6% today after several news sources reported that a deal to be acquired by private equity was imminent. The reports say the winner (among several financial bidders) was Sycamore Partners, for a price of more than $6 billion. Sycamore has acquired struggling retailers before, most recently Hot Topic, as well as buying retailing and apparel assets out of bankruptcy. Most of its retailing acquisitions have been in the apparel business and were much smaller than this would be (it looks like Belk was the biggest at nearly $3 billion). In addition, Staples operates in a different and very difficult business, underscoring the challenges facing this deal. Our analysis of a potential $7 billion LBO funded with 25% equity (see our comment dated April 4) saw rent-adjusted leverage rising to a dangerously high 6x. We still think it's a horrible idea, but apparently it's a popular one, if press reports are to be believed. We reiterate our "underperform" on the bonds, despite the possibility that bondholders may have a consolation prize because of Change of Control covenants that might be triggered, granting a put at 101. If bonds were to remain outstanding, however, they would likely be subordinated to secured debt of a single 'B' credit. If Staples were to go private, we would likely drop coverage.
AAL 06-22 16:45 GMT
(Comment)
American Airlines Group announced this morning that it "recently" received an unsolicited notice from Qatar...
News by Vicki Bryan
American Airlines Group announced this morning that it "recently" received an unsolicited notice from Qatar Airways' which intends to make a roughly 10% passive investment in the airline via open market purchases of its common stock. Qatar also has filed its notice of intent to invest in American with the Antitrust division of the Department of Justice per requirements under the Hart-Scott-Rodino Act, so now American will file appropriate responding HSR documents as well. We imagine American probably was just as surprised with the news as the market is this morning given how vocally critical CEO Doug Parker and the rest of the US airline industry long have been of Qatar and other Gulf States carriers which they say are significantly subsidized by their governments to facilitate unfair completive advantages; e.g. anticompetitive flights to the US originating not just in the Middle East but also from Europe. American notes that its corporate bylaws prohibit any investor from buying 4.75% or more of its stock without approval from American's board, which has not occurred, and that the U.S. of course prohibits foreign ownership to 24.9%. American "continues to believe that the President and his administration will stand up to foreign governments to end massive carrier subsidies that threaten the US aviation industry and that threaten American jobs." Sources reporting the news today seem equally confused, with CNBC saying Qatar Airways' investment "makes no sense" and Barron's saying, "that's really, really weird." Maybe not, however. We think there's a good chance this investment plan by Qatar Airways may have more to do with demonstrating sovereign Qatar's continued commitment to the US amid the latest Gulf States feud with Qatar, a US ally and where the US has its largest military base in the Middle East which supports all US Asia/Pacific strategic operations. The latest and most serious row started two weeks ago when Saudi Arabia and UAE, emboldened by comments/tweets by the US President during his visit to Saudi, accused Qatar of funding ISIS-linked terrorist activities. Saudi and UAE then initiated an embargo against Qatar that was joined by the rest of the Gulf States, forcing Qatar to rely on Iran and Turkey for supplies--and permissibly usable airspace. Yet as recently as two days ago the US State Department reported it is "mystified" that Gulf States still have not provided any evidence to support their claims nor have they made any demands of Qatar in order to end the embargo, which has set off the biggest crisis in the Middle East in decades. Gulf States have long been at odds with Qatar's more independent stance toward the West, and these latest incendiary accusations, as yet undefended, create a convenient opportunity to gain advantage against Qatar amid years of long running frictions in the region over entrenched political, economic, strategic, and religious differences. The dispute also has wedged the US between two allies, Qatar and Saudi, and there is no clarity on any form of resolution any time soon. As such, we believe today's question about a potential passive investment by Qatar Airways into American Airlines, or concerns over competitive disadvantages for the US airline industry, may not be the highest of US priorities for the time being versus the status and future of our critical global military defense capabilities, say, in a political hotbed. Of course, as the saying goes, "all politics is local" and we expect US airlines and airline unions to oppose the investment by Qatar Airways as a threat against the industry. Investors are "deer in the headlights" for now, with the stock little changed at this writing.
Kroger Co., The 06-22 16:00 GMT
(Comment)
It doesn't come as much of a surprise that Kroger's board authorized a new $1 billion share...
Share Repurchase by Carol Levenson, CFA
It doesn't come as much of a surprise that Kroger's board authorized a new $1 billion share repurchase program today, especially considering the beating its stock has been taking since reporting first quarter earnings followed by the prophecies of retail Armageddon following the Amazon/Whole Foods news. The company had exhausted its previous authorization and in the last four quarters repurchased $1.5 billion of stock. Our projections assumed at least $1 billion of buybacks this year, with cash flow left over to reduce debt. A minor difference about this program is that since 2010 the company had been raising its authorization in $500 million increments, while this one is for a $1 billion increment. But typically the $500 million programs were in addition to remaining authorizations, thus keeping the total amount available in the $600-$800 million area. The other difference, which we view as significant, is that Kroger added a reassuring sentence to its boilerplate press release regarding its commitment to balancing the use of cash to keep its leverage ratio appropriate to its current investment grade ratings. Kroger also raised its dividend by 4%, which is immaterial to its free cash flow. The announcement didn't help the stock price, however, as apparently equity investors have far greater concerns.
Oracle 06-22 14:30 GMT
(Comment)
Oracle posted a 2.8% in revenue for its fiscal fourth quarter (ended May 31st), the first time in a few...
Earnings by Dave Novosel, CFA
Oracle posted a 2.8% in revenue for its fiscal fourth quarter (ended May 31st), the first time in a few years it has generated growth of this nature. Total cloud revenue soared 58%, more than offsetting the 5% decline in New Software Licenses and the 13% drop in Hardware. Updates and Support revenue increased 1.7%, a rate slightly below the pace of the last four quarters. Bolstered by the expanding cloud revenue, management provided guidance for a revenue increase of 4%-6% for Q1. It has been many years since we have seen growth of this magnitude. More impressive than the revenue improvement was the 100 basis point increase in EBITDA margins. Margins had declined for 12 consecutive quarters prior to Q4. SaaS gross margins continue to increase, and management expects them to reach nearly 80% by the end of the year, suggesting margins for the entire cloud business should improve. Free cash flow fell for the third straight year, but at $9.2 billion FCF is still plenty robust. The reduction was due to higher dividends and increased capital spending. From a credit perspective, the story remains the same: debt continues to surge because of the hefty spending on acquisitions and share repurchases. Debt rose by more than $13 billion in fiscal 2017, and is now at nearly $58 billion. So even though EBITDA was up in fiscal 2017, leverage is now at 3.8x, and showing no signs of stabilizing. Share repurchases were $540 million in Q4, but management indicated that it will spend more than that once it pays back the debt incurred in the NetSuite dal. It did not provide a time frame for that process.
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Jun 26, 2017 | WSJ Pro Bankruptcy
VB on Not a Local Matter Q - Community Health Report Featured
Jun 22, 2017 | Reuters
VB on American Airlines pushes back on Qatar Airways plan to buy stake Q - "There's a good chance this investment plan by Qatar Airways may have more to do with demonstrating sovereign Qatar's continued commitment to the United States."
Jun 22, 2017 | Philly.com
VB on Qatar Airways wants to buy 10 percent stake in American Airlines Q - "Qatar's investment plan may have more to do with demonstrating sovereign Qatar's continued commitment to the U.S. amid the latest Gulf States feud."
Jun 19, 2017 | WSJ Pro Bankruptcy
DN on Dividend Still High Q - Frontier Communications Report featured
Jun 15, 2017 | Bloomberg
KN on Neiman Distressed-Debt Swap Would Be Premature to Gimme Credit Q - Private equity owners of Neiman Marcus department store chain "could be devising a way to take advantage of bonds trading in the low 50's."
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