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   May 18, 2013 @ 6:53 AM EDT
FRIDAY'S REPORTS (5/17/2013)
Investment Grade
Public Service Co. of Colorado, Northern States Power, Xcel Energy  (with Analyst's Data Sheet) Xcel Energy and subsidiary Northern States Power (Minnesota) issued bonds in May,...
Heartland Values by Philip C. Adams, CFA
High Yield
General Motors Financial Company, Inc.  (with Analyst's Data Sheet) Ally Financial, General Motor's former captive finance unit, is getting closer to putting the ResCap bankruptcy behind...
Phoenix Rising by Kathleen Shanley, CFA
Dean Foods  (with Analyst's Data Sheet) There has been a flurry of news over the past week from busy Dean Foods as it discussed first quarter results and the recently announced spin-off of the rest of...
Milk Shake by Vicki Bryan
Station Casinos  (with Analyst's Data Sheet) Station Casinos is back in action with a new capital structure. The company was the subject of an LBO that weakened its balance sheet--and it ultimately...
Back In Action by Kim Noland
FRIDAY'S COMMENTS (5/17/2013)
3:08pm Dell Inc. After suffering revenue declines of 11% in each of the last two quarter, the 2% decrease posted by...
Earnings by Dave Novosel, CFA
After suffering revenue declines of 11% in each of the last two quarter, the 2% decrease posted by Dell for the first quarter was a welcome surprise. A 14% increase in servers, peripherals, and networking and a 2% gain in Services was more than offset by a 16% drop in Mobility and a 7% fall in third-party software and peripherals. This was the first quarter under the realigned operating segments. In what may have been the understatement of the year, management commented that Windows 8 has not been the catalyst to drive accelerated growth that it hoped it would be. While the revenue results were encouraging, the margins were extremely disappointing. EBITDA margins plunged more than 350 basis points, reflecting price adjustments made by Dell to maintain market share in a competitive industry. In addition, the company used some cost savings to make investments in sales resources and R&D resources. Management contended that it has not changed its strategy, but has made tactical changes to keep competitive. Free cash flow was negative by $339 million in the quarter. It is not unusual to post negative free cash flow in Q1, but it was worse than previous periods. This supports our initial contention that an LBO of this business does not make sense. However, the weak results may sway shareholders to support the Silver Lake proposal, which offers a fixed amount of cash, rather than the recent Icahn proposal, which includes a stub equity portion. However, we are not convinced that being private will eliminate the pressure being exerted by the industry. Ironically, Dell reduced debt by $1.8 billion, ahead of what could be a massive increase in debt.
2:22pm J.C. Penney On yesterday evening's J.C. Penney (JCP) earnings conference call, newly returned CEO, Myron...
Earnings by Evan Mann, CFA
On yesterday evening's J.C. Penney (JCP) earnings conference call, newly returned CEO, Myron Ullman, outlined his blueprint for attracting alienated customers back to the company's stores. To improve traffic over the coming months, Mr. Ullman is increasing JCP's focus on private label brands, changing the merchandise mix to include more basics and a wider range of sizes, and bringing back promotional events. The back to school selling season should be the first real test of this plans success. As previously disclosed, sales for the first quarter ended May 4 were down 16% to $2.6 billion on lower same store sales. But adjusted EBITDA of negative $278 million was worse than the consensus estimate for a loss of $177 million, reflecting higher clearance sales as well as increased promotional activity late in the quarter. JCP ended the quarter with $821 million of cash which included the mid-April $850 million draw down on its $1.85 billion revolver. If the company is successful in closing on its pending $1.75 billion term loan, liquidity should be sufficient to fund free cash flow shortfalls into 2014. We will update our projections and review our rating shortly.
11:56am Ameristar Casinos Ameristar and Pinnacle got approval for their merger by the Nevada regulators today (the...
Regulatory Development by Kim Noland
Ameristar and Pinnacle got approval for their merger by the Nevada regulators today (the Board had already signed off at the time of our last report--please see GC 5/3/13 for details and our view of the bonds). However, the deal still needs approval by the FTC and some states but the companies are still targeting a Q2 or Q3 closing. In the meantime, ASCA reported basically in line numbers for the first quarter and we don't see a reason why this deal shouldn't close in the timing planned.
THURSDAY'S REPORTS (5/16/2013)
Investment Grade
Merck  (with Analyst's Data Sheet) Merck's new $15 billion share repurchase program signals a more aggressive financial policy, as previously most of its return of cash to shareholders came in the form...
Borrow And Return by Carol Levenson, CFA
Computer Sciences  (with Analyst's Data Sheet) Computer Sciences Corporation is still grappling with constrained government spending stemming from the sequester, sluggish European economies, and...
Addressing The Issues by Dave Novosel, CFA
High Yield
Momentive Specialty Chemicals  (with Analyst's Data Sheet) Momentive Specialty Chemicals' (MSC) Epoxy, Phenolic and Coating Resins segment continues to face significant near term challenges...
Forest Products Turns  by Evan Mann, CFA
Genworth 5/3 
Cenovus 4/25 
United Tech 4/24 
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Every report is one page, and concludes with an actionable investment recommendation.
May 16, 2013 | Bloomberg
CL on Merck Bondholder Discontent Revealed in Sale Q-"While share repurchases are one of our least favorite uses of cash, especially borrowed cash, Merck's financial position is unassailably strong..."
May 16, 2013 | Bloomberg
PA on Default Swaps in U.S. Fall Third Day; Hess Credit Risk Declines Q-"For bondholders, we think this compromise is a better near-term result than an outright victory by Elliott..."
May 16, 2013 | Cincinnati Business Courier
KS on Analyst doesn't like Fifth Third bond prospects, here's why Q-"We aren't predicting any such near-term weakening (our credit score is stable), but we don't view either bond as particularly attractive at current, tight levels..."
May 15, 2013 | The Prospect News High Yield Daily
KN on Caesar's a busy name Q-"Caesar's operations continue to be negatively impacted by its exposure to the hyper-competitive Atlantic City market..."
May 14, 2013 | Bloomberg
CL on Gap Rules Retail Returns After Escaping Junk Q-"The bond market had been reacting to consistently good sales results after a long period of drought even before Friday's upgrade to straight investment grade..."
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