Short-Duration Junk Bonds, Gaming Sector Look

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February 29, 2016 Thursday

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Q&A Short-Duration Junk Bonds, Gaming Sector Look Attractive, Says Janus’s Meyer

BtIG to Hire lately. The surprising or encouraging duration high-yield. Debt with a neareuropean U.S. as 4.71% Short-duration bonds are a good bet in sign is the stocks Loans are actuallyBeat performing termreturns maturity andreach a balance sheet you after high-yield, Losing says Seth Meyer, global research relatively well. could argue is refinance-able in current By Karen eeuwens and emre PeKer analyst and portfolio manager at Janus Capital markets, even if high-yield spreads widen Distressed Group, who manages Salesmen $2.9 billion of junk european leveraged loans wider? are outperforming au.s. bank debt this year ashave companies bit. Some of those bonds attracQ: What’s driving spreads bonds. Fallen angels may be an opportunity to

By Lisa aBramowicz increase commodities exposure, Denver-based

BTIGtold LLC plans toCarol hire Ko asinmany Meyer Bloomberg’s a Feb.as 19 10 interview.for Hisits comments haveunit been people high-yield byedited July and after condensed.  losing three distressed debt salesmen within the past two months. managing director Michael Cassidy left Q: What worries you in high-yield? the boutique investment bank this month A: The big concern is the oilaand gas and Steven Bergman, also managing disector as a whole. just your traditional rector, departed in Not march, according to recompanies, but everything affiliatedindustry with cords maintained by the Financial energy, like oilfield services, midstream regulatory authority. Robert Hannigan, a and pipelines. The reason is the downdirector distressed-debt sales comgroup, grading in of the investment-grade energy was no The longer registered with the firm as of panies. increase in the overall weight april the records show. What’s interestof the6,sector is significant. BTiG more than doubled its staff in been the past ing is that high-yield spreads have correlated to theismovements in oil. That two years and adding people after comcorrelation is unfortunately set to&continue petitors including Chapdelaine Co. and if this trend of fallen angels continues. units. LaBranche & Co. closed credit-trading The broker-dealers were among 70 debtQ: What are the longer-term implications of fallen angels? A: I’m concerned that the energy and metals and mining sectors will end up BLoomBerg accounting for a disproportionate share of the index. If you were to aggregate all commodities-related industries right now, it dEals would compose 12 or 12.5 percent In thE PIPElInE PReL of amt perthe index, down from a peak of 24 sYndiCated lending Co. Rat. tenoR cent. If you assume all the fallen(mln) angels Valitasdown — roughly $100 N/A billion $285of 6YRS come Asset Acceptance Capital Corp BB+ $250 bonds by some measures — you could6YRS IASIS Healthcare LLC Ba3 $1,235 5YRS beMemora talking 20 percent or more again. Inversiones N/A 260EUR We’ll 6YRS have a round of high-yield names Ameritox LTD B2energy $450 7YRS iPayment Inc. N/A $575 6YRS that don’t have liquidity levers to pull that will file for bankruptcy this year.

Barometer

refinance at The the fastest pace since 2007, boosting tive rates with prices. low volatility. You’re looking A: It’s twoborrowings main things. first is the for bonds are cash-collateralized, westernineuropean have returned 4.71that percent, compared with 3.12 increase the defaultleveraged rate. Evenloans ignoring soGroup there would be littleThe market risk, or percent thesigns u.s.,we’re according AG indexes. performance oil, thereinare at the to endCredit of theSuisse highlyoutperformed. confident the company can marks a turnaround from 2010, bank debtyou’re in america credit cycle. We’re seeing creditwhen quality refinance. They wouldn’t participate in degradation, shareholder-friendly a 41 percent drop in european activileveraged buyouts since their 2007 peak is curbing a spread rally, but weraises think interest it’s a unique ties,amount and levered balance sheets. Given the of new loans at the same time the region’s central bank rates spot in the market that affords relatively these you’d expect the default for thesigns, first time in almost three years.rate Funds buying europe, good speculative-grade yields at a low riskloans level.inWe’ve to startmainly tickinginvest up from historic so to forfund leveraged which in bank debtlows, issued buyouts, received $14 billion in also been adding to more defensive-type that you need spread. Thealmost second repayments in more the first quarter, double the $7.7 billion private-equity firmswhich raised sectors like food and beverage, component is liquidity in the high-yield for takeovers in the same period. tend to power through regardless of the market. It’s just more challenging to buy Continued on next page economic outlook. and sell bonds than it’s been in the last eight years. Banks don’t hold inventory Q: What are you avoiding? like they used to, and that makes it difficult trading startups opened in 2009 to capitalize to transact. A: We’ve been underweight on commodJeffrey on banks pulling back after the worst financial ity-based names, andWerbalowsky, we remain in that co-CEO of Houlihan crisis since asreturns? larger companies same stance now, though we’re starting to Q: What dothe you1930s. see for Lokey, spoke with slowly dip our toe in certain names. The recovered market 12 share, traders that joined A: If you remove percent of the index Aleksandrs Rozens opportunities lie in companies with strong smaller have left for the bigger banks. related businesses to commodity sectors, yield about the high yield liquidity and assets, a liquidity profile that “BTiG has a net acquirer goes from 9.7been percent to 6.7 percentof—high a market and how it is can withstand a wide range of outcomes. difference of 300talent, basis points. I feel yield/distressed an area thatOK BTiG spurring dealmaking. The level of comfort we prefer is one with the market excluding oilContinued and gas beon next page where you perform a stress test and find cause the U.S. is on the right track. You’re they can survive oil at $15 a barrel. There still being compensated on spread. It’s not are companies dEals Ma that won’t survive at $30. cheap, but you should generate a positive Average Junk-Bond Yield 2010 Ytd return. 10 Global Dealdo Count 7,600 Q:M&A What you see for25,075 issuance? Global M&A Deal Volume $2.42trn $732 bln A: The health of the market will dictate Q: What sectors do you like? 9.5 how issuance will look, obviously. Thus A: We’re overweight gaming. The key Most actIvEly tRadEd tRaCe far the issuers that have come to market 9 reason is that the consumer, while not Source: FINRA-Bloomberg tKR Rat. Cpn pRiCe CHg Yield spRd haveCaa1/Bbeen relatively stable businesses, spending a massive amount of discreMFW 9.50 100.50 2.00 9.22 710 8.5 but it will be interesting to see how OPCCN Ca/CCC 8.25 54.20 0.08 29.65easy 2849 tionary income, is still willing to pay for it is for cyclical to get ALLY B1/Bthe first6.75 106.00company N.A. 4.91 375 experiences. Nationwide, same-store 8 SLMA Ba1/BBB6.25 how 105.38 4.96 a deal done, and the -0.13 market will 284 sales at restaurants are going up. Apart KSU B1/BB8.00 111.00 N.A. 5.05 389 receive it. from industry sectors, we like short7.5 AXCA Caa1/B 12.75 111.00 N.A. 6.58 446

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HigH Yield Bonds tenoR Q: Is there a bright side? Rat. (mln) iPayment Inc. NA $375 7YRS A: It does create opportunities for highyield managers to pick off the best of the IssuancE best. Putting(u.s.) it in perspective, the commodities sector alone in themtdBarclays Ytd Loans sold index trades at$30.2 bn $175 high-yield something likebna Bonds Issued $112 bn 27HYpercent yield. None of $20.1 the bn investmentgrade bonds being downgraded are PRIcIng trading that wide. You’re going to have high-quality names with strong level assets. 1-daY CHange Their balance sheets do have leverage, S&P/LSTA Leveraged Loan 96.01 0.01 but they have strong liquidity Finra Avg. also Junk Yield 7.74 profiles 0.04 that can this In addiMarkit CDXwithstand North American HY downturn. 104.78 0.00 tion, you’re Markit LCDX seeing proactive management 100.49 0.23 Markit Itrax Europe 94.67 equity -2.21 teams in investment-grade issuing

GOK S nBBHYL InDex NMG F TOY Grew up: California, Alabama, SGU

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Lives now: Denver, Colorado

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Posted from Bloomberg Briefs, February 29, 2016, copyright by Bloomberg L.P. with all rights reserved. This reprint implies no endorsement, either tacit or expressed, of any company, product, service or investment opportunity. #C48619 Managed by The YGS Group, 800.290.5460. For more information visit www.theYGSgroup.com.

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High-yield/high-risk bonds, also known as "junk" bonds, involve a greater risk of default and price volatility than U.S. Government and other high quality bonds. High-yield/high-risk bonds can experience sudden and sharp price swings which will affect net asset value. The views expressed are those of the portfolio manager(s) and do not necessarily reflect the views of others in Janus’ organization. They are subject to change, and no forecasts can be guaranteed. The comments may not be relied upon as recommendations, investment advice or an indication of trading intent. The energy industries can be significantly affected by fluctuations in energy prices and supply and demand of energy fuels, energy conservation, the success of exploration projects, and tax and other government regulations. A concentrated investment in a single industry could be more volatile than the performance of less concentrated investments and the market as a whole. Bond prices generally move in the opposite direction of interest rates, thus bond prices may decline as interest rates rise, and vice versa. Investing involves risk, including the possible loss of principal and fluctuation of value. Janus Capital Group Inc. is a global asset manager offering individual investors and institutional clients complementary asset management disciplines. Janus Capital Management LLC serves as investment adviser. INVESTMENT PRODUCTS OFFERED ARE:

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