Newell Brands: May 04

…We raised the specter of liquidity pressures in our last report, alarmed by the increase in shortterm debt accompanied by a decrease in cash. Sure enough, in March Newell amended the
financial covenants and the EBITDA definition in its revolving credit agreement. Newell obtained
some headroom for the next four quarters under its EBITDA/interest covenant, which our
projections showed could be breached this year. Reliance upon the revolver has increased, as
the downgrade to junk by S&P in March “eliminated” the company’s access to the commercial
paper market on “acceptable” terms. Instead, with first quarter free cash flow negative by $260
million, the company has drawn down its revolver further, ending the quarter with $760 million
outstanding under the $1.5 billion revolver (an excellent incentive for its banks to waive the
interest coverage covenant). Our projections had already assumed the low end of guidance for
2023, and now we have haircut them further. We are projecting debt/EBITDA to deteriorate to
nearly 6x this year, with EBITDA/interest coverage falling to 3.5x. The new management is
reassessing everything, including capital allocation. It might want to start by considering cutting
the dividend, with a payout ratio greater than 100% this year, and which consumes more cash
than capital expenditures. We reiterate our “underperform” (2027 notes at T5+318).

American Express: May 04

…The CET1 ratio was 10.6% at 3/31/23, up 20 basis points year-over-year, and within the firm’s
10% to 11% target range. During the first quarter, AXP returned $0.6 billion to shareholders,
including dividends ($0.4 billion) and modest buybacks ($0.2). It also raised its common stock
dividend by 15%. While there was only a nominal amount of repurchase activity in the first
quarter, AXP completed $3.3 billion in buybacks last year. In March, the Board of Directors
approved a new multi-year program, providing for the repurchase of up to 120 million shares.
We expect that AXP will continue to return excess capital to shareholders, but the limited activity
in the first quarter shows that the company also remains committed to maintaining a strong
balance sheet. The 5.043% notes due 5/01/34 priced at T+160. Opinion: buy.

T-Mobile US: May 04

…While we project a slight decline in revenue this year, mostly because of weaker equipment
revenue on slower upgrade activity, margins should be significantly higher as synergies increase
and merger-related costs decrease. Most importantly, free cash flow should be outstanding.
The cash will likely be used for hefty share repurchases. Nonetheless, leverage should drop
nicely on the vastly improved margins. We expect T-Mobile to enjoy industry-leading subscriber
growth, attributable to its superior network and attractive pricing. We are changing our
recommendation to buy, with the recently issued 2033 notes trading at a spread of +150.

First Quantum Minerals: May 04

FQVLF ended the first quarter with $1.2 billion in liquidity. First quarter free cash flow (cash flow
from operations) decreased $353 million to $34 million as lower earnings more than offset
reduced working capital usage with LTM free cash flow decreasing to $812 million. This free
cash flow was used to pay $75 million in dividends with total debt down $850 million year over
year to $6.9 billion. During the first quarter, the company retired $850 million of the 6.5% senior
notes maturing in March pushing out the next bond maturity to April 2025. FQVLF continues to
target a further $1 billion of debt reduction in the medium term and remains open to forming
partnerships to fund large growth capital projects such as its Rio Tinto La Granja joint venture.
Despite the first quarter’s difficulties, production is expected to recover over the next three
quarters. The company reaffirmed its 2023 guidance for copper production, C1 cash costs, all-in
costs, and capital spending. Longer-term copper market fundamentals remain positive. While
debt reduction remains a priority, lower copper prices, margin compression and higher capital
spending are likely to slow the rate of repayment over the near to medium term. Through 2024
we expected leverage to remain steady to slightly higher until longer term positive fundamentals
kick in. The 6.875% senior notes due 2026 yield 7.6%. Reaffirm outperform with limited upside.

Companhia Siderurgica Nacional: May 04

CSN’s credit and liquidity situation remain solid, despite the global headwinds. The BRL12 billion in cash
sitting on the balance sheet is sufficient to cover the amortizations falling due over the next three years,
many of which are in the form of loans with banks that will be happy to roll them over at maturity. The
company has also been active in issuing in the local capital markets. The access to the international capital
markets will certainly also be an option, but the yields remain high, while domestic interest rates in Brazil will
be on a downward trend, as inflation is ebbing there. There are some persistent concerns over the ability of
CSN to convert its EBITDA into tangible free cash flows. The high level of working capital and capex already
represent a significant cash outlay, but this is compounded by high dividend distributions, causing free cash
flow after dividends to turn negative in 2022. Despite the ongoing challenges faced by the steel industry in 2022 and into 2023, CSN’s bonds have held up relatively well, supported by a resilient credit profile. CSNABZ 6.75% 2028s are currently yielding 8.1% (zspread: 445bps), against 7.9% (z-spread: 420bps) in December. Keep at OUTPERFORM.
Bonds: $300m 7.625% 04/2026; $1.3bn 6.75% 01/2028; $850m 4.625% 06/2031; $1bn 7% Perps

Boyd Gaming: May 04

…As the smaller segment Downtown Las Vegas continues to benefit from increased tourism and
the return of the core Hawaiian customer, the company expects that recent investment in the
Fremont hotel will augment earnings. However, this project together with the new land-based
Treasure Chest in Louisiana collectively cost $100 million, contributing to elevated capex of
$350 million this year. We refined our 2023 projections based on first quarter results and
projected capex. Our forecast now results in free cash flow (adjusted EBITDA less interest and
capex) of just under $800 million. We expect credit measures to remain stable with leverage in
the low to mid 2x range over the near term. We last rated the 2027 issue outperform and bonds have not moved much and are trading at a
y.t.w. of 5.7%. Maintain outperform.

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