Turkiye Sise ve Cam Fabrikalari A.S.: June 18

…With a large portion of revenue generated outside Turkey (23% from exports and 37% from foreign operations) and a comfortable net long foreign exchange position, Sisecam should remain unscathed from the current depreciation of the Turkish lira. Once the political situation stabilizes after the Presidential elections, we believe that the spread on these 2020 will tighten. Any progress on the company’s plan to raise new long-term debt would also support a spread tightening on outstanding bonds. SISETI 4.25% May-2020 bonds trade at 98.5, a z-spread of 229bps and offer a yield-to-worst of 5%. We keep our “outperform” stance.

Cleveland Cliffs: June 18

…Given strong first quarter pellet demand at U.S. Iron Ore and the company’s optimistic outlook, CLF increased its 2018 volume guidance by 500,000 long tons to 20.5 million long tons while maintaining cash costs and SG&A expectations. If current average pricing for iron ore, steel, and pellet premiums holds, 2018 price realizations would be $102-107 per long ton, translating to significantly higher adjusted EBITDA and cash flow from operations. Based on our updated projections, we look for 2018 leverage to decrease to 3.0x and be flat in 2019 depending on price realization, capital spending levels, and timing/amount of a potential dividend. The 5.75% senior notes due 2025 yield 6.2%. We affirm an outperform rating.

Comcast: June 18

…If the deal does get nixed, Comcast has agreed to pay a $2.5 billion reverse termination fee. In addition, it has agreed to reimburse Fox $1.525 billion for its break-up fee with Disney. Therefore it would be doling out more than $4 billion if the deal does not get approved. Nonetheless, that is still much lower than the $65 billion price tag for the Fox assets. It is possible that Disney, Comcast and Fox come to an agreement to carve up the Fox and Sky assets. This would be beneficial in the sense that leverage would not surge so high. We think the odds of the Fox deal going through are less than 50%, while the odds on the Sky deal are much higher. 
However, if the Fox acquisition does get approved, the consequences could be severe.As such, we are changing our recommendation to sell, with the February 2027 issue trading at a spread of +121.

Embraer SA: June 15

…Embraer’s stock price has already jumped this week on expectations of an imminent deal with Boeing. It is up more than 20% so far this year. On the fixed income side, the EMBRBZ 5.05% 06/2025 bonds now yield 4.89% (z-spread: 190bps), about 80bps wider than at our previous update in April. Due to the sell-off in global rates, the price is 7 points lower than at the start of the year. By comparison, Boeing’s BA 2.6 10/30/25s continue to trade at a z-spread of below 50bps. Given the uncertainty about the discussions with Boeing, the pressure on the business and the ongoing deterioration in the credit metrics, we continue to be cautious, even if the announcement of a deal would trigger a rally in the bond credit spreads. Reiterate at UNDERPERFORM.

H&R Block: June 15

…After it sold its bank subsidiary and gave up its designation as a S&L holdco in 2015, HRB was able to buy back shares. In fiscal year 2016, it added debt and repurchased $2.0 billion in stock. It also pays a dividend ($200 million in FY2018), which was just increased by 4%. HRB did not repurchase shares last year. Its cash position was healthy at year-end ($1.5 billion). The company says it is committed to maintaining an “investment grade” credit rating profile. Following the earnings release, Moody’s affirmed its weak triple ‘B,’ rating, but changed its ratings outlook to negative. HRB says it will be “opportunistic” about buybacks going forward. If the share price continues to decline, management may be tempted to resume repurchase activity, which could be negative for credit quality. The 5.25% notes due 10/01/25 are seen at T+200. Opinion: underperform.

L Brands: May 30

…We don’t expect LB’s credit ratios to improve anytime soon as a potential turnaround at Victoria’s Secret remains elusive. In addition, the companay will likely continue to use its free cash flow to pay dividends and repurchase shares. The yield on the 5.25% senior notes due 2028 have widened to 6.4%. Until we see signs that sales and margins at Victoria’s Secret have at least stabilized or begun to rebound, we are changing our rating to underperform.

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