April 27, 2020

Income Strategy Update for Week Ended 4/24/20

Cedar Fair Gains on Upsized Debt Offering While Abercrombie & Fitch Falls on Morgan Stanley Price Target Cut

Last week, the Income Strategy declined -2.06%, outperforming the Merrill Lynch U.S. High Yield Master II Index’s -2.28% fall but underperforming the S&P 500’s -1.30% loss. (Exhibit 1). The strategy ended the week down -34.93% YTD, or 2,438 basis points behind the high yield index and 2,327 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 4/24/201

Time Period Income Strategy ML HY II S&P 500
Last Week (4/17 – 4/24) -2.06% -2.28% -1.30%
MTD 5.65% 2.97% 9.88%
QTD 5.65% 2.97% 9.88%
YTD -34.93% -10.55% -11.66%
Inception (annualized since 4/2/2009) 9.16% 9.62% 14.51%

Source: Bloomberg, Miller Value Partners

A smattering of asset types comprised last week’s top five contributors. Theme park operator Cedar Fair (FUN) issued $1B (upsized from $875M) of 5.5% senior secured notes due 2025 with a portion of the proceeds being applied to repayment of the Term Loan. Additionally, Wedbush maintained their “Outperform” rating on the stock and increased their price-target to $40 (from $31), 36% upside from current levels. Debt of GameStop (GME) rose following management’s business update, including base salary reductions for senior management and lowering capital spend to focus on mandatory maintenance. Comparable-store sales in the fiscal March period ended March 21st saw 3% growth driven by a surge in home products while Australia posted 64% growth for the five-week fiscal March period. Management noted they have begun the process of re-opening stores in Italy, Germany, and Austria, as well as South Carolina and Georgia. Chemours (CC) rose in sympathy with peer DuPont de Nemours (DD), who preannounced Q1 results above consensus estimates. There was no price-changing news on Quad Graphics (QUAD).

Exhibit 2: Significant Contributors to Performance, 4/17/20 – 4/24/20

Name Type Return
Cedar Fair LP Equity 16.7%
***RECENTLY ADDED SECURITY*** Preferred 51.0%
GameStop 6.75% 3/21 Bond 4.4%
Quad Graphics Equity 3.1%
The Chemours Co Equity 1.3%

Source: Miller Value Partners

Four bonds and an equity comprised last week’s top five detractors. Bed Bath & Beyond (BBBY) named John Hartmann, former President and CEO of True Value Company, as its Chief Operating Officer. Morgan Stanley cut their price target on Abercrombie & Fitch (ANF) to $8 (from $13), 23% implied downside partially offset by the 7.7% dividend yield, reflecting lower estimates from COVID-19 store closures. Curo Group (CURO) announced the closure of a $100M senior secured revolving credit facility from Atalaya Capital Management. There was no price-changing news on the debt of Alliance Resource Partners (ARLP) or Diebold Nixdorf (DBD).

Exhibit 3: Significant Detractors from Performance, 4/17/20 – 4/24/20

Name Type Return
Bed Bath & Beyond 5.165% 8/44 Bond -16.7%
Abercrombie & Fitch Co Equity -17.8%
Alliance Resource Partners 7.5% 5/25 Bond -8.2%
Diebold Nixdorf 8.5% 4/24 Bond -4.0%
Curo Group Holdings 8.25% 9/25 Bond -6.4%

Source: Miller Value Partners

Did you know that we write this piece for Opportunity Equity as well? Check it out.

1The performance figures reflect the results of a representative account net of management fees and certain other expenses. For important additional information about Income Strategy performance, please click on the Income Strategy Composite Performance Disclosure. The performance returns shown in this report are preliminary and are subject to revision. Past performance is no guarantee of future results.

Significant Contributors and Significant Detractors are the Strategy holdings that had the greatest effect on Strategy performance for the week. Holdings that have been in the Strategy since the end of the most recent calendar quarter are identified by name. For information on how Contributor/Detractor data were calculated and a list showing the contribution to the Strategy’s weekly performance of each investment held at such quarter end, contact us.

Any views expressed are subject to change at any time, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results, and there is no guarantee dividends will be paid or continued. Content may not be reprinted, republished or used in any manner without written consent from Miller Value Partners.

©2019 Miller Value Partners, LLC

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