April 9, 2018

Income Strategy Update for Week Ended 4/6/18

Triangle Capital Advances on Portfolio Sale While New Media Falls on Secondary Offering

Last week, the Income Strategy advanced 1.09%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 0.31% gain and the S&P 500’s -1.35% decline (Exhibit 1). The strategy ended the week down -0.12% YTD, or 48 basis points ahead of the high yield index and 198 basis points ahead of the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 4/6/181

Time Period Income Strategy ML HY II S&P 500
Last Week (3/29 – 4/6) 1.09 % 0.31% -1.35%
MTD 1.09% 0.31% -1.35%
QTD 1.09% 0.31% -1.35%
YTD -0.12% -0.60% -2.10%
Inception (annualized since 4/2/2009-2/28/18) 15.14% 11.96% 17.18%

Source: Bloomberg, Miller Value Partners

Four equities and a bond comprised last week’s top five contributors (Exhibit 2).  Triangle Capital (TCAP) advanced as the company announced the sale of its internally managed BDC portfolio to Barings, LLC for $981.2M, a portion of which will go towards paying down outstanding debt. Excluding the debt and transaction expenses, the net purchase price is $658.6M, or $13.80/share (1.03x P/B), a 26% premium from prior day’s close. Barings will assume the role as adviser on the portfolio and will pay TCAP shareholders $1.78/share at the closing of deal, as well as buy $100M of TCAP stock at net asset value post-deal close. The new management team also plans on establishing a $50M repurchase program to buy stock when it dips below book value. Maiden Holdings (MHLD) moved above technical levels on the announcement they have hired BofA Merrill Lynch to manage their strategic review process. Debt of Frontier Communications (FTR) advanced on reports the company hired Evercore to advise on potential divestments that would help alleviate their outstanding debt load. CenturyLink (CTL) moved above its 50-day moving average as holder Temasek Holdings reported an increased stake in the company of 11.0%.There was no price-changing news on Abercrombie & Fitch (ANF).

Exhibit 2: Significant Contributors to Performance, 3/29/18 – 4/6/18

Name Type Return
 Abercrombie & Fitch Co Equity 13.0%
 Triangle Capital Corp Equity 4.2%
 Maiden Holdings Ltd Equity 5.4%
 Frontier Communications Corp 10.5% 9/22 Bond 4.0%
 CenturyLink Inc Equity 4.8%

Source: Miller Value Partners

Four equities and a preferred comprised last week’s top five detractors (Exhibit 3). New Media Investment Group (NEWM) fell after pricing a 6M share secondary offering at $16.45, a -5.5% discount from the prior day’s close. Blackstone Group (BX), through their credit platform GSO Capital Partners, announced they have raised $7B for their third distressed fund, a 40% increase from their most recent raise. There was no price-changing news on Carlyle Group (CG), AmTrust Financial (AFSI) or BGC Partners (BGCP).

Exhibit 3: Significant Detractors from Performance, 3/29/18 – 4/6/18

Name Type Return
 Carlyle Group LP Equity -5.2%
 New Media Investment Group Equity -4.0%
 AmTrust Financial Services 6.95% Preferred -2.8%
 Blackstone Group Equity -2.9%
 BGC Partners Equity -2.2%

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 fee 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.

©2018 Miller Value Partners, LLC

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