June 29, 2020

Income Strategy Update for Week Ended 6/26/20

Debt of Bed Bath & Beyond Rises on Liquidity Boost While Alternative Asset Managers Drop

Last week, the Income Strategy declined -3.53%, underperforming both the Merrill Lynch U.S. High Yield Master II Index’s -1.25% fall and the S&P 500’s -2.86% loss. (Exhibit 1). The strategy ended the week down -25.37% YTD, or 2,094 basis points behind the high yield index and 1,942 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 6/26/201

Time Period Income Strategy ML HY II S&P 500
Last Week (6/19 – 6/26) -3.53% -1.25% -2.86%
MTD 2.91% 1.34% -1.03%
QTD 21.17% 10.01% 16.97%
YTD -25.37% -4.43% -5.95%
Inception (annualized since 4/2/2009) 10.32% 10.11% 14.91%

Source: Bloomberg, Miller Value Partners

A smattering of asset types comprised last week’s top five contributors. Debt of Bed Bath & Beyond (BBBY) rose on news the company secured a three-year $850M ABL credit facility, replacing the current $250M facility and boosting liquidity to $1.8Bn. Management also announced 95% of their total store fleet will be re-opened by the end of June and moving to 100% by July. Morgan Stanley maintained their “Overweight” rating on Erdemir (EREGL TI) with a TRY 9.50 price target, 12% implied upside, noting at 1.0x spot P/B shares have not been this cheap since the great financial crisis. Additionally, Erdemir maintains a net cash position and the company’s operating leverage provides upside to margin recovery. Two Harbors (TWO) appointed William Greenberg to President & CEO, replacing Tom Siering effective immediately. Greenberg has over 25 years’ experience managing structured products and most recently served as TWO’s Vice President & Co-Chief Investment Officer. There was no price-changing news on the debt of GTT Communications (GTT) or Endo International (ENDP).

Exhibit 2: Significant Contributors to Performance, 6/19/20 – 6/26/20

Name Type Return
Bed Bath & Beyond 5.165% 8/44 Bond 7.5%
GTT Communications 7.875% 12/24 Bond 1.2%
Erdemir Equity 1.9%
Two Harbors 7.25% PERP Preferred 2.2%
Endo International 6.0% 6/28 Bond 0.2%

Source: Miller Value Partners

Equities comprised last week’s top five detractors. Alternative asset managers Apollo Global Management (APO) and Carlyle Group (CG) fell in conjunction with the broad equity market. Cedar Fair (FUN) fell below closely watched technical levels on fears a second-wave of COVID-19 would extend park closures. Credit Suisse, however, remains bullish given the drive-to nature of Cedar Fair’s parks, cost savings on labor, and conservative 2021 street estimates. SunTrust maintained their “Hold” rating and $12 price target on Chemours (CC), 22% implied downside partially offset by the 6.5% dividend yield. The analyst expects recessionary demand trends will drive a larger than consensus sequential volume drop in titanium dioxide with limited visibility in Fluoroproducts. There was no price-changing news on GEO Group (GEO).

Exhibit 3: Significant Detractors from Performance, 6/19/20 – 6/26/20

Name Type Return
Apollo Global Management Equity -12.9%
Cedar Fair Equity -14.8%
Carlyle Group Equity -11.3%
GEO Group Equity -6.2%
The Chemours Co Equity -6.3%

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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