July 20, 2020

Income Strategy Update for Week Ended 7/17/20

Debt of Bed Bath & Beyond Gains on 8-K Update While Chaparral Energy Falls Following Skipped Interest Payment

Last week, the Income Strategy advanced 1.67%, outperforming both the Merrill Lynch U.S. High Yield Master II Index’s 1.19% rise and the S&P 500’s 1.27% gain. (Exhibit 1). The strategy ended the week down -23.16% YTD, or 2,058 basis points behind the high yield index and 2,405 basis points behind the S&P 500.

Exhibit 1: Preliminary Performance of Income Strategy Versus High Yield, Equity Indices, Through 7/17/201

Time Period Income Strategy ML HY II S&P 500
Last Week (7/10 – 7/17) 1.67% 1.19% 1.27%
MTD 2.01% 2.31% 4.10%
QTD 2.01% 2.31% 4.10%
YTD -23.16% -2.58% 0.89%
Inception (annualized since 4/2/2009) 10.53% 10.25% 15.54%

Source: Bloomberg, Miller Value Partners

Three bonds and two equities comprised last week’s top five contributors. Debt of Bed Bath & Beyond (BBBY) gained as the company’s 8-K filing provided subsequent details post-earnings, including the potential for $350M-$450M of additional asset sales, the ability to repurchase debt, positive June same-store sales for re-opened stores, and the opportunity for additional working capital improvements from the $1Bn inventory reduction program. Credit Suisse maintained their “Outperform” rating on Apollo Global Management (APO), citing a defensive fee-related earnings trajectory with significant upside from insurance acquisitions and the ability to capitalize on the rapidly expanding universe of distressed investments. The Chemours Co (CC) rose in sympathy with strong June economic data points, including a 17.3% M/M surge in US housing starts and a 5.4% rise in US Industrial Production, signaling a continued rebound in Chemours’ end-markets. Debt of Occidental Petroleum (OXY) rose on a positive EIA inventory report showing crude inventories falling 7.5M barrels. There was no price-changing news on the debt of Diebold Nixdorf (DBD).

Exhibit 2: Significant Contributors to Performance, 7/10/20 – 7/17/20

Name Type Return
Bed Bath & Beyond 5.165% 8/2044 Bond 4.2%
Diebold Nixdorf 8.5% 4/2024 Bond 2.2%
Apollo Global Management Equity 3.5%
The Chemours Co Equity 3.9%
Occidental Petroleum 4.4% 4/2046 Bond 5.5%

Source: Miller Value Partners

Four equities and a bond comprised last week’s top five detractors. Debt of Chaparral Energy (CHAP) fell as the company elected to skip its July 15th interest payment amidst the challenging commodity price environment. British American Tobacco (BATS LN) fell despite Morgan Stanley reiterating their “Overweight” rating and 3,380p price target, 25% implied upside excluding the 7.8% dividend yield, noting expectations for fundamentals to remain resilient and an undemanding valuation reflecting elevated concerns around earnings visibility. Alrosa (ALRS RX) reported their Q2 trading update with sales volumes of 0.6mct (down from 8.3mct Y/Y), though gem-quality selling prices increased 1.6x to $200/ct driven by the company’s price-over-volume strategy. Output fell 29% sequentially to 5.7mct as a result of management’s plan to optimize production amidst demand disruptions. There was no price changing news on Cedar Fair (FUN) or Sberbank (SBER LI).

Exhibit 3: Significant Detractors from Performance, 7/10/20 – 7/17/20

Name Type Return
Chaparral Energy 8.75% 7/2023 Bond -20.0%
Cedar Fair LP Equity -4.3%
British American Tobacco Equity -3.7%
Sberbank Equity -1.9%
Alrosa Equity -1.6%

Source: Miller Value Partners


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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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