With bond yields continuing to move lower, investors are now adjusting to the new reality of risk adjusted returns.

Following the publication of our Credit Outlook on 29 January 2019, we are providing this summary of new and changed recommendations over the past five months, as well as the list of all our current recommendations as of the date of this update.

Following the announcement that Eric Insurance had finalised an agreement with ASIC in relation to its remediation program, we believe that the near term prospects for the Company have improved and no longer considered speculative. While we are of the view that Eric, and the insurance sector more generally are facing some headwinds, we believe the notes, at an indicative mid-price of AUD77.50, offer good relative value, with real prospects of capital appreciation over the near-to-medium term.

On 18 June 2019, Eric Insurance announced that it had agreed with ASIC the terms of the remediation program, with total remediation costs expected to reach AUD3.4m. The finalisation of the terms of remediation removes a significant uncertainty for Eric in our opinion. Pending discussions with the Company, we are placing our recommendation Under Review, noting the likelihood that the previous Speculative recommendation will be revised.

UK investment bank and financial services company, Barclays PLC, has launched an Australian dollar multi-tranche [5] year fixed coupon and floating rate note (FRN), and a [10] year fixed coupon note.

The newest additions to FIIG’s USD DirectBond list are two high yield (HY) opportunities issued by Peabody Energy Corporation. Since emerging from Chapter 11 in 2017, it issued a shorter dated 2022 and medium-term 2025 maturity bond. We prefer the 2025 bond offering an attractive yield over 6.00%pa.

We update our recommendations on a number of Tier 2 issuances by Australian banks and insurance companies.

In this report, we look at the Australian housing market and how recent events as well as announcements by the RBA and APRA may affect the sector over the near term.

We reiterate our recommendation on Next Gen's 7.90% notes due 2023, with a Stable credit outlook. The Group reported 1Q19 revenue of AUD9.6m and EBITDA of AUD2.5m, which were softer than 1Q18. Membership income from Perth South has led to lower forecasted EBITDA for FY2019, and leverage is forecasted to remain temporarily elevated. The Doncaster project is expected to be completed within the next 12 – 14 months, within management’s guidance

The Australian bond market is faced with an insatiable demand currently, as bonds are maturing or being called, dwindling new issuance is limiting additional supply and there’s a thirst for yield. The liquidity and depth of the large USD high yield (HY) bond market is where savvy investors are looking to for opportunities, and for good reason, as we further explore.

Deloitte, the voluntary administrator of Axsesstoday, provided an update on the current sale process. Indicative offers have been received in late May from parties interested to buy part or all of the company. It is expected that binding offers will be submitted in early July.

On 31 May 2019, independent gas storage operator, Rockpoint Gas Storage, released its fourth quarter and full year 2019 (ending 31 March 2019) results. Overall, the results were very solid, with total realised revenues of USD176.49m for FY19 comparing favourably with USD137.63m in FY18. Adjusted EBITDA improved to USD112.1m, up USD34m from USD78.1m in FY18.

SCT Logistics New Issue Report.

The RBA has cut the overnight cash rate (OCR) to the lowest level in history. With more rate cuts on the way and bond prices likely to rally further, we believe it is time for investors to start adjusting their expectation to a lower yielding environment

The Novacare Solutions Partnership consists of Novacare Solutions Trust and Novacare Health Solutions Trust (Novacare). Novacare, together with Novacare Services Pty Ltd contracted with the NSW Department of Health (NSW Health) to design, build, refurbish and maintain various facilities at the Mater Misericordiae Hospital (Mater Hospital), in Newcastle. NSW Health’s obligations under the PPP contract are guaranteed by the New South Wales State Government (State).

On 30 May 2019, Rackspace Hosting, Inc. reported 1Q19 results for the quarter ended 31 March 2019. Although the Company reported a net loss of USD56.9m, EBITDA has begun to normalise following on from the Datapipe acquisition. Further, the Company recorded its third consecutive quarter of free cash flow growth.

The June 2019 update to our DirectBond List including new additions and our current Trading Restrictions list.