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Capital Restructuring | Fourth Quarter 2018

February 2019 – At year-end 2018, Moody’s and S&P reported default rates of 2.8% and 2.4%, respectively. Moody’s forecasts that the default rate will fall to 2.6% by December 2019, with defaults expected to be highest in the media, retail and restaurants sectors. In Q4, the total of outstanding U.S. dollar leveraged loans hit $1.27 trillion, overtaking high-yield bonds to cement the status of leveraged loans as the go-to financing source for speculative-grade companies. Syndicated middle market loan volume was $10.7 billion in 2018, down 22% from 2017 (the three year high point) in part as a result of the late 4Q2018 capital markets new issuance shutdown, the impact of interest rate increases, and uncertainty regarding the Federal Reserve’s monetary policy.

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Business Services | Fourth Quarter 2018

February 2019 – For the fourth quarter of 2018, the SCA Business Services Index declined by approximately 16%, consistent with the general sell-off in the overall market at the end of 2018. Despite the economic uncertainty driving overall market volatility during the fourth quarter, the Business Services sector did experience several highlights, with temporary staffing reaching a record penetration rate of 2.06% of all employment and private sector employment adding over 271,000 jobs in December.

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Industrial Growth | Fourth Quarter 2018

February 2019 – During the fourth quarter, equity capital market returns for SCA’s Industrial Sector Universe fell 16.0%, with an average decrease of 18.1% across the seven sectors. The Q4 index performance lagged slightly behind the average S&P (-14.3%) and the NASDAQ Composite (-17.4%) as all market indices felt the brunt of negative market sentiment throughout the quarter. The SCA Industrial Index performance was driven by significant losses in the Metals (-31.9%), Precision Machine Products (-22.8%), and Electronics & Components (-20.6%) segments.

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Healthcare Services | Fourth Quarter 2018

January 2019 – With more than 1,850 healthcare transactions announced in 2018, M&A transaction volume in 2018 was up 14% as compared to 2017, according to preliminary figures from Irving Levin Associates Inc. Transaction value in 2018 was $330.3 billion, up 21% from 2017. While demand for facility-based services declined in 2018 with hospital mergers falling 22% as compared to the same period a year prior, there was a jump in transactions in the home healthcare and physician medical group markets as the trend from inpatient to outpatient activity proliferates.

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Capital Restructuring | Third Quarter 2018

November 2018 – Moody’s and S&P reported speculative-grade default rates of 3.1% and 2.7%, respectively, in Third Quarter 2018. Moody’s forecasts that the default rate will fall slightly by year-end, with defaults expected to be highest in the media and retail sectors. Per S&P/LSTA, the default rate has gradually increased from an 18-month low of 1.4% at the end of July 2017, but it remains inside the 3.1% historical average. Market consensus is calling for the default rate to hit 2.3% in the 12 months ending September 2019.

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Industrial Growth | Third Quarter 2018

November 2018 – During the third quarter, equity capital market returns for SCA’s Industrial Sector Universe was up 4.0%, with an average increase of 3.8%. The Q3 index performance only slightly lagged behind the S&P (+4.5%) and the NASDAQ Composite (+4.1%). The SCA Industrial Index growth was driven by meaningful gains in the (i) Precision Machine Products, Tooling and Stamping Sector (+10.0%) and (ii) Analytical and Instrumentation and Testing Equipment (+8.1%). Strong corporate earnings were able to counterbalance continued concerns with respect to trade tariff exchanges and uncertainty in the broader markets.

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Business Services | Third Quarter 2018

November 2018 – For the third quarter of 2018, the SCA Business Services Index underperformed the S&P 500 primarily as a result of a significant decline in staffing and IT consulting stocks. The sub 4% U.S. unemployment rate, as well as immigration limitations are creating investor concerns about the labor supply and ability of these firms to fill open positions and continue their growth trajectory.

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Healthcare Services | Third Quarter 2018

November 2018 – With almost 420 healthcare transactions announced, M&A transaction volume in Q3 2018 was up 8% as compared to the same time a year prior, according to preliminary figures from Irving Levin Associates Inc., marking the third straight quarter with transaction volume exceeding 400. The services sector accounted for 63% of the deal volume in Q3 2018 with long-term care totaling 24% of the service sector transactions.

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Industrial Growth | Second Quarter 2018

August 2018 – During the second quarter, equity capital market returns for SCA’s Industrial Sector Universe expanded with the majority of our covered subsectors posting improvements. Coinciding with a robust 4.1% GDP growth in the second quarter and consumer confidence at a 17-year peak, the Chemicals and Electronics & Components subsectors both had positive quarterly returns of +5.4%, compared with the NASDAQ index posting a generous quarterly return of +9.3%. Strong corporate earnings were able to counterbalance continued trade tariff exchanges and uncertainty in the equity markets.

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Capital Restructuring | Second Quarter 2018

August 2018 – Moody’s and S&P reported default rates of 3.4% and 3.0%, respectively, in 2Q18. Included in the defaults were distressed exchanges by CHS/Community Health Systems, Murray Energy Corp., and Del Monte Foods, according to Moody’s. S&P reported that retail and energy drove default activity in 2Q18.

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Healthcare Services | Second Quarter 2018

August 2018 – With over 430 transactions announced, M&A transaction volume in Q2 2018 was up 13% as compared to the same time a year prior, according to preliminary figures from Irving Levin Associates Inc. The services sector accounted for 59% of the deal volume in Q2 2018 with long-term care totaling 24% of the service sector deals. Deal value in Q2 2018 totaled approximately $144.5 billion, 46% higher than the same quarter in 2017.

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Business Services | Second Quarter 2018

August 2018 – For the Second Quarter of 2018, the SCA Business Services Index outperformed the S&P 500. While the S&P 500 increased by 5.3% despite growing concerns over trade restrictions, the SCA Business Services index was up 8.3%. HR services (up 20.8%) led all sectors followed by Information Services (up 13%) and Marketing Services (up 12.7%). The only sector that substantially underperformed was Professional Staffing (down 8%) which was negatively impacted by concerns about the tight labor market and the ability to fill positions and pass along rising salary and benefit costs.

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Capital Restructuring | First Quarter 2018

May 2018 – For First Quarter 2018, Moody’s and S&P reported default rates of 3.9% and 3.3%, respectively. According to Moody’s, retail corporate defaults reached an all-time high in the quarter, reflecting the fallout of changing consumer behavior and advancing e-commerce for traditional brick-and-mortar retail. Portfolio managers in the leveraged loan market have raised their forecasts for near-term default rates although historical averages may only be surpassed starting in mid-2019 or 2020.

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Business Services | First Quarter 2018

May 2018 – For the First Quarter of 2018, the SCA Business Services Index outperformed the S&P 500. While the S&P 500 declined by 2% due to growing investor worries over rising interest rates and trade restrictions, the SCA Business Services index was up 2.0%. HR Services (up 12.9%) led all sectors, followed IT Services (up 5.3%) and IT Consulting (up 4.3%) which continued their outperformance during recent quarters. The only sector that substantially underperformed was Marketing Services (down 10%) which was negatively impacted by concerns about the revenue outlook for traditional advertising firms given changing media habits.
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Industrial Growth | First Quarter 2018

May 2018 – During the first quarter, returns for the industrials sector in the equity capital markets contracted, with all but one industry posting slight declines. This comes after robust economic expansion with three consecutive quarters of near 3% GDP growth and consumer confidence at a 17-year peak. The Electronics & Components subsector was the only industry with a positive quarterly return of +1.6%, compared with the NASDAQ index edging a slight quarterly return of +0.8%. Recent trade tariff discussions have added uncertainty and downward pricing pressure in the equity markets. M&A activity for the quarter expanded compared to Q4 2017 with 224 transactions announced versus 189 deals last quarter; deal value lagged at $14.0 billion compared to $15.9 billion last quarter.

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Healthcare Services | First Quarter 2018

May 2018 – M&A transaction volume in Q1 2018 was on par with the previous quarter’s total of 380 deals. According to preliminary figures from Irving Levin Associates Inc., a total of 378 transactions were announced in Q1 2018. Compared with the same quarter a year prior, volume was down 14%. Deal value in Q1 2018 totaled approximately $112.9 billion, 2% lower than the previous quarter, but 90% greater than the same quarter in 2017. This quarter’s $67 billion acquisition by Cigna (NYSE:CI) of Express Scripts Holdings (NYSE:ESRX) accounted for almost 60% of total transaction value in Q1 2018.

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