The high-yield market was generally lower last week, as credits sold off due to the recent employment figures that showed the U.S. economy is still in a jobless recovery. The report led investors to sell high-beta credits that closely mirror equity movements. Here is selected action.
Dip In The Heart Of Texas
El Paso bonds dropped a couple points after the company announced that it would delay its fourth-quarter earnings and is also likely to restate past financials. This follows the Houston-based company's announcement last month that it was reducing its estimate of proven reserves by at least 35%. The 7 3/4% notes of '13 dropped to 94 on Wednesday, down from 96 1/2 earlier in the week. However, some market pros say the drop was not necessarily related to the earnings news. Paul Ocenasek, a high-yield portfolio manager at Thrivent Financial for Lutherans in Minneapolis, attributes the drop to general weakness in some of the riskier, lower-quality names in high yield on the back of recent data that indicates the economy may not be as strong as was previously thought.
Winn-Dixie Stores, the Southern supermarket chain, traded up last week after Merrill Lynch upgraded the grocer's stock to neutral from sell. The 8 7/8% notes of '08 traded up to 88 on the news, from 86 earlier in the week. The bonds had declined 15 points in one week in February due to poor earnings and sales, stiff competition and restructuring efforts. Moody's Investors Service, which put the company on review for downgrade last month, is awaiting announcements planned for the end of April, which could include store closings that could positively affect the company's ability to generate cash. "We are hoping they will be able to shed some of the lower-performing assets and to get ahead on a cash flow basis," says Richard Baldwin, analyst, adding that given the operational issues the company faces, Moody's is comfortable with its opinion. It rates Winn-Dixie Ba3, with a negative outlook.
Drug Maker Slides Lower
Biovail Corp., a Canadian pharmaceutical company, saw its 7 7/8% notes of '10 fall from a high of 99 early last week. The drop came after the company came out with its year-end and fourth quarter reports in which it revised downward its revenue guidance and raised guidance for operating expenses for 2004. Michelle Aubin, a Standard & Poor's analyst, says it put the company on negative outlook due to the unclear earnings message and additional risks that are inherent with the transitions the company is making, including the expansion of its U.S. operations. On the positive side, S&P notes that Biovail has been successful with a couple drugs out in the market. However, Aubin concludes the unclear earnings could signal that cash flows may be down. S&P rates Biovail double-B plus, now with a negative outlook.