Junk Investor Sees Paper Rebound, Sell-Sider Urges Caution

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  • 30 Jun 2003
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A high-yield portfolio manager and sell-side analyst agree that the paper and forest products sector is turning around, but the analyst cautions about the sector's potential for near-term volatility.

Advance Capital Management recently purchased $1.5 million of the Tembec 8.5% notes of '11 (Ba1/BB) in a bid to pick up some yield. "Pulp and paper haven't quite rebounded, but if you look at the longevity of the cycle it's probably not a bad time to get in. The majority of the downturn is probably behind us," says Chris Kostiz, portfolio manager of $450 million in taxable fixed-income at the Southfield, Mich. manager.

Shifting into riskier names such as Tembec makes sense over the intermediate term of one- to two-years, says Bill Hoffman, co-head of fixed-income research at UBS Securities. He warns, however, that upside potential may be limited over the next quarter or so. Commodity prices such as pulp had strengthened earlier in the year, but have dropped once again due to declining demand, he says. Hoffman sees the Tembec paper as fairly valued at last Thursday's price of 99.5, or 622 basis points over Treasuries. He says that when clearer signs of a sector rebound take hold, it will make sense to swap into more volatile names like Tembec, perhaps selling a higher-rated peer such as Abitibi-Consolidated. Abitibi's recent issue, the 6% notes of '13 (Ba1/BB+), was trading at 330 basis points over Treasuries last Thursday, nearly 300 basis points inside Tembec.

  • 30 Jun 2003

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Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Citi 7,171 21 10.72
2 Bank of America Merrill Lynch (BAML) 6,901 20 10.32
3 JP Morgan 4,776 10 7.14
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  • Last updated
  • 24 Oct 2016
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3 JPMorgan 56,861.85 163 9.43%
4 Citi 56,521.05 165 9.38%
5 Credit Suisse 44,888.95 123 7.45%