TimesSquare Capital Management may look to take some gains in the merchant energy sector as part of a move to reduce credit risk in its portfolio. Ron Bringewatt, high-yield portfolio manager at the New York firm, argues that the torrid pace of gains in the high-yield market since October is likely to reverse itself at some point. TimesSquare will move into higher quality sectors to prepare for the expected correction. Bringewatt would not give further details, other than to say that he would likely sell some Williams Co. (Caa1/B) 9.25% of '04. Those bonds, bid at 98.5 last Thursday morning, were in the low 80s as recently as January.
Credit quality among energy wholesalers has not yet hit bottom, says Suzanne Smith, director at Standard & Poor's, and none of the companies in the sector are formally under review for an upgrade. "The fundamentals in the sector are still pretty poor, and there's a huge capacity to work off from overbuilding," she says. Smith would not hazard a guess as to when the bottom might come, but she does believe that the industry will survive, as the Federal Energy Regulatory Commission has been pushing hard to maintain a competitive market for wholesale electricity.