The high-yield team at OppenheimerFunds has been swapping out of traditional cash pay bonds in the cable and telecom sector, and buying zero coupon bonds. Portfolio manager Tom Reedy, manager of $7 billion, says that several zeros in this area are currently trading at deep discounts, and he has been putting on this swap trade in names including Crown Castle International (B3/B), NTL (B3/B-), and Telewest Communications (B2/B).
Reedy says he is also pondering a swap into the zeros of Nextel Communications (B1/B) and SpectraSite Holdings (B3/B-). He declined to provide the specific maturities of the zero coupon bonds he has purchased or will purchase, but says the strategy is effective for all zero coupon bonds of the aforementioned names, which trade at significantly cheaper levels than cash pay. Last week, Crown Castle 9 3/8% notes of '11 traded at 90, while the zeros of '11 traded at 62. NTL 9.5% notes of '08 traded at 59, while zeros of comparable maturities traded at 27. Nextel 13% notes of '07 traded at 61, and comparable zeros traded at 24. By the time he is done, Reedy expects that trades of this kind will have accounted for a move of 1-3% of his total portfolio, or $70-210 million.
Oppenheimer's high-yield group manages against an internal proprietary benchmark that reflects the average weightings of its peer managers. Oppenheimer is currently overweight in wireless towers and U.K. cable, with weightings of 4.5% and 4% respectively, approximately double the benchmark in each sector. It has an underweight in the most defensive, interest rate-sensitive sectors. For example, the firm allocates 4.5% to healthcare, which comprises 6% of the benchmark, and only1.75% to broadcasting, which constitutes 4.25% of the benchmark.
