Credit-default swaps on Nextel Communications made a post-election leap when its spread tightened to 90 basis points last week from 150 basis points at the start of October. "They have been flush with cash and people expect them to go investment grade," said TD Securities credit trader, Brian Healion.
Moody's Investors Service rates the company's Ba3 and Standard & Poor's puts it at BB plus, but placed it on CreditWatch with positive implications two weeks ago.
The lack of certainty on aggregate capital spending needs constrains the rating, said Rosemary Kalinowski, director of corporate rating with Standard & Poor's. "The potential for an upgrade will hinge on Nextel's ability to sustain the pace of growth shown in the third quarter," she said, adding the wireless service provider has become an industry-leader in average revenue per user. The magnitude of aggregate network related spending over the next three to four years, the ability to finance this spending while maintaining within financial parameters and a financial policy consistent with an investment-grade rating will prove key in the rating's agency's decision, Kalinowski explained.
Hedge funds have been have been active in these trades, Healion said, adding that on the cash side, pension funds and insurance companies have been major players.
There has been a significant rally in single-name high yield credits in general, he said, citing election clarity, the decline of oil prices after hitting all time highs and improved balance sheet as major factors.
