State Street global Advisors is looking to increase its exposure to the high-yield chemical sector by at least $70 million. "Declining demand and higher feedstock costs hurt the sector in the second quarter, but we're looking to see if that turns. If feedstock prices come down, prospects could improve," says Bruce Walbridge, manager of a $700 million high-yield portfolio.
One name in the sector State Street recently bought was a new issue add-on to the Acetex Corp. 10 7/8% notes of '09 (B2/B+). The money manager will continue to look at other chemical names, Walbridge says. However, there are certain benchmark names, such as Lyondell Chemical, that he hopes will cheapen a bit more.
While Walbridge is frustrated by the overall quality of new issuance, he has found a few other new deals to buy, such as the Western Wireless 9 1/4% notes of '13 (Caa2/CCC). State Street added to its original allocation when the bonds backed up after two other rural wireless carriers came to market--Rural Cellular and American Cellular. "We like Western Wireless better as a credit. They have a bit more stable business plan, and we're fairly comfortable with management. Their footprint is a bit better than Rural, and American still has liquidity issues," he says.
State Street was also planning to participate in a new $400 million senior secured offering from Advanstar expected last week. Pricing on the deal had not been set as of last Monday.
Though State Street believes the economy is improving, the firm is seeing little that looks attractive in the high-yield market. "We're a little frustrated to be frank. We like the market, but we're finding it hard to buy things we really like. If you go through the portfolio you mostly find things you're a better seller of." The firm has pared back some of its exposure in particularly tight-trading names, such as KB Home, which had a 6% yield to call. It has also reduced its exposure to the energy sector.
The Boston money manager uses the Lehman Brothers high-yield index as a benchmark. It has a moderate risk tolerance, and overweights to media and utilities. It is underweight the energy and technology sectors.
