Penn Capital Management says the recent high-yield rally has passed by a few off-the-run high-yield issues, which are still a good place to find value. Eric Green, director of research and senior portfolio manager, says the $275 million high-yield money manager may still add to its 1% allocation in the Interep National Radio 10% notes of '08. Green says the market has been concerned over weak advertising sales due to the war, but that revenues for radio and television are showing signs of a rebound. Green saw a recent bid for the bonds at about 75.
Among more liquid issues, Penn Capital has been selling senior notes in favor of convertible or trust-preferred issues that are lower in the capital structure. For example, the firm recently sold $1 million of the Paxson Communications 10.75% notes of '08 at roughly 108 to buy preferred securities trading at 85.
One media issue where Green still sees value in straight bonds is Charter Communications. The cable company's 8.625% notes of '09 were bid at 61 last Tuesday afternoon. Green said ahead of the company's conference call last Tuesday that Penn Capital might look to reduce exposure in the name if the bonds traded up 10 points. With a new management team and possibilities such as asset sales or a debt-for-equity swap, Green sees several possible catalysts that could drive the bonds higher. The resolution of accounting investigations could also give the bonds a boost, Green says.
The Cherry Hill, N.J., money manager usually maintains a duration of between three and five years. Versus its main index, the Merrill Lynch High-Yield Master II, the firm's largest overweight is in the media sector. It is also overweight healthcare and leisure. It is underweight the auto sector.
