Taplin, Canida & Habacht was planning to buy $10-20 million in General Motors 8% notes of '31 (A2/BBB+) last week. Bill Canida, portfolio manager of the firm's $4.5 billion in taxable fixed-income, says auto spreads are at historic wides, and he does not believe the Big Three automakers are a legitimate bankruptcy risk. The GM paper was trading at 291 basis points over 30-year Treasuries last Monday. The money manager has already been buying the GM bonds, as well as the Ford Motor Co. 7.45% notes of '31 (A3/BBB+), which were trading at 387 basis points over 30-year Treasuries last Monday, and the 7.375% notes of '11, which were trading at 396 over 10-year Treasuries. Canida says the firm will not add more Ford paper because it is already fully allocated, and he believes Daimler Chrysler's bonds are still trading too tight relative to those of its competitors.
To finance these trades, the firm has been selling Bank of America 5.25% notes of '07 (Aa2/A+), which were trading at 59 basis points over five-year Treasuries last Monday. It was also selling the BofA 7.875% notes of '05, which were trading at 89 basis points over the curve. Canida says the paper has been trading at very tight levels compared to its historical trend, and the firm wants to pick up additional yield.
Taplin, Canida & Habacht also recently added to its telecom holdings, chiefly the Sprint Corp. 8.75% notes of '32 (Baa3/BBB-), which were trading at 369 basis points over Treasuries last Monday. Canida likes Sprint in particular because it is well-diversified, but says he plans no additional telecom investments as he considers the firm fully allocated, given the volatility of the sector.
In its $2 billion core portfolio, the Miami firm is 10% short its bogey, the 4.07-year Lehman Brothers aggregate index. It allocates 64% to corporates, 14% to mortgage-backed securities, 18% to U.S. government securities and 4% to cash.
