Piedmont Capital Management will look to add some $15 million to the beaten up utility sector, using either new cash as it comes in, or proceeds from U.S. callable agencies as they mature or receive attractive bids. Walter Campbell, portfolio manager of $100 million in taxable fixed-income, says he is attracted by the sizeable yields available in the sector. He believes execution risk is already priced into the credits, as they look to sell assets to reduce leverage. He does not know when he will receive new cash, however, as most of his clients are small insurance companies, whose cash flows are unpredictable, he says.
Piedmont is looking at eight- to 12-year bonds of electric and natural gas generators, including Calpine and Duke Energy. Campbell says he will buy whichever issues he is offered at an attractive price. Duke's 6.25% notes of '12 were bid at 98 basis points over comparable Treasuries last Tuesday. Campbell says he is more comfortable with Calpine than an energy generator like AES Corp., which has exposure to volatile Latin American markets. Calpine's 8.5% notes of '11 were trading 368 basis points over the curve last Tuesday.
The Hilton Head, S.C., money manager has an eight-year duration versus its benchmark, the 10-year Treasury bond. It has 70% of its assets in agencies and 30% in corporates.
