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| Greg Habeeb |
Calvert Asset Management recently participated in all three classes of the Residential Capital Corp. $4 billion offering, on the view the company offers relative value to other investment-grade financials. Greg Habeeb, senior v.p. and senior portfolio manager of about $4.5 billion in taxable fixed income, said the company's unsecured bond spreads could narrow. "We loved the ResCap deal. The potential is for 100 basis points of tightening," he said, noting ResCap's debt was priced at a healthy discount to that of other mortgage lenders, such as Countrywide Financial, because of the former's connection to General Motors. ResCap was recently spun off from General Motors Acceptance Corp. and now has its own investment-grade ratings, but there is still concern among investors the separation is not 100%, Habeeb said. As a result, the ResCap bonds trade between financials and autos. "People won't be convinced they are totally insulated from the autos until they are truly separated. There are no guarantees when push comes to shove," Habeeb said, noting if ResCap were sold it could assuage investors.
The ResCap purchases are indicative of the Bethesda, Md.-manager's general strategy to find value in corporates. Habeeb noted he added autos this spring when the GM and Ford Motor Co. downgrades to junk status forced selling but he has gradually pared these positions and taken profits in the months since as spreads have come back. At that point, he said he added taxable municipals, which have also since tightened. "Right now we're in an in-between stage. We don't think there's that much upside in autos and they are at reasonable equilibrium right now," he said, of corporates relative to munis.
In financials, Habeeb believes the entire sector is rather tight but said bonds from Goldman Sachs and J.P. Morgan offer some value. Morgan Stanley debt is also on the cheap side, but deservedly so he said, given recent turmoil at the top with the resignation of Phil Purcell and return of John Mack as ceo. While it's a positive sign the recent management volatility seems to have ended, the company has a lot of ground to make up, he said. "If they were doing so well, they wouldn't have to go back to the guy they canned," he quipped, referring to Mack's 2001 resignation from the firm after he lost a power struggle with Purcell for the top spot.
