Two technology names, Sanmina-SCI Corp. and Avaya Inc., are among those Penn Capital Management is prepared to sell if it needs to raise money to take advantage of future buying opportunities in the high-yield market. Eric Green, portfolio manager and director of research overseeing $300 million in taxable fixed income, says Penn Capital has seen considerable price appreciation in the names, and he says they offer limited future total returns. Avaya's 11.125% notes of '09 were trading at 116 last Monday and Sanmina's 10.375% notes of '07 were trading at 118. Green says he is not yet sure where the next investment opportunity will come from, though he will likely look for an overreaction to an earnings disappointment or other corporate mishap to acquire bonds at a discount.
One recent opportunity Green saw was in the Lone Star Technologies 9% notes of '11, which dropped to the low 90's after announcing poor earnings. Penn Capital bought the issue on the view that the oil services and equipment sector, in which Lone Star operates, was in a cyclical trough. The issue had rebounded to 95.25 last Monday.
Other recent additions include $5-10 million allocated to issues from independent power producers Dynegy Inc., Calpine Corp. and AES Corp. Green says the companies have no liquidity issues, are fixing their capital structures and stand to benefit when the power markets normalize. The AES 9.5% notes of '09 were bid at 106.25 last Monday. Dynegy's 7.125% notes of '18 were bid at 80.5. Calpine's 8.5% notes of '08 were bid at 76.75.
In its core high-yield portfolios, the Cherry Hill, N.J., investor is underweight gaming and metals and mining versus its benchmark, the Merrill Lynch Master I high-yield index. It is overweight lodging, energy and utilities issues.
