A pair of investors say they will consider adding exposure to Amerada Hess, the New York-based oil and gas producer, if spreads widen on a future downgrade. Moody's Investors Service recently placed the company (Baa3) on review for a possible downgrade, causing spreads on the 6.65% notes of '11 to widen some 30 basis points. The issue recovered 10 basis points to trade at a 135 bid last Monday. National City Investment Management Co. sold its small allocation to Hess following the announcement. Cindy Cole, portfolio manager at the Cleveland asset manager, is concerned that there will be further widening in the event of a downgrade, which would drop the company into junk territory. At such a time, the credit may be worth buying for National City's high-yield accounts, Cole says.
A New York-based portfolio manager picked up $3 million of the 6.65% notes shortly after the Moody's announcement. He says Amerada Hess has strong financial metrics relative to the investment-grade universe, and he does not believe a downgrade is warranted. Nonetheless, he acknowledges that a downgrade may come, in which case he would likely add exposure to the name if it widened further.