Junk Investor Sees Paper Rebound, Sell-Sider Urges Caution

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  • 30 Jun 2003
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A high-yield portfolio manager and sell-side analyst agree that the paper and forest products sector is turning around, but the analyst cautions about the sector's potential for near-term volatility.

Advance Capital Management recently purchased $1.5 million of the Tembec 8.5% notes of '11 (Ba1/BB) in a bid to pick up some yield. "Pulp and paper haven't quite rebounded, but if you look at the longevity of the cycle it's probably not a bad time to get in. The majority of the downturn is probably behind us," says Chris Kostiz, portfolio manager of $450 million in taxable fixed-income at the Southfield, Mich. manager.

Shifting into riskier names such as Tembec makes sense over the intermediate term of one- to two-years, says Bill Hoffman, co-head of fixed-income research at UBS Securities. He warns, however, that upside potential may be limited over the next quarter or so. Commodity prices such as pulp had strengthened earlier in the year, but have dropped once again due to declining demand, he says. Hoffman sees the Tembec paper as fairly valued at last Thursday's price of 99.5, or 622 basis points over Treasuries. He says that when clearer signs of a sector rebound take hold, it will make sense to swap into more volatile names like Tembec, perhaps selling a higher-rated peer such as Abitibi-Consolidated. Abitibi's recent issue, the 6% notes of '13 (Ba1/BB+), was trading at 330 basis points over Treasuries last Thursday, nearly 300 basis points inside Tembec.

  • 30 Jun 2003

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
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1 Citi 119,693.92 344 12.91%
2 Bank of America Merrill Lynch 99,935.46 287 10.78%
3 Wells Fargo Securities 88,155.55 263 9.51%
4 JPMorgan 69,113.88 208 7.46%
5 Credit Suisse 51,260.05 154 5.53%