Last week saw weakness throughout the high-yield market, except for a slight rally on the back of equities Thursday afternoon. Media and energy were among the stronger performers, though prices were still lower in these sectors. The primary market remains closed to most issuers, but FMC Corp., a chemical manufacturer, sold $355 million of senior secured notes. Here is other action.
Charter Is Pummeled
Charter Communications' 8.625% notes of '09 (B2/B-) dropped from 62 to 50.5 after warning that third quarter cash flow would fall short of expectations. One New York-based portfolio manager who recently reduced his position says he is particularly concerned about the company's cap-ex requirements going forward.
Auto Parts Suppliers Break Down
Auto parts suppliers had a rough week. The Collins & Aikman 11.5% notes of '06 (B2/B) dropped from a 90 bid to 77. American Axle & Manufacturing saw its 9.75% notes of '09 (Ba3/B+) lose 4.5 points to close at a 101 bid last Thursday. Dura's 9% notes of '09 (B2/B) fell 10 points to 81.5.
The sharp drop in trading prices reflects mounting pressure on suppliers to reduce costs, and what is becoming a pattern of fourth quarter investor pessimism about sales prospects for the coming year, according to Ed Mally, head of high-yield research at CIBC World Markets. In this case, Mally believes that pessimism is justified, and expects continued pressure on the bonds.
One high-yield trader explained the bad week more succinctly: "One word: Ford."
Lodging Falls Out Of Bed
The lodging sector was also down. MeriStar Hospitality's 10.5% notes of '09 (B1/B+) plunged 15 points to 80 early Thursday afternoon. Host Marriott's 7.875% notes of '08 (Ba3/BB-) dropped five points to 87.
Investors need to be cautious in this sector, says Ashley Craig, lodging analyst at Morgan Stanley. She sees little growth in revenue per room next year, and says the threat of a continued weak economy, war or terrorism all weigh heavily. However, she says MerisStar's bonds have been unduly punished, and recommends that investors buy them on weakness.