The high-yield market seemed to lack direction last week, according to one investor who saw a lot of ups and downs. Secondary levels receded and activity continued to be slow in anticipation of higher interest rates. Here are some notable movers.
Salton Gets Burned
Salton Inc., a kitchen and personal care appliance marketer known for its George Foreman Lean Mean Fat-Reducing Grilling Machine, dropped dramatically last week. The 12 1/4% notes of '08 were quoted at 56 mid-week, down from 86 a few weeks earlier. The big drop, which occurred last Tuesday, came after Salton released a quarterly loss and announced that it had breached a credit covenant.
Delta Dives
Delta Airline's 7.90% notes of '09 notes traded down to the low 40s, after trading up in the 60s several weeks ago. The downward spiral is a result of out-of-line cost structuring and problems with its pilot's union, which hasn't taken cuts that other airlines have, according to high-yield professionals. They said there is a concern that if negotiations with its unions fail, Delta may be forced to declare bankruptcy. This has created nervousness among investors, noted Bruce Walbridge, portfolio manager at State Street global Advisors, who said the securities dropped as many portfolio managers are comparing Delta's situation to AMR Corp.'s decline.
MCI Picks Up Speed
MCI Inc.'s 7.7% notes of '14 moved up from the high 80s to the low 90s mid-week to trade at 91. The company reported a quarterly net loss last week, which initially caused the bonds to drop, but they rebounded after the company's equity shares began moving up. One salesman said investors are optimistic about the company's operating performance and balance sheet and see MCI as having the ability to produce significant cash flow. William Cunningham, director of credit strategy at FTN Financial, agreed that MCI has a substantially improved balance sheet. However, he noted that investment-grade buyers dabbling in high-yield might want to avoid this name, noting "it's a name that should be left to the big boys in high-yield," due to its position in a competitive and declining sector of the industry.