The entire fixed-income market rallied on the back of Federal Reserve Chairman Alan Greenspan's comments before Congress on Wednesday when he said inflation remains low and the Fed has no plans to raise interest rates anytime soon. Junk bonds were no exception and were tighter in most cases. Overall, attention was back on the secondary market after the recent drop in prices dampened the primary flow.
Goodyear Hits Skids
Goodyear Tire and Rubber Company's 7.857% notes of '11 dropped after the Securities and Exchange Commission formalized its investigation into the company's accounting practices. Scott Lee, a director at Fitch Ratings, says the investigation and the fact that the company has large amounts of maturing debt due in the next 15 months are two factors that do not bode well for Goodyear debt. The tire company's plans to add $650 million to one of its credit facilities also weighed on its outstanding junk bonds.
Grillmaker Dealt A Blow
Household appliance company Salton saw its 12 1/4% notes of '08 drop roughly seven points on weak earnings and traded around 102 late Wednesday. Martin Kounitz, an associate director at Standard and Poor's, notes Salton's profitability during the Christmas season was lower than expected, adding the company could not keep up with demand. Sales of the company's George Foreman line of grills also fell 30% in the second quarter. The weak earnings led S&P to downgrade the company's subordinated debt rating from single-B minus to triple-C plus last Thursday.
Cable Co. Creeps Up
Cable giant Adelphia Communications Corp.'s senior bonds moved up three points. Its 10 1/4% notes of '11 traded at 106.5 last Thursday. According to one portfolio manager, the rally is a result of expectations that it will emerge from bankruptcy stronger than had previously been thought. He notes Adelphia is asking for an extension on the deadline to file its Chapter 11 turnaround plan, which some investors are betting will offer bondholders a package of new securities at par.