The high-yield market was generally lower last week, in what some traders called relatively quiet sessions. Mobile phone operators on the whole showed some weakness, although it appeared unrelated to Cingular Wireless' high bid for AT&T Wireless. The majority of the action came on the back of earnings announcements. Here are some notable movers.
Dobson Roams Lower
Wireless service provider Dobson Communications Corp. dropped 10 points on the week, with its 8 7/8% notes of '13 trading at 92 late in the week, down from 102. The fall came after lower-than-expected quarterly results, which were partly caused by a significant reduction in airtime use from weak growth in roaming minutes. The decrease comes from a declining number of customers using AT&T Wireless, Dobson's biggest customer. The lower-than-expected roaming revenue adversely affected the company's earnings before interest, taxation, depreciation and amortization, according to one portfolio manager. He adds that with Dobson's poor numbers, investors are starting to rethink the wireless sector as a whole.
El Paso Runs Out Of Gas
El Paso bonds dropped four points on the week due to a large downward revision of its estimated proven reserves of natural gas. The 7 3/4% notes of '13 traded at 95 late in the week, compared to 99 earlier in the week. Moody's Investors Service, which put the company's long-term B3 rating on review for possible downgrade, is reviewing the results and El Paso's internal review of its exploration and production business, according to Mihoko Manabe, a senior v.p. and credit officer. The company reported a 35% decrease from last year's estimated reserves, which Manabe notes is very sizable. She adds the rating agency is awaiting an assessment of the large downward revision in reserves from a third party and that Moody's will evaluate these results before taking any further action.
Losses Beget Losses
Qwest Communications' 7.9% notes of '10 fell a couple points last Thursday after the company reported its earnings were softer-than-expected, following a fourth quarter net loss of $307 million. The bonds traded at 93 last Thursday, down from 95. Tim McDonald, a v.p. at BNY Capital Markets, say that while the management team at Qwest led by Dick Notebaert has done a great job navigating through the operational and balance sheet issues, the company still faces a challenging operating environment. McDonald adds that deflationary pressures in the telecom sector make it hard to increase revenue and cash flows, with factors such as competitive substitution, access line loss and pricing pressure affecting the firm's growth. Catherine Cosentino, an analyst at Standard and Poor's, says that Qwest's business could support a higher rating than its current single-B minus.