A sell-side analyst and a high-yield investor are less-than-excited about the prospects for issues from Avnet Inc., a semi-conductor distributor that Moody's Investors Service recently downgraded to junk status (Ba2). Standard & Poor's still has an investment-grade (BBB-) rating on the credit, but the sell-sider notes that S&P's rating carries a negative outlook. He says a downgrade would probably drive prices down further, as the last remaining investment-grade bondholders unload the credit.
State Street global Advisors sold its Avnet 9.75% notes of '08 earlier this year at 114 (BW, 5/25). Bruce Walbridge, portfolio manager at the Boston firm, was not remotely interested in buying them again even after seeing the bonds drop to a 108 bid shortly after the downgrade. "I was interested at par because I thought it had reasonable value at the time, but I see no reason to get back in just because it's off four points or so," he says. [The issue later recovered slightly and was bid at 110.25 last Thursday]. Walbridge argues that while sales volumes have improved for computers and semiconductor chips, margins are still unimpressive.