Oversupply drove most of the market lower last week, and the calendar continues to build (see story, p.1). MCI debt was active and about four points lower by mid-week as rivals tussled with the company over access fee payments. Here is other action.
Utility Shock Continues, Calpine
Looks Like Mega-Dud
The AES Corp. 9 1/2% notes of '09 were down 4 1/2 points to a 95 1/2 bid. Williams' 7 7/8% notes of '21 fell four points to a 90 bid. The recent Calpine Corp. 8 3/4% notes of '13 continued their drop out of the gate. Issued July 14, the Goldman Sachs-led $3.3 billion deal, the year's largest in high-yield, hit a low of 88 before ticking up to 89 last Thursday.
Nate Kehm, portfolio manager at Federated Investors, says his firm did not participate in the deal, and is no more inclined to look at it now. "My personal view on Calpine is that the industry fundamentals won't turn fast enough to avoid restructuring the debt."
Cable Backs Up
The cable sector was also hard hit last week. Adelphia Communications' 10 1/4% notes of '11 were down some 4 1/2 points last Thursday to a 67 bid. Mediacom's 9 1/2% notes of '13 were at a 981/4 bid on Wednesday-- five points lower than where they ended the previous week. One portfolio manager blames a series of recent articles warning of increased competition in the sector.
Bad Reaction In Chemical Sector
Weak earnings caused a number of chemical credits to fizzle. Rhodia's 8 7/8% notes of '11 had dropped seven points and were trading at 95 last Thursday. Millenium Chemicals pre-announced poor numbers and saw its 7% notes of '06 (Ba1/BB) drop three points to 97. Polyone Corp's 10 5/8% notes of '10 were at 89 last Thursday--a 10 point drop in roughly two weeks.
One bulge bracket chemical analyst says he does not expect good news for some time in the sector. "It's extremely weak across the board. Conference calls are discouraging. No one is seeing any recovery in demand and we're seeing pretty bleak forecasts into the near future." He says deciding whether to buy on weakness is really a bet on the economy. For those looking for some exposure without huge risk, he recommends Rhodia, saying that the company is producing positive free cash flow and is reducing debt., unlike some of its peers.