It was another big week of inflows, with over $1 billion in new money coming into high-yield mutual funds. Some traders reported little activity, while others said trading was brisk, and the market broadly higher. New issues remain sparse, though Barney's New York, Inc. sold $106 million of senior secured notes through Jefferies & Co. Here was other action.
HealthSouth Senior Notes Finish Unchanged After Heavy Trading
The tumult continued for HealthSouth. The scandal-ridden healthcare provider's senior issues surged higher last Tuesday as analysts began touting the credit, but then retreated Thursday after the firing of William Owens, the firm's cfo, a default on its credit facility and the stoppage of payments to bondholders. The 7% senior notes of '08 (Caa2/CCC-), went out Thursday at 46, just half a point above Monday's open. HealthSouth's single subordinated issue, the 10.75% notes of '08 (C/CC), dropped from 14 to 10.5 in light trading.
Premila Peters, analyst at KDP Investment Advisors estimates that there is value in the senior notes in the range of 40-55. She says the bonds are pari passu with the bank debt. With the benefit of hindsight, the accounting fraud seems obvious, she adds. On earnings calls, company executives were unable to give clear answers to simple questions, such as what its cash position was. "The cfo could never get a word in. They would say they were putting the numbers together, and now we know that's because they were really putting the numbers together, not because the computers were slow."
Foamex Drops On Weak Earnings
Foamex International, a maker of foam padding for furniture, saw its 10.75% notes of '09 (B3/B-) drop two points to 66. Its 9.875% notes of '07 (Caa2/CCC+) fell three points to 21.
Joe Von Meister, an analyst at Jefferies & Co. argues that the senior secured notes are ultimately money good, but can probably be picked up more cheaply in the future. "I think the bonds trade down. There was no evidence of price increase realization in the fourth quarter. When the first quarter numbers come out we can reassess," he says. As for the subordinated notes, Von Meister says it depends upon whether the economy recovers and how strongly.
Level 3 Communications Surges
Bonds of Level 3 Communications made strong gains last week. The 0/10.5% notes of '08 (Caa3/CC) rose from a 58 bid at the start of the week to 65 by Wednesday afternoon.
One trader believes the overall strong demand in the high-yield market is driving the bond prices higher. "These Level 3 zeros yield almost 20%. With the rest of the market at around 8%, people may be saying, 'hey, I might as well take a swing at this,'" he says.