Last week was solid once again in high-yield, with improvements in a number of distressed credits and sectors such as telecom and airlines. The new issue calendar continued to gain momentum, with a 10-year $300 million deal at 9.25% from Allied Waste. Here is other action.
WorldCom Rebound Continues
Bonds of WorldCom Inc. continued to show signs of life. The 7.5% senior notes of '11 (Ca/D) rose from 19 to a bid of 23 last Thursday morning. Trent Spiridellis, analyst at Banc of America Securities, cites better than anticipated third quarter non-audited income statement results, improved communication with investors and the potential for a new ceo to be named in the near future. He also points to "the likelihood that Michael Capellas [former Hewlett-Packard president] will take the helm of this company and turn it around." Spiridellis argues for a base case, non-discounted recovery of 35 cents on the dollar for the paper.
Magellan Surges Higher
Magellan Health Services, a psychiatric care provider, saw its 9.38% senior notes of '07 (Caa2/CCC) rise from 66 to 73. The 9% senior subordinated notes of '08 traded at 23.5 last Thursday afternoon after closing the previous week at 17.5. A pair of analysts say they do not have an explanation for the surge in price, but one speculates that information is leaking out of negotiations the company is having with its with its bank lenders after getting a temporary waiver on certain covenants until the end of this year.
Chris Bauders at Raymond James & Co. has a hold on the 9% issue, arguing that the company is not a fly by night business without an operating model. "The question is will the banks work with them and will they be able to implement a new capital structure that reduces their leverage to give them more breathing room to sustain the volatility in their operations," he says. Magellan has suffered due to a decline in membership at managed care providers, which outsource psychiatric care to Magellan, according to Bauders.
Foamex Recovery Continues
Bonds of Foamex International continued a rally that has followed their plunge to 50 on Oct. 16, when the company issued a press release showing a sharp drop in third-quarter EBITDA. The 10.75% senior secured notes of '09 (B3/B) were bid at 71 last Thursday, up eight points on the week. The 9.875% notes of '07 (Caa2/B-) rose five points to a 25 bid.
The Oct. 16 press release indicated that the maker of polyurethane-based cushions had not succeeded in realizing price increases in the third quarter to compensate for a surge in raw materials costs. However, a subsequent release showed that price increases had in fact been realized, according to Joe Von Meister, analyst at Jefferies & Co. "The Oct. 16 release borders on irresponsible. They misled everybody and caused the bonds to crater," he says. Von Meister rates the bonds as "extremely attractive," arguing that further price increases are likely to be sufficiently realized to overcome the rise in raw material prices.