Recent weakness in the bonds of United Rentals, a roughly $1.4 billion junk issuer with the largest market share among North American equipment rental companies, has created an attractive buying opportunity, according to at least one portfolio manager and one sell-side analyst. Fort Washington Investment Advisors in Cincinnati added $1 million of the company's 10.75% notes of '08 (B1/BB) to its portfolio because the bonds are quite senior in the company's capital structure, says Brendan White, manager of $1.1 billion in junk bonds at the firm. White says Fort Washington will add more bonds if the company hits its fourth quarter numbers and business and economic trends show signs of improvement.
United Rentals has suffered due to weakness in non-residential construction spending, which dropped 18% in the second quarter, according to Devin Fitzgerald, analyst at Deutsche Bank Securities, citing data from the Bureau of Economic Analysis. However, he argues that this negative news is already priced into the bonds. United Rentals' 10.75% notes of '08 (B1/BB) were trading in the low 90's last Tuesday, having traded as high as 110 earlier this year. While he sees no near-term catalyst to drive the bonds back up, the analyst believes the downside risk is limited.