The high-yield market was softer overall last week, though cable credits (ex-Adelphia) enjoyed a slight rebound. Early in the week, rumors continued to circulate that Paul Allen, Charter Communications largest shareholder, might buy back some of the company's bonds, or even take it private. Here was some other action:
CMS Energy Has Volatile Week
CMS Energy saw its 8.5% notes of '11 (B3/BB) drop 10 points to a 77 bid, before returning to a bid of 84.5 by last Thursday afternoon. Nate Kehm, portfolio manager at Federated Investors, attributes the volatility to nervousness over a revolving bank loan that comes due in July. Kehm believes the asset sale of the company's two utilities far exceeds the debt outstanding. He says there are a lot of liquidity issues at the holding company level, but continues to believe they will be resolved in a month or so. Federated owns the bonds, but will not add exposure, as it is already fully invested, says Kehm.
Wireless Woes Continue
Weakness in investment-grade wireless names caused continued carnage in the junk market. Even the more resilient wireless names such as Dobson Communications and Rogers Communications were down three points each. Dobson's 10.875% senior notes of '10 hit 70, while Rogers' 8.875% notes of '07 dropped to 72. Sprint affiliates were crushed, and traders say investors seemed to have given up on the sub-sector as trading became light in names such as AirGate PCS, whose 10.5% notes of '09 (Caa1/CCC) dropped seven points to 28.
Tech Cyclicals Still Slumping
Amkor Technologies' 9.25% notes of '08 (B1/B+) dropped three points, Avaya's 11.125% notes of '09 (Ba2/BB-) fell 2.5 points to 93.5 and Solectron Corp.'s 9.625% notes of '09 (Ba3/BB) slipped four points to 92.5, having traded at par just two weeks ago.
The fate of these companies, in particular Solectron and Amkor, depends largely on the economy as a whole, says Matt Zolin, analyst at Lehman Brothers, and a second-teamer on Institutional Investor's 2001 All-America Fixed-Income Research Team. Negative earnings pre-announcements from Solectron's two biggest customers, Nortel Networks and Lucent Tecnologies, have dragged the credit down, just as the woes of Intel Corporation, have hurt Amkor.