High-yield investors are increasingly looking at high-grade issues in the secondary market, finding that in many cases, they offer an opportunity to move up in credit quality while picking up extra yield. Ben Renshaw, an analyst at MacKay Shields who follows the healthcare and media sectors, says the volatility in the cable sector associated with the travails of Adelphia Communications has made high-grade names such as Cox Communications (Baa2/BBB), Comcast Corp. (Ba1/BBB-), Cablevision Systems Corp. (Ba3/BB- senior subordinated) and AOL Time Warner (Baa1/BBB+) worth a look. "You've got single-B healthcare names trading in line with triple-B cable and media names," he notes, pointing to Triad Hospitals 8.75% notes of '09 (B1/B-), which were trading at 266 basis points over Treasuries last Thursday, while the Cox 6.75% notes of '11 were 265 basis points off the curve. He says MacKay Shields is still determining in which of the four cable names it will invest.
Federated Investors is also beginning to look at high-grade cable issues. Mark Durbiano, portfolio manager at the Pittsburgh money manager, says he has more triple-B credits under management than at any time in his 20-year career. The firm has already added to names such as Georgia Pacific (Ba1/BBB-) and high-grade automakers. "Ratings agencies are being much more proactive in downgrading companies, and certain high-grade investors are thinking, 'Boy, who's next? I'm gonna sell these things before they fall any further.' That can create opportunities," he says.