High-yield portfolio managers have conflicting views on whether the recent resurgence of smaller high-yield issues in the primary market is a good thing. Michael Collins, high-yield portfolio manager at Prudential Financial, worries that small deals are illiquid, and require more time from the firm's own analysts to understand than they bring in returns. He points to the recent $150 million 9.75% notes of '12 by Alltrista, a home canning equipment company, as an example of a deal that can be a drain on analytical resources: "You don't follow the sale of home canning equipment as part of your regular job." Collins says he cannot rule out small deals, but feels more comfortable investing in fallen angels, particularly Tyco International and Qwest Communications, because they are well-covered and have stable underlying cash flows. He says Prudential has been "in and out" of these names, but would not give details.
Eric Misenheimer, portfolio manager at Northern Trust in Chicago, says higher yield can compensate for the extra work required. He says he did not participate in the Alltrista deal, which he believes offered insufficient yield at 10%. However, deals on the calendar that look more enticing from a yield standpoint are Associated Materials and Johnsondiversey. He says price talk on the latter has been 10-10.25%.
Deals of less than $200 million were difficult to bring last year, but there have already been several in 2002, and more were on the calendar as of last Wednesday. There have even been four deals under $100 million so far this year, according to Thomson Financial. "It's a return to what you saw in the mid- to late-nineties," Misenheimer says, agruing that smaller deals are representative of what high-yield investing is all about. "I have no problem with it. It's a healthy sign that the high-yield community is making relative value decisions, more than just--'this is a hot deal, I've got to be in it.'"