Last week was modestly firmer through Thursday, say traders, with continued strong new issuance. Gaming, energy, and auto suppliers were among the better performing sectors, while wireless was flat overall. Here was selected action.
Riverwood International Drops After Downgrade
Riverwood International's 10.625% senior notes of '07 (B3/CCC+) were down a point to 105 after a downgrade by Standard & Poor's.
Craig Wilson, analyst at Scotia Capital, believes the senior notes should not have been downgraded. "They're a wonderful company--wonderfully managed. They've got great EBITDA margins and very stable cash flows," he says. He argues that the market agrees, as the bonds "barely moved" after the downgrade.
Technology Names Trade Up
Technology names were slightly improved last week. Flextronics International's 9.875% notes of '10 (Ba2/BB-) were up from 107.5 to 108. Bids on the Solectron 9.625% notes of '09 (Ba1/BB) were up a point to 102.5.
With the exception of the telecom equipment manufacturers, a modest recovery appears to be underway in the technology sector, says Ziki Slav, analyst at DrKW Grantchester.
However, he is not bullish on either credit. Flextronics, he argues, may choose to buy back stock to elevate its share price, and acquisitions are also a real risk for bondholders. He rates Solectron's straight debt a "hold," arguing that the company's reliance on the telecom sector casts doubt on future earnings potential.
IPPs Power Up
Bonds of independent power producers AES Corp. and Calpine Corp. were improved. Calpine's 8.5% notes of '11 (B1/B+) rose from 85 to 87, while bids on the AES 9.375% notes of '10 (Ba1/BB) rose a point to 85.
A sell-side analyst says he is negative on both companies, as he does not see them trading in the 90s. "AES is up because every day the market is expecting them to announce some catastrophe, and when that doesn't happen, they're encouraged." He also says that the company's reaffirmation of its cash flow projections for this year says that it will have access to the capital markets. As for Calpine, he says a recent equity offering has improved the company's liquidity position.
Clark Orsky, analyst at KDP Investment Advisors, says AES Corp. is "probably getting to be fairly valued," given recent gains in the credit. He has a buy on Calpine, however, arguing that its resolution of contract negotiations with the state of California is a positive for the credit.