High-yield wireline analysts say there are still opportunities to recover par at a substantial discount in the sector, even though a number of names have tested new lows in recent weeks. Anthony Klarman, analyst at Deutsche Banc Securities, recommends Allegiance Telecom (B3/B) because it is conservatively capitalized and should meet its goals and be EBITDA positive by next year. He declines to set target levels for the bonds. The 12.875% senior notes of '08 were marked at 55 last Tuesday. Alexi Coscoros, analyst at Bear Stearns, says he believes Allegiance paper is a good buy for medium-risk investors, though he favors Time Warner Telecom (B2/B-) because companies such as Allegiance that lease their equipment from larger carriers have yet to prove their business models. Coscoros says blue-chip investors can expect to recover par from Time Warner's bonds. He believes the 10.125% senior notes of '11 could trade up to 78 within a year: they were bid at 68 last Tuesday.
Coscoros and Klarman part company, however, when it comes to XO Communications (Caa1/CCC). Klarman likes the name in spite of its balance-sheet shortcomings. The 10.75% senior notes of '09 were bid at 20 last Tuesday. He argues that the company has shown dramatic improvements in its operating performance, and is encouraged by their recapitalization initiatives. Coscoros dropped coverage of XO, saying it is too highly levered. He reasons that there is a dwindling pool of investors willing to take a look at the company, and that bondholders will only be compensated with additional equity at this point.