Despite a recent 20 basis point rally in the benchmarkRaytheon 6.75% notes of '07 (Baa3/BB-), some analysts are doubtful the bonds of the giant defense and electric component manufacturer can sustain that strength. The rally followed news that the company will issue close to $1 billion in equity, but concerns continue over a lawsuit and possible Securities and Exchange Commission investigation involving the sale of a business to Washington Group International last year.
"There are still concerns over the Washington Group fiasco," says Domenick Fumai, senior fixed income analyst at BNP Paribas, who believes spreads could widen if bad news continues on that front. A Raytheon spokesman declined comment.
Ed Oppedisano, director of fixed income research at Deutsche Banc Alex.Brown, says the recent equity offering announcement "sent a signal to bondholders that management is serious about maintaining its investment grade rating." But, he still expects the rally to stall in the near term due to the litigation. While Raytheon has said publicly that it does not expect costs to exceed $450 million, Oppedisano says it's not a sure thing. "It's tough to handicap what the size of the judgement will be."