B of A High Yield Large-Cap Index falls 1.10%; year-to-date loss widens to 12.87%

By Paul Deckelman

New York, August 20 - The Banc of America High Yield Large Cap Index fell 1.10% in the week ended Aug. 15, the second straight large loss for the index following the 1.18% downturn in the week ended Aug. 8. Although there have been individual weeks in which the index finished in positive territory, its performance has been predominantly negative since around mid-to-late June, including several weeks of sizable losses of a full percentage point or more.

The index's year-to-date loss widened out to 12.87% in the latest week, the biggest cumulative loss to date this year, versus 11.90% the week before. Since its last recent peak level of a 1.62% gain, seen back on April 25, the year-to-date measure has pretty much headed steadily southward, with the slide really picking up steam in the latter part of June.

The index's spread over Treasuries ballooned out to 1,124 basis points from 1,083 basis points the previous week, while its yield-to-worst likewise grew to 14.75% from 14.45% previously. Both are the highest they've been all year.

With its strong start at the beginning of the year now just a faint and distant memory, the index has over the past two months been dragged down to levels far worse than those seen at the end of 2001. The year-to-date loss, of course, has for some weeks been much, much wider than the approximately 3% loss the index had posted for all of last year, while the current spread and yield-to- worst figures are also now considerably wider than its year-ending spread of over 900 basis points off Treasuries and its year-end yield-to-worst of over 13.50%, with the gap steadily growing. Banc of America sees the index, which tracks issues of $300 million and over, as a reliable barometer of trends in the overall high yield market of over $500 billion.

For most of the weeks since the beginning of the year, while the telecommunications industry was sinking deeper into the doldrums, the index's non-telecom component had strongly outperformed the telcos - but that gap has now largely been eradicated, on the strength of sizeable telecom gains over a two-week period last month, as well as by the recent spread of investor angst into sectors other than the hard-hit telecoms.

In the latest week, the Ex-Telecom Subindex, for a third consecutive week, essentially matched the behavior of the overall High Yield Large-Cap Index (after having actually lagged it for three straight weeks previously). The Subindex, which as the name implies excludes all of the various telecom segments, lost 1.08% in the most recent week, almost the same as the HY Large Cap Index. In the previous week, the Ex-Telecom group had lost 1.22%, again around the same as the overall index. The non-telecom segment's year-to-date return - which had been strongly positive from the beginning of the year until the large slides in the index seen from the middle of June on - worsened markedly in the latest week to over a 10% loss from minus 9.18%% in the Aug. 8 week.

The non-telecom component's yield-to-worst in the most recent week also widened, to 13.44% from 13.16%, and its spread over Treasuries grew to 993 basis points from 954 basis points previously.

In the most recent week, the index tracked 342 issues having a total market value of $128.849 billion, down from 343 issues the week before with a value of $131.168 billion.

For a second consecutive week, all three of the credit tiers into which B of A divides its index were on the downside in the most recent week, with the telecom-heavy lowest tier (bonds rated B- and below, comprising 24.05% of the index), having the worst showing, losing 1.71%. The week before, that grouping had the second-weakest showing, off1.10%.

The middle tier (issues rated BB-, B+ and B, comprising 58.58% of the index) had the next largest loss in the most recent week, when it was down 1.02%; the week before, the middle tier had been the worst laggard, with a 1.48% loss. For a second straight week, the top credit tier - issues rated BB+ and BB, 17.37% of the index - had the smallest loss of the three BB+ groups, 0.53%, versus a 0.42% deficit the week before.

In the most recent week, transportation issues repeated as the worst performer, losing an astonishing 14.68% as airline bonds plunged after US Airways Group Inc. filed for bankruptcy on Sunday. Subsequently, news emerged that United Airlines may also consider a similar filing later this year. UAL's 11.21% notes due 2014 lost 15 points but the carnage was seen throughout the whole airline group, with Delta Air Lines' 7.7% notes due 2005 falling 18 points on the week. In the previous week, the transportation issues - again dragged down by the airlines - had lost an index-worst 6.78%.

Entertainment was the second-worst sector, down 6.31% on weakness in Six Flags Inc. bonds. The company reported second-quarter results that were below expectations and stated that its full year profit target would not be met. Its 8 7/8% notes due 2010 lost almost 14 points on the week.

Consumer non-durables (down 6.08% as Levi Strauss & Co.'s 7% notes due 2006 dropped 19 points on a Moody's Investors Service downgrade to Caa1 from B2), satellite services (down 2.85%) and domestic wireline operators (off 2.66%) rounded out the Bottom Five list of the worst-performing sectors in the most recent week; both the consumer non-durables group and the domestic wireline segment had been on the Top Five list of the best-performing sectors the previous week, with gains of 0.05% and 0.50%, respectively, while the satellite services group had lost 6.51% to end up on the Bottom Five list that week.

On the upside, utilities gained 1.85% in the most recent week, as news of the International Monetary Fund's aid package to Brazil helped AES Corp. bonds (its 9 3/8% notes due 2010 firmed 1.5 points), while Calpine Corp. bonds bounced from their previous week's lows, its 8½% notes due 2011 gained 2.75 points. In the previous week, publishing had led all comers with a 1.52% gain, while utilities lost 4.28% to wind up in the Bottom Five.

International cable operators gained 1.76% in the week ended Aug. 15, second-best in the index, on continued strength in British Sky Broadcasting's 8.2% notes due 2009 and 6 7/8% notes due 2009, which were up approximately a point each, ending at around 100 and 94, respectively. The global cablers had also been the second-strongest grouping the week before, when they were up 1.07%.

North American cable (up 0.59% as Charter Communications reported solid results, pushing its 8 5/8% notes due 2009 up 1.25 points), energy issues (up 0.07%) and lodging (down a modest 0.12%, far less than most other sectors) rounded out the Top Five for the latest week; North American cable had lost 3.12% the week before, landing in the Bottom Five.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.