B of A High Yield Large-Cap Index down 0.35% in week; YTD gain cut to 0.87%

By Paul Deckelman

New York, May 14 - The Banc of America High Yield Large Cap Index fell 0.35% in the week ended May 9, its second consecutive retreat, following the 0.39% gain seen in the week ended May 2. The two-week skid broke a winning streak that had lasted four weeks through April 25. The latest week's slide narrowed the index's year-to-date return to 0.87% from 1.22% in the previous week. The year-to-date return is well off its recent peak of 1.62%, reached on April 25.

Despite its overall southward direction in the most recent week, the index's spread over Treasuries narrowed to 710 basis points from 732 basis points the previous week, as Treasuries backpedaled in the face of last week's large one-day stock market gain, while the index's yield-to-worst likewise narrowed to 11.70% from 11.97% in the May 2 week.

Even with the modest declines of the past two weeks, the index remains significantly improved from where it stood at the end of 2001, when it lost about 3% overall for the year, posted a spread at year's end of over 900 basis points off Treasuries and a yield-to-worst of over 13.50%. 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 around $600 billion.

As has been the case since the beginning of the year, while the telecommunications industry has kept flailing around, the index's non-telecom component has continued to be a strong prop for the overall index. The Banc of America Ex-Telecom sub-index again outperformed the overall index in the May 9 week, posting a relatively benign 0.16% loss, with a spread over Treasuries of 585 basis points and a yield to worst of 10.42%.

In the most recent week, the index tracked 353 issues with a total market value of $152.674 billion, down from 359 issues with a total market valuation of $153.995 billion the week before.

Two of the three credit tiers into which B of A divides its index were tied for best-performer honors - which, given the week's overall slightly negative tone, meant a smaller loss than the remaining tier. The lowest tier, bonds rated B- and below (24.31% of the index), and the middle tier (issues rated BB-, B+ and B, comprising 56.62% of the index) both were down 0.33% on the week. The top credit tier, issues rated BB+ and BB (19.07% of the index), was off 0.40%.

In the most recent week, international cable operators had the worst showing, falling 4.20%. B of A analysts blamed the tumble on the continued weakness of NTL Inc., which kept sliding after the U.K. telecom giant's pre-arranged Chapter 11 filing on May 8. NTL's 11½% notes due 2006 traded down two-and-a-half points. Sector rival Telewest Communications plc's bonds fell in sympathy, with its 11% notes due 2007 off two points on the week. It was the second straight week on the downside for the Eurocablers, who had dropped 5.06% the week before to land in the Bottom Five grouping of the worst performers. But the absolute worst performer the week before had been the domestic wireline companies, down 9.61% in the May 2 week - that sector's second straight week as the worst performer in the index.

International wireless providers lost 4.04% in the May 9 week, pulled down by Microcell Telecommunications' 14% notes due 2006, which traded down sharply to 35 bid after being downgraded to Caa3 from Caa1 by Moody's Investors Service. It was the third straight week that the international wireless grouping had been in the Bottom Five, following declines of 7.11% the previous week and 0.62% the week before that.

PCS/cellular providers (down 2.81% on weakness in Nextel Communications Inc., whose 9 5/8% notes due 2009 and 9 ½% notes due 2011 dropped about three points, and American Cellular Corp., whose 9 ½% notes due 2009 dipped four points, the latter after a four-notch Moody's downgrade), utilities (1.56% lower) and publishing (down 1.46%) rounded out the Bottom Five in the most recent week. The week before, PCS/cellular had been among the Top Five best performing sectors, with a 0.56% weekly return, while utilities had been near the bottom with a 1.67% loss.

On the upside in the latest week, the domestic wireline sector - which, as noted, had been the lowest of the low in each of the previous two weeks - went from worst to first with a 1.68% gain, attributable to tightening in the high grade telecom sector, which provided support for some high yield wireline credits. The B of A report also noted the firmer tone in Level 3 Communications Inc. paper after the Broomfield, Colo.-based long-haul provider announced an agreement to acquire Software Spectrum Inc., which should allow it to meet certain loan covenants regarding revenue targets. Steel companies had led the index the week before with a 2.11% return.

Technology issues firmed 0.60%, second-best in the Index in the May 9 week, as U.K.-based communications equipment and solutions provider Marconi Corp. plc was better on the company's announcement of an agreement to provide broadband telecom infrastructure in a rural Maryland county and an agreement to provide a turnkey network solution to a Brazilian cellular carrier.

Entertainment (up 0.53% on firmness in Premier Parks Inc.'s zero-coupon/10% notes due 2008 and 9 ¾% notes due 2007), steels (up 0.45%) and consumer non-durables makers (0.44% better) rounded out the Top Five in the latest week; the steelers, as noted, had been the best performer in the whole index in the prior week.

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