B of A High Yield Large-Cap Index falls 1.18%; YTD loss widens to 11.90%

By Paul Deckelman

New York, August 13 - The Banc of America High Yield Large Cap Index rose fell 1.18% in the week ended Aug. 8, returning to its recent negative mode following the 0.26% gain recorded in the week ended Aug. 1. The index's performance has been predominantly negative since around mid-to-late June, including several weeks of sizable losses.

The index's year-to-date loss widened out to 11.90% in the latest week, the biggest cumulative loss to date this year, versus 10.85% 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 1,083 basis points from 1,047 basis points the previous week, while its yield-to-worst likewise grew to 14.45% from 14.17% previously.

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 even worse than those seen at the end of 2001. The year-to-date loss, of course, has for some weeks been far 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 now wider than its year-ending spread of over 900 basis points off Treasuries and its year-end 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 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 telecoms - but that gap has now largely been narrowed, on the strength of sizable 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 second consecutive week, essentially matched the behavior of the overall High Yield Large-Cap Index (after having lagged it for three straight weeks previously). The Subindex, which as the name implies excludes all of the various telecom segments, lost 1.22% in the most recent week, almost the same as the HY Large Cap Index. In the previous week, the Ex-Telecom group had lost 0.24%, 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 a 9.18%% loss from minus 8.04% in the Aug. 1 week.

The non-telecom component's yield-to-worst in the most recent week also widened, to 13.16% from 12.92%, and its spread over Treasuries grew to 954 basis points from 923 bps previously.

In the most recent week, the index tracked 343 issues, the same as the week before. Those issues had a total market value of $131.168 billion, down from $133.004 billion the week before.

All three credit tiers into which B of A divides its index were on the downside in the most recent week Two of the three had been in the black the week before, with the middle tier (issues rated BB-, B+ and B, comprising 56.59% of the index) turning in the worst performance, with a 1.48% loss. That marked a turnaround from the week ended Aug. 1, when the middle tier had led all three credit tiers with a 0.76% gain, but it was a reversion to the pattern seen in the three weeks before that, when the middle tier had been the worst performer,

The telecom-heavy lowest tier (bonds rated B- and below, comprising 24.18% of the index), had the second-weakest showing in the Aug. 8 week, off1.10%. In the previous week, it had been the only one of the three tiers to be in negative territory, down 0.97%. The top credit tier - issues rated BB+ and BB (19.22% of the index) - had a 0.42% loss in the latest week, the smallest of the three groups. That was almost a mirror image of the 0.40% gain, second-best in the index, which it had in the Aug. 1 week.

In the most recent week, transportation issues lost an index-worst 6.78%, as United Airlines' 10¼% notes due 2021 losing 5.5 points after the troubled Number-Two U.S. air carrier reported a decrease in year-over-year total scheduled revenue passenger miles for July of 12.3%, and a capacity decrease of 13.5%. Also aggravating the situation was a Business Week article earlier in the week which said that United's corporate parent, UAL Corp., may file for bankruptcy by year-end. In the week ended Aug. 1, international cable operators had the worst showing, down 12.23%.

The satellite services sector lost 6.51%, second-worst in the most recent week, as Loral Space & Communications Ltd.'s 10% notes due 2006 fell 7 points.

Finance (down 4.61% on a 15.5-point drop in Conseco Inc.'s 9% notes due 2008 after the three major ratings services downgraded the troubled Carmel, Ind.-based insurer's ratings), utilities (off 4.28%) and North American cable (down 3.12%) rounded out the Bottom Five list of the worst-performing sector in the most recent week. The week before, all three had been on the Top Five list of the week's best performing sectors, with finance up 0.86%, utilities up 2.77%, and the domestic cablers up an index-best 6.64%.

On the upside for the latest week, publishing gained 1.52% as Mail-Well Inc.'s 8¾% notes due 2008 advanced 6 points in anticipation of Thursday's announcement that the company had completed the sale of its filing products division. Although the amount of proceeds received were undisclosed, Mail-Well stated the sale is a step toward achieving its strategic plan, which involves reducing debt. In the previous week, as already noted, the North American cable sector had been the strongest industry grouping, up 6.64%.

International cable was the second-strongest segment in the week ended Aug. 8, up 1.07% as British Sky Broadcasting reported its first quarterly profit in three years, causing its 8.2% notes due 2009 to firm five points. As previously noted, the global cable sector had been the worst of all sectors with a 12.23% slide in the Aug. 1 week, which had been its third straight week as part of the Bottom Five.

Healthcare (up 0.60% as Healthsouth Corp.'s second- quarter results pushed its 10¾% notes due 2008 up three points), domestic wireline telecom operators (up 0.50%) and consumer non-durable goods companies (up 0.05%) rounded out the Top Five for the latest week; it was the second straight week in the Top Five for the domestic wirelines, which had made it the week before with a 3.10% gain, while healthcare had previously been in the Bottom Five with a 1.31% loss.

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