B of A High Yield Large-Cap Index up 0.72% in week; YTD swings to 0.53% gain

By Paul Deckelman

New York, April 15 - The Banc of America High Yield Large Cap Index rose 0.72% in the week ended April 11, improving upon the 0.16% rise seen in the week ended April 4. The latest week's gain swung the index's year-to-date return back into the black, at 0.53%, from a 0.18% cumulative loss the week before.

In the most recent week, the index's spread over Treasuries stood 752 basis points and its yield-to-worst was 12.21%, narrowing from 774 basis points and 12.53%, respectively, in the April 4 week.

Even though the telecommunications sector continues to mostly struggle, the index is drawing strength from its non-telecom component, B of A's analysts said. Its Ex-Telecom sub-index outperformed the overall index in the April 11 week, posting a total return of 0.98%. On a year-to-date basis, the Ex-Telecom sub-index is up a healthy 3.39%, and now offers a yield-to-worst of 10.92%, and a spread of 624 bps.

Even with its recently somewhat inconsistent performance, zig-zagging back and forth between positive and negative (after having begun the year strongly with three straight weeks of sizable gains), the index continues to show a significant overall improvement 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.

In the most recent week, the index tracked 349 issues with a total market value of $149.583 billion, versus 354 issues with a total market valuation of $147.944 billion the week before.

The best performer among the three credit tiers into which B of A divides its index was the lowest tier - bonds rated B- and below (26.16% of the index), which was up 1.52%. Next was the top credit tier - issues rated BB+ and BB (18.55% of the index), with a gain of 0.49%, which just barely nosed out the middle tier (issues rated BB-, B+ and B, comprising 55.29% of the index), which gained 0.46%.

In the most recent week, international cable operators were the strongest performers for a second straight week, rising 5.96%. B of A analysts noted the sector's continued rise "despite negative press regarding [NTL Inc.'s] quality of services, issues . . . continued to firm as details for the company's balance sheet restructuring developed." They quoted NTL's zero-coupon/9.75% notes due 2008 having firmed two-and-a-half points during the week, while a rival Eurocabler, Telewest Communications' 11% notes due 2007, also buoyed the sector with a five-point rise. The week before, international cable had led all sectors with a 4.53% gain, also on the strength of NTL.

Finance was the second best performer in the most recent week, up 3.59% on the strength of Conseco Inc., whose 10¾% notes due 2008 firmed nine points after the Carmel, Ind.-based insurer's auditors released a positive report regarding the company's ability to cover its debt obligations; and by Finova Group, which completed the sale of most of its franchise finance portfolio to General Electric Corp.'s GE Capital unit and which plans to continue asset sales in its franchise finance portfolio to pay down debt. The Scottsdale, Ariz.-based lender's 7½% notes due 2009 ended the week up a point.

Utilities (up 2.92% on three-point gains in AES Corp. and Calpine Corp. bonds), domestic wireline operators (up 2.03%) and paper and packaging issues (up 1.47%) rounded out the list of the Top Five best performing sectors in the most recent week. In the week ended April 4, the domestic wireline companies were up 2.65%, second-best in the index, on the strength of Williams Communications Group Inc. and Level 3 Communications Inc. bonds.

On the downside, international wireless was the worst performing sector in the week ended April 11, down 5.46% on weakness in Microcell Communications, whose zero-coupon/14% notes due 2006 plunged to 55. In the previous week, non-ferrous metals and mining had been by far the weakest finisher, dropping 3.79% on a 23-point nosedive by Glencore Nickel Pty. Ltd. debt.

PCS/cellular lost 2.46%, second-worst in the index, as issues of Nextel Communications Inc. retreated after the Reston, Va.-based No. 5 U.S. wireless carrier's ratings were placed on review for possible downgrade by Moody's Investors Service. That caused Nextel's benchmark 9 3/8% senior notes due 2009 and its zero-coupon/10.65% notes due 2007 to drop two-to-three points on the week. It was the second straight week in the Bottom Five grouping of worst performing sectors for the PCS names, which had eased 0.50% the week before.

Publishing (down 1.79% on losses in PRIMEDIA Inc.'s bonds, advertising-dependent media (off 0.28%) and chemical makers (0.04% lower) rounded out the Bottom Five. Ad-dependent media had also been among the laggards the previous week, when the sector was 0.30% lower.

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