B of A High Yield Large-Cap Index up 0.61%; year-to-date loss narrows to 8.19%

By Paul Deckelman

New York, Sept. 17 - The Banc of America High Yield Large Cap Index rose 0.61% in the week ended Thursday (Sept. 12), its fourth consecutive weekly advance. That follows the 0.15% gain seen in the week ended Sept. 5 and continues the positive momentum that's been seen since the latter part of August.

The index's year-to-date loss continued to narrow, plunging to 8.19% in the most recent week from 8.75% the week before. The cumulative loss has decreased over the past four weeks from the peak level of 12.87% reached in the week ended Aug. 15.

The Large Cap Index's spread over Treasuries narrowed to 1,060 basis points from 1,104 basis points the week before, while its yield-to-worst likewise decreased 10 13.87% from 14.22%.

Banc of America analysts noted that the index's turnaround has coincided with a three-week surge in high-yield mutual fund inflows - considered by many to be a key barometer of overall junk market liquidity trends, AMG Data Services reported that in the week ended this past Wednesday, $186.6 million more came into the mutual funds then left them - and that over $2 billion has flowed into the funds in the past three weeks, offsetting nearly 80% of the outflow totals seen during an 11-week long redemption binge that lasted from early June to mid-August.

Even with the strong showing in the past three weeks, the index's cumulative performance is still far worse than where it ended 2001, when the index suffered an approximate 3% loss for the full year. The spread at the end of the year was over 900 basis points off Treasuries and its year-end yield-to-worst was 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.

The index's Ex-Telecom Sub Index, comprising all of the industry sectors other than those in the volatile telecommunications cluster, showed a gain of 0.67% in the most recent week - roughly comparable to the overall index's weekly gain, with a spread over Treasuries of 912 basis points and a yield to worst of 12.36%.

In the early part of the year, the Ex-Telecom grouping far outperformed the overall index, which includes the still-beleaguered telecom sector, and that helped to pace the overall index's strong gains earlier in the year. However, in recent months, even as the overall index has headed south, the Ex-Telecom Sub Index's performance has likewise eroded, and its weekly gains and losses are now essentially on a par with those of the overall index.

In the week ended Thursday, the index tracked 353 issues, down from 355 the week before, while the total market value was $144.696 billion, up from $142.402 billion.

Of the three credit tiers into which B of A divides its index, the middle tier (issues rated BB-, B+ and B, comprising 52.14% of the index) was the best performer, with a 0.81% gain, followed by the bottom tier - bonds rated B- and below, making up 31.53% of the index - which was up 0.61%. Bringing up the rear was the topmost tier-issues rated BB+ and BB (16.33% of the index), which was exactly at the breakeven BB+ point.

In the most recent week, PCS/cellular issues were up an index-best 4.72% buoyed by Nextel Communications Inc.'s announcement early in the week reaffirming its financial guidance and its expectations of meeting or beating its subscriber growth estimates for the year. B of A said the sector got additional good news later in the week on speculation that the FCC is likely to allow winning bidders in the NextWave spectrum re-auction to opt out their obligations, which it called "the latest sign that the FCC is more willing to provide relief to the industry and is becoming more open to industry consolidation. " Nextel's issues firmed anywhere from four to seven points during the week. In the previous week, international cable operators had been the strongest group, up 7.52%.

North American cable companies were the second-best performers in the week ended Thursday, rising 3.01% on across-the board strength in the grouping, with Cablevision unit CSC Holdings Inc.'s 8 1/8% notes due 2009 up five points on the week, while Charter Communications' 8 5/8% notes due 2009 up a point. It was the third straight week that the domestic cablers were on the Top Five list of the best-performing sectors; the week before, they had gained 1.12%.

Technology issues gained 2.33%, as Fairchild Semiconductor's 10½% notes due 2009 rebounded three points from its recent lows, while Lucent Technologies Inc.'s 7¼% notes due 2006 and its 6.45% notes due 2009 both firmed 2½ points on the week. It was a sharp turnaround for the techs, which had been the worst performer of all index sectors the week before, losing 2.67%.

Paper and packaging companies (up 1.63%) and business services (up 1.04%) rounded out the Top Five for the latest week.

On the downside, domestic wireline telecom companies had the biggest loss, down 3.58% as Qwest Communications International Inc. bonds weighed down the sector after Qwest successfully amended its $3.4 billion bank facility and obtained an additional $750 million senior secured credit facility, effectively subordinating all of its bond debt and bringing on a two-notch ratings downgrade from Moody's Investors Service. Qwest Capital Funding's 7¼% notes due 2011 fell 2½ points on the week.

It was the second straight week that the domestic wireline credits were on the Bottom Five list of the worst-performing sectors in the index; the week before, they had lost 0.50%, while the technology issues, as already mentioned, had been the worst-performing sector of all that week.

Consumer non-durable credits were down 2.14% in the week ended Thursday on weakness of textile maker Westpoint Stevens Inc., whose 7 7/8% notes dropped nine points. It was a comedown for the sector, which the week before had been in the Top Five with a 1.32% gain.

International cable operators lost 1.84% in the latest week, as British Sky Broadcasting's 8.2% notes due 2009 and its 6 7/8% notes due 2009 both slipped four points. The week before, as already noted, the global cablers had been the best-performing sector of all.

Utilities (down 1.45%) and transportation (off 0.48%) rounded out the Bottom Five list in the latest week for a second straight week; in the week ended Sept. 5, they had been down 2.38% and 1.61%, respectively.

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