B of A High Yield Large-Cap Index down 0.72% in week; YTD loss widens to 0.90%

By Paul Deckelman

New York, June 11 - The Banc of America High Yield Large Cap Index dropped 0.72% in the week ended June 6. Coming on the heels of the previous week's 0.21% easing, it marked a continuation of the recent negative trend which has seen the index fall in five weeks out of the last six.

The latest week's erosion widened the index's year-to-date loss to 0.90% from negative 0.18% in the week ended May 30. Since its most recent peak level of 1.62%, back on April 25, the year-to-date measure has pretty much headed steadily southward, but for a short-lived foray back upward in the week ended May 23.

The index's spread over Treasuries widened a bit to 748 basis points from 736 basis points the previous week, while its yield-to-worst was 11.86%, up marginally from 11.80% the week before. Even with the latest retreat, however, 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 outperformed the telcos, and thus, continues to also outperform the overall Large Cap Index, although by a lesser margin than its advantage over the beleaguered phone firms. However, even this component was on the downside in the June 6 week, dropping back 0.44% due to weakness in the utilities/independent power producers sector. The Ex-Telecom Subindex now posts a yield-to-worst of 10.68% and a spread over Treasuries of 631 basis points.

In the most recent week, the index tracked 349 issues, the same as the previous week, having a total market value of $149.49 billion, down slightly from $150.688 billion the week before.

All of the three credit tiers into which B of A divides its index lost ground in the most recent week, with the middle tier (issues rated BB-, B+ and B, comprising 54.41% of the index) losing the least, down 0.57%. The top credit tier - issues rated BB+ and BB (18.66% of the index), followed with a 0.66% decline, while the bottom tier - bonds rated B- and below (26.93 % of the index) clearly lagged behind, with a 1.01% downturn in the June 6 week. That followed another index-worst 1.11% drop the week before.

In the most recent week, PCS/cellular repeated as the worst loser, down 4.83% with what B of A analysts termed "continued weakness across the board. The sector traded down further at the end of the week after news of a sharp downward subscriber revision at Sprint PCS affiliate, AirGate PCS." The Atlanta-based PCS provider's 13½% notes due 2009 plummeted a total of 23.5 points over the week, including a fall of close to 10 points even before the negative subscriber news was released on Thursday. Rural cellular carriers fell in sympathy, with American Cellular's 9½% notes due 2009 retreating four points and Rural Cellular's 9¾% notes of due 2010 down 11 points over the week. Nextel Communications Inc.'s issues traded down as well, with its benchmark 9 3/8% notes due 2009 and its zero-coupon/9.95% notes due 2008 both down 3.5 points. In the week ended May 30, the PCS group had led all losers with a 1.47% decline.

Utilities were down 4.26% in the latest week, as AES Corp. and Calpine Corp. both fell sharply; AES' 9 3/8% notes due 2010 lost 8.5 points as its senior unsecured debt rating was downgraded by Standard & Poor's one notch to BB-. Calpine's 8½% notes due 2011 also traded down, by 5.25 points.

Technology issues - which had led all sectors in the week ended May 30, with a 0.70% gain - lost 1.09% in the latest week, on negative news regarding major tech names, such as Amkor Technology, whose 9¼% notes due 2005 lost 5.5 points, and Solectron Corp.'s 9 5/8% notes due 2009 traded down 3 points. The techs had been among the index's leaders in the previous four weeks, culminating with its index-best performance in the May 30 week.

Consumer non-durables companies (down 0.56%) and chemicals (down 0.39%) rounded out the Bottom Five list of the worst-performing sectors in the most recent week.

On the upside, international cable operators posted a 1.30% gain to lead all sectors, as Telewest Communications plc's issues were up 1-1.5 points. In the previous week, the sector had lost 0.74% and was in the Bottom Five. As already noted, technology issues had been the leading sector in the May 30 week, although they tumbled into the Bottom Five in the June 6 week.

Non-ferrous metals and mining companies were up 0.67% in the latest week, as Glencore Nickel Pty.'s 9% notes due 2014 rose 3.5 points on the week. The group had also been on the Top Five list of the strongest performing sectors the week before, when it was up 0.35%.

Lodging names were up 0.49%, as the sector "regained some ground lost in the previous weeks," B of A said, as Felcor Lodging LP's 8½% notes due 2011 climbed a half a point, while Host Marriott LP's 7 7/8% notes due 2008 also gained half a point. The sector had lost 0.70% the week before to become part of the Bottom Five.

Industrials (up 0.42%) and consumer non-cyclical companies (up 0.29%) rounded out the Top Five for the latest week.

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