B of A High Yield Large-Cap Index up 0.22% in week; YTD back to slightly positive

By Paul Deckelman

New York, May 28 - The Banc of America High Yield Large Cap Index rose 0.22% in the week ended May 23, its first positive return after three straight weeks on the downside, including the 1.06% loss seen in the week ended May 16. Also back in the black - though just barely - was the year-to-date return, which has now edged up 0.03%, an improvement from the 0.20% cumulative loss seen in the previous week. Since its most recent peak level of 1.62%, back on April 25, the year-to-date measure had headed steadily southward, before finally turning back up in the latest week.

The index's spread over Treasuries narrowed slightly to 731 basis points from 733 basis points the previous week, while its yield-to-worst likewise was marginally lower, at 11.87%, down from 11.93% the week before. 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 23 week, posting a 0.39% gain on the week, for a year-to-date return of 3.16%. The sub-index had a spread over Treasuries of 602 basis points and a yield to worst of 10.56%.

In the most recent week, the index tracked 353 issues with a total market value of $151.706 billion, versus 354 issues valued at $150.745 billion the week before.

Only one of the three credit tiers into which B of A divides its index finished higher in the most recent week - but it was the largest and most influential division, the middle tier (issues rated BB-, B+ and B, comprising 54.34% of the index) - which returned 0.55%. Next came the top credit tier - issues rated BB+ and BB (18.57% of the index) - which was off 0.12%. The lowest tier - bonds rated B- and below (27.09% of the index) - brought up the rear, with a 0.25% decline.

In the most recent week, utility issues were the best performers, up 2.03%, as both Calpine Corp. and CMS Energy Corp., debt recovered from their previous week's lows. Calpine's 8½% senior notes due 2011 advanced 5 points, while CMS's 7½% senior notes due 2009 gained 6 points (those gains preceded Friday's news from the company announcements regarding the resignation of CEO William McCormick and the restatement of 2000 and 2001 financial statements, which B of A said pushed the company's notes back down two to four points). The latest week's best-of-index performance was a turnaround for the sector - which had been among the Bottom Five worst performing sectors for three consecutive weeks, including the week ended May 16, when it plunged 3.05%. That week's best performer, the domestic wireline grouping, had been up 4.44%.

North American cable operators were up 1.98% in the latest week, as Adelphia Communications Corp.'s issues rebounded on news perceived as positive by investors - the announcement that four members of the Rigas family had agreed to resign as directors, effectively giving up the family's control over the company. The Rigases also agreed to transfer assets valued at more than $1 billion to Adelphia, which will help offset the estimated $3.1 billion in joint liabilities. Adelphia's 10¼% senior notes due 2011 gained 9 points to end the week at 79. The cablers had been down 5.40% in the week ended May 16, putting them into the Bottom Five that week.

Technology (up 0.68% as Lucent Technologies' 7¼% notes of due 2006 and Amkor Technology Inc.'s 9¼% senior notes, also due 2006, each gained a point to end at 82 and 99, respectively), steel (up 0.48%) and chemicals (up 0.43%) rounded out the Top Five list of the best-performing sectors in the latest week. Tech issues had also been in the Top Five the two previous week, including May 16, when they finished with an 0.95% return. The latest week marked the fourth consecutive week that the steelers had finished in the money; the week before, the group had been up 0.90%.

On the downside, domestic wireline, which, as already noted, was the best performer in the May 16 week, with a 4.44% gain (in fact, if had been on top of the list for two straight weeks) went from first to worst, posting a 5.28% loss in the May 23 week, as Metromedia Fiber Network's 10% senior notes due 2009 and its 10% senior notes due 2006 - already trading in the single digits - both lost 5 points after the company filed for bankruptcy protection on May 20. The week before, international wireless operators had been the worst losers, down 5.69%; in the latest week, that sector wasn't the absolute worst, but was still in the Bottom Five, off 1.16%.

International cable operators lost 3.37%, as declining issues of Telewest Communications plc and NTL Inc. weighted down the global cablers; Telewest's 11¼% senior notes due 2008 dropped four-and-a-half points, while NTL's 9¾% notes due 2008 retreated a point-and-a-half.

Publishing companies (down 1.51%) and satellite services (off 1.19%) rounded out the Bottom Five list for the latest week; the satellite grouping had also been on the list the week before, when it lost 1.85%.

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