B of A High Yield Large-Cap Index plunges 2.37% in week; YTD loss widens to 3.25%

By Paul Deckelman

New York, June 18 - The Banc of America High Yield Large Cap Index plummeted by 2.37% in the week ended June 13, its third straight decline and the largest fall so far this year. The previous week, the index had dropped 0.72%, cementing the recent negative trend which has seen the index fall in six weeks out of the last seven.

The latest week's slide sharply widened the index's year-to-date loss to 3.25% from negative 0.90% in the week ended June 6. Since its most recent peak level of 1.62%, back on April 25, the year-to-date measure had already 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 dramatically to 802 basis point from 748 basis points the previous week, while its yield-to-worst was 12.32%, up from 11.86% the week before. The latest retreat still leaves the index somewhat 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.

Since the beginning of the year, while the telecommunications industry has sunk deeper into the doldrums, 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. Banc of America Securities analysts note, however, that in the latest week, the sharp decline spread well beyond the troubled telecoms, with 11 of the 13 broad segments into which it divides the high yield universe covered by the index finishing lower. In the latest week, the Ex-Telecom Subindex lost 2.26%, almost matching the overall index decline, dragged down by the nosedive in the North American cable sector. That sliced its year-to-date return to just 0.28%. The Ex-Telecom Subindex's yield-to-worst widened to 11.12% from 10.68%, and the spread versus Treasuries likewise widened out to 683 basis points from 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 $146.828 billion, down from $149.49 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 top credit tier - issues rated BB+ and BB (18.99% of the index), having the smallest loss, at 0.03%; the middle tier (issues rated BB-, B+ and B, comprising 55.71% of the index) lost 2.28%. The bottom tier - bonds rated B- and below (25.30 % of the Index) tumbled 4.15% , its third-straight week at the bottom following declines of 1.11% and 1.01% in the previous two weeks.

In the most recent week, North American cable operators turned in by far the worst showing of all industry groups, swooning 12.05% on the well-publicized woes of Adelphia Communications Corp. The faltering Coudersport, Pa.-based cable operator's 10¼% notes due 2011 and 10 7/8% notes due 2010 both lost close to 25 points on negative developments, including news reports that Adelphia had kept two sets of books for internal and external reporting, the company's own announcement that subscriber numbers had been overstated, forcing it to restate revenue and cash flow results for 2000 and 2001 downward, and the Chapter 11 filing of its Century Communications subsidiary. In the previous week, the PCS/cellular companies had been the worst performers for a second straight week, when they were down 4.83%.

Domestic wireline phone companies were down 5.54%, second-worst in the index in the latest week, as Level 3 Communications Inc.'s 9 1/8% senior notes due 2008 fell 6 points, AT&T Canada's zero-coupon//9.95% discount notes due 2008 lost half a point to end at just 8 cents on the dollar on the news that corporate parent AT&T Corp. apparently does not plan to absorb AT&T Canada's $4.5 billion of public debt when it buys up the remaining part of the company, and RCN Corp.'s zero-coupon/11 1/8% notes due 2007 eased.

PCS/cellular operators (down 3.08% as Leap Wireless International Inc.'s zero-coupon/14½% notes due 2010 dropped 8 points on news the company may need to raise additional funding to pay down debt, and that it may need either a refinancing or covenant waiver, technology issues (down 3.05%) and utilities (off 1.91%) rounded out the latest week's Bottom Five list of its worst-performing sectors. In the previous week, the PCS issues, as already noted, had been the worst of all sectors, down 4.83%; the tech names and the utilities had both also been in the Bottom Five, with declines of 1.09% and 4.26%, respectively.

On the upside, paper and packaging credits led the small group of sectors turning in a positive finish in the latest week, rising 1.04% on the strength of Crown Cork and Seal, whose 8 3/8% notes due 2005 and 7% notes due 2006 rose 3.5 and 3 points, respectively, after the company announced on June 12 that the Philadelphia Court of Common Pleas had dismissed 376 pending asbestos cases against the company related to a 1963 acquisition. In the previous week, international cable operators had been tops, with a 1.30% gain.

Consumer non-durable companies were up 0.30% as issues of GAP Inc. edged up during the week, the apparel retailer's 6.9% notes due 2007 climbing one point. Non-ferrous metals and mining companies (up 0.20% as Peabody Energy Corp's 8 7/8% notes due 2008 held steady), steelers (up 0.18% as AK Steel Corp.'s 9 1/8% notes due 2006 remained unchanged) and satellite services (up 0.04%) rounded out the Top Five list of the best-performing sectors for the most recent week. The week before, consumer non-durables had been in the Bottom Five group with a 0.56% loss, while-ferrous metals and mining was in the Top Five with a 0.67% advance. The latest week marks the third straight week the sector has been among the best finishers.

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