B of A High Yield Large-Cap Index up 2.24% in week; YTD loss slashed to 0.02%

By Paul Deckelman

New York, March 13 - The Banc of America High Yield Large Cap Index jumped 2.24% in the week ended March 8, its second consecutive weekly advance and the first sizable gain in a number of weeks. That big advance followed on heels of the 0.17% rise seen in the week ended Feb. 28, which had been the first gain recorded after four previous weeks of losses in late January and most of February.

That huge gain in the most recent week sharply cut the index's year-to-date loss to just 0.02% from 2.21% the previous week. The index had started the year strongly, with three consecutive weeks of sizable gains swelling the year-to-date return, before the market gauge first turned uncertain for several weeks and then, solidly negative, before going back on the upside the past two weeks.

In the most recent week, the index's spread over Treasuries narrowed markedly, to 808 basis points from 891 basis points the week before, while its yield-to-worst likewise improved considerably, to 12.77% from 13.26%.

The latest gain puts the index back on pace to continue to show a significant overall improvement from where it stood at the end of 2001, when it lost about 3% overall for the year and 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 347 issues with a total market valuation of $143.871 billion, well up from 341 worth $138.053 billion in the week ended Feb. 28.

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 (24.18% of the index) - which led the way with a 3.22% advance. Next was the middle tier (issues rated BB-, B+ and B, comprising 56.98% of the index), which was up 2.19%. The top credit tier - issues rated BB+ and BB (18.84% of the index) - brought up the rear with a 1.14% gain.

In the most recent week, almost all of the specific industry sectors turned in positive results, but the best performer was the PCS/cellular grouping, which was up 8.93%, mainly on the strength of communications antenna operator Crown Castle International and wireless provider Nextel Communications Inc. Crown Castle reported fourth-quarter results within the range of guidance, pushing its zero-coupon/10.375% senior discount notes due 2011 up nearly 17 points on the week. Meantime, Nextel firmed alongside Crown Castle, despite continued concerns about its capital structure and debt burden, with its zero-coupon/9.95% senior discount notes due 2008 up more than eight points on the week. In the previous week, the utilities had been the most powerful, up 1.51%.

Domestic wireline telecom was the second-best performer, up 8.73% on positive news from Williams Communications Group, as the Tulsa, Okla.-based long-distance provider's former corporate parent, Williams Companies, agreed to defer certain payments owed to it from Williams Communications until Sept. 15, and also announced that it would pay the scheduled interest on its former unit's WCG Note Trust 8¼% senior notes due 2004. Those developments pushed the Williams Communications 10 7/8% notes due 2009 up three points on the week, to lead the domestic wirelines higher. Just the previous week, the group had lost 6.22%, putting it for a second straight week on the Bottom Five list of the worst-performing industry sectors.

Utilities - which, as already noted, had been the strongest performing sector in the week ended Feb. 28, remained strong in the most recent week, gaining 5.45% as some major names within the sector rose on a combination of recent indications of an improving economy and short covering; AES Corp.'s 9 3/8% notes due 2010, for instance, gained 9.5 points on the week. Transportation issues (up 4.26%) and finance (up 3.75%) rounded out the latest week's Top Five list of best-performing sectors.

On the downside, steel issues plummeted an index-worst 9.52% in the most recent week, reeling from the double downgrade of Murrin Murrin Holding Pty's 9 3/8% senior notes due 2007 by both Moody's Investors Service and Standard & Poor's (B3/B+ to Caa3/CC), and National Steel Corp.'s Chapter 11 filing. It was the second straight week in the Bottom Five for the steelers, who had lost 1.23% the week before.

International cable operators retreated 4.69% as Telewest Communications plc's bonds, like its zero-coupon/9¼% senior notes due 2009 declined three points after Moody's put the U.K.-based company's ratings under review for a possible downgrade. It was the second straight week among the Bottom Five for the global cablers, who had lost 1.51% the week before.

Satellite services were off 1.87% as issues of Loral Space & Communications Ltd. lost altitude; the satellite firms had been among the strongest performers the week before, when they were up 1.10%.

Showing the relative strength of the high yield market in the latest week, the other two sectors on the Bottom Five list actually did not have losses on the week - only gains which were considerably smaller than those of all of the other issues. Industrials inched up 0.15% on the week, and healthcare showed a modest 0.41% gain.

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