Bloomberg News

Sprint, Dynegy Among Riskiest Junk Companies, Gimme Credit Says

October 24, 2011

Oct. 24 (Bloomberg) -- Dynegy Inc., the third-largest independent U.S. power producer, and wireless operator Sprint Nextel Corp. are likely to underperform the high-yield bond market in the coming months, according to Gimme Credit.

Beazer Homes USA Inc. and Claire’s Stores Inc. are included in the list of 10 companies that the New York-based independent debt-research firm identified as the riskiest high-yield issuers.

High-yield, high-risk bonds, graded below Baa3 by Moody’s Investors Service and lower than BBB- by Standard & Poor’s, have lost 4.1 percent since the end of July, according to Bank of America Merrill Lynch index data, as concern has grown that the European sovereign debt crisis could derail the global economic recovery. Issuance of U.S. junk-rated debt has fallen to $800 million in October from $6.1 billion the previous month, and from $34.6 billion last October, according to data compiled by Bloomberg.

“Although the high-yield market has rebounded off recent lows, there remains considerable uncertainty about the domestic economy, the European credit crisis and slowing growth in emerging markets,” Kimberly Noland, head of high-yield research at Gimme Credit wrote in a report that was widely released today. “If what appears to be a modest economic recovery stalls, these companies are particularly vulnerable due to their weak fundamentals.”

Realogy Bonds Decline

The report also cited Realogy Corp., the real-estate services company owned by Leon Black’s Apollo Global Management LLC, as a company likely to underperform the junk market.

Realogy’s $492 million of 11.5 percent senior unsecured bonds due April 2017 have fallen 22.5 cents since June to 74.25 cents on the dollar, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. Those bonds traded as high as 103.5 cents on July 7 this year.

“The leveraged buyout of Realogy left high-yield investors with bonds in a business with shaky fundamentals and an overleveraged balance sheet,” Evan Mann, senior high-yield analyst, said in the report.

Hovnanian Enterprises Inc., Springleaf Finance Corp., Supervalu Inc., Vanguard Health Systems Inc. and Windstream Corp. were the other companies included on the list.

--Editors: John Parry, Mitchell Martin

To contact the reporter on this story: Richard Bravo in New York at rbravo5@bloomberg.net.

To contact the editor responsible for this story: Faris Khan at fkhan33@bloomberg.net.


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