CBO Buyers and Coupon Income Help the Secondary

The secondary high yield market gained slightly last week, mostly on the strength of a few recent new issues that were well received. Aside from that handful of sought-after deals, there were relatively few new offers, while at the same time there was money in the market looking to be put to work.

According to AMG Data Services, high yield mutual funds received a cash inflow of $62.4 million for the week ending Nov. 3, the latest time frame available. That stems the dramatic cash outflow from the funds over recent weeks, at least temporarily. But two separate high yield investors questioned last week just how accurately the AMG numbers reflect the real buying power in the market. In short, the numbers may be understating the case.

That is largely due to two factors: first, high yield buyers other than mutual funds, such as CBOs, finding themselves more of a force in the market; and second, coupon income adding to the high yield coffers.

One buy-sider said that since May and June were big months for new issues, then November and December are big months for the mutual funds to receive coupon income. So even if the official cash flow numbers are flat, coupon income alone can account for more buying power in the secondary market.

Allied Waste reported last week that it would miss earnings expectations, and the 10% notes fell to the mid 80s from 92, but then rallied again to 91.

ICO Global saw its 15% notes increase dramatically on the news that Craig McCaw won his bid to invest $1.2 billion (see story on p. 1). The bonds rose to 50, up from 15 last month.

And Fruit of the Loom's 7% notes saw a marginal increase of almost one point - 0.875% of one point, to be exact - to 36. And that came after a loss of $2.49 a share for the third quarter, compared with a net income of 70 cents a share in the year-ago period.

The increase on the notes, however, came on the news that the company received a waiver from its bank lenders through Jan. 31, 2000.