High Yield Market Turmoil: Cumulus Media, Allied Waste, and Conseco Take a Beating

Strategic Insights -

Cumulus Media, the third-largest owner of radio stations in the US, saw its shares and bonds plummet last week after its auditor resigned, citing "material weaknesses" in the company's financial controls. Allied Waste's spread on its subordinated notes widened out to 1,000 basis points over Treasurys, while Conseco's rating was downgraded to Ba1 from investment grade Baa3 by Moody's Investors Service.

Key Takeaways:

  • Cumulus Media's shares fell 19%, and its bonds fell 10 points in secondary trading last week after its auditor resigned.
  • Allied Waste's subordinated notes saw a spread widen out to 1,000 basis points over Treasurys.
  • Conseco's rating was downgraded to Ba1 from investment grade Baa3 by Moody's Investors Service, which could have a significant impact on the company's ability to raise funds.
  • High yield and emerging market funds experienced significant outflows in April, with $457.3 million flowing out of high yield debt funds in the week ending April 19.
  • The main cause for outflows remains investors' overreaction to events outside developing economies, says Larry Krohn, chief economist for Latin American equities at Donaldson, Lufkin & Jenrette.
  • The recent outflow trend is a "knee-jerk reaction" on the part of investors, who are fleeing from everything that appears risky.

Statistics:

  • $457.3 million: The amount of outflows from high yield debt funds in the week ending April 19.
  • 10 points: The decline in Cumulus Media's bonds in secondary trading last week.
  • 19%: The decline in Cumulus Media's shares last week.
  • 1,000 basis points: The widening of Allied Waste's spread over Treasurys.
  • 293 million: The amount of revenue from the sale of trash businesses and other assets by Allied Waste last month.

Sources:

  • AMG Data Services
  • PricewaterhouseCoopers
  • PricewaterhouseCoopers audit report
  • Martin Fridson, chief high yield strategist at Merrill Lynch
  • Edward Bozaan, portfolio manager at Waterford Partners LLC
  • Mohamed El-Erian, portfolio manager at PIMCO
  • Larry Krohn, chief economist for Latin American equities at Donaldson, Lufkin & Jenrette