According to today’s news reports, Japan’s SoftBank may be close to making a significant investment in, or possibly buying a controlling stake in, Sprint Nextel. This investment, if it occurred, could be of potentially significant benefit to Sprint and Sprint Nextel bondholders, according to Market Vectors’ fixed income portfolio manager Fran Rodilosso.
“As the third-largest carrier in the U.S., Sprint has suffered trying to compete against behemoths AT&T and Verizon. However, as an acquisition target, the company offers a foreign competitor like SoftBank critical mass to enter into this market,” said Rodilosso. “This news is also of great interest to investors in ‘fallen angels,’ a category of high-yield debt, which currently includes Sprint/Sprint Nextel.”
The term “Fallen Angel” refers to corporate bonds that were once investment grade, but have since been downgraded to non-investment grade; i.e., high-yield, bond status.
Many “fallen angels” are bonds issued by companies, which tend to be larger than typical high-yield issuers, and which generally have name brand recognition, a significant market position, and/or large asset bases. The value of these companies’ tangible and intangible assets may have decreased over time or a company may have taken on too much leverage, resulting in the company’s debt being lowered to below investment grade status.Rodilosso noted that Sprint and Sprint Nextel bonds currently make up approximately 7.5 percent of the BofA Merrill Lynch Fallen Angel Index, which underlies the Market Vectors Fallen Angel High Yield Bond ETF (NYSE Arca: ANGL). “If a deal goes through, given SoftBank’s financial strength relative to Sprint’s, I believe that the ramifications would be positive for Sprint creditors,” said Rodilosso. Most Sprint bonds have moved 5-10 basis points higher this morning on the prospects of an acquisition. Mr. Rodilosso has more than 20 years of senior level experience in emerging markets, high-yield debt research and portfolio management. In addition to ANGL, he also manages six other Market Vectors fixed income ETFs: Emerging Markets Local Currency Bond ETF (NYSE Arca: EMLC), International High Yield Bond ETF (NYSE Arca: IHY), Emerging Markets High Yield Bond ETF (NYSE Arca: HYEM) , LatAm Aggregate Bond ETF (NYSE Arca: BONO) , Renminbi Bond ETF (NYSE Arca: CHLC) and Investment Grade Floating Rate ETF (NYSE Arca: FLTR). Van Eck Associates Corporation does not provide tax, legal or accounting advice. Investors should discuss their individual circumstances with appropriate professionals before making any decisions. This information should not be construed as sales or marketing material or an offer or solicitation for the purchase or sale of any financial instrument, product or service.
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