Bankrupt bond returns surge in May - Moody's
NEW YORK, June 13 (Reuters) - Moody's Bankrupt Bond Index, which tracks $39.3 billion of bonds of companies that have filed for bankruptcy protection, surged 13.9 percent in May, the credit rating agency said on Wednesday.
The gains pushed the index into positive territory for the first time this year, with a year-to-date return of 10 percent.
``I don't think we're at the bottom, but I think a bottom is within sight within the year,'' said David Hamilton, Moody's head of default research.
Indeed, Moody's earlier this week said it expects junk bond defaults to continue rising this year and peak at 10.1 percent in January and February of next year.
The bankrupt bond index, which includes most actively traded bankrupt bonds, has grown by 130 percent over the past year, Hamilton said. It stood at about $17 billion a year ago.
Moody's said much of May's strong performance was linked to gains in bonds of Finova Capital Corp., whose parent Finova Group Inc. (NYSE:FNV - news) filed for bankruptcy protection in March.
Finova's bonds rose on reports that Berkadia LLC, a joint venture between Warren Buffett's Berkshire Hathaway Inc. (NYSE:BRKa - news) and Leucadia National Corp. (NYSE:LUK - news), was preparing to sweeten terms for Finova creditors on its proposed bailout of the consumer finance company.
Surprisingly, bonds in the embattled telecommunications sector were among May's gainers.
Bonds of Winstar Communications Inc., e.spire Communications Inc. (Nasdaq:ESPI - news) and ICG Communications Inc. unit ICG Holdings Inc. all rose in May, Moody's said.
Strategists said distressed telecom bonds overall were mostly unchanged in May and the improvement was likely company-specific.
Overall, the ratio of advancing bankrupt bonds relative to declining ones was noticeably higher in May, Moody's said. Ninety-two bonds gained in price, compared with only 26 posting losses.
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