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Strategies & Market Trends : IPPs and Merchant Energy Co.s -- Ignore unavailable to you. Want to Upgrade?

To: majaman1978 who wrote (832)	12/28/2002 12:30:12 PM
From: KyrosL	Read Replies (2) \| Respond to of 3358

My preference would be for longer dated subsidiary (as opposed to parent) bonds. I only bought the 9.125% 2031 Mirant Americas Generating. Longer dated bonds usually sell for less than short dated bonds, so in case of a takeover they will appreciate more -- I think a takeover is likely in the next year or two. Subsidiary bonds are also rated slightly higher than the parent (Mirant) bonds, and they don't cost much more, if any. The 2031s are rated Ba3 by Moody's versus B1 for the parent bonds. In any case what is startling in this sector is that the yield spreads compared to Treasuries is so wide, compared to similarly rated industrial bonds -- which are also very high historically. 30 year Ba3 industrial bonds pay 8% more than similar Treasuries. The Mirant bonds pay 13% more. And this even though the ratings agencies have been particularly eager to lower ratings in this sector (due to Enron) compared to other sectors. So, I think we have a major market inefficiency here. Kyros