Gimme Credit, an independent bond research firm, on Wednesday released its Thanksgiving “bottom 10” list of companies whose bonds are most likely to underperform.
They include Sara Lee, maker of cheesecake, underwear and processed meats; Time Warner, the media group; Tyco, the manufacturing conglomerate; and
telecommunications group Vodafone.
Such a list might conflict with that of a stock-picker. Gimme Credit’s “ten turkeys” include some – including Tyco – it thinks might indulge in “shareholder-friendly” activities that boost share prices at the expense of bondholders.
“As we look back on the year we want to thank those companies that did not announce [a leveraged buyout], did not do a leveraged recapitalisation, and did not report results well below expectations,” Gimme Credit said.
The first two of these three are viewed by bond investors as friendly to shareholders but potentially damaging to creditors, along with share buybacks and dividends. The last - unexpectedly weak earnings - would generally have an adverse effect on both shareholders and bondholders.
Sara Lee, according to Gimme Credit, is likely to disappoint the market with its operating results as it reorganises itself. And with asset sales falling behind expectations, “debt reduction could take a back seat to aggressive share repurchases”.
Share repurchases are also a potential culprit at Time Warner. Gimme Credit says leverage is likely to increase because cash flow will be insufficient to cover the company’s planned share buybacks, dividends and acquisitions.