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The expanding credit spreads between corporate bonds and treasuries, and in particular between junk bonds and treasuries, have also led arbitrage spreads to widen. Deals that will be financed and closed have spreads that warrant investors' attention. There may be some easy money to be made as a result.
Deals worth looking at, according to
Barron's , include:
- Alltel Corporation (NYSE: AT) trading for $67.80 with take-out price of $71.50-12% annualized rate of return.
- Clear Channel Communications (NYSE: CCU) trading for $37.70 with take-out price of $39.20-10% annualized rate of return.
- First Data Corporation (NYSE: FDC) is selling for $32.65 and has a take-out price of $34-for an 18% annualized return.
- Harrah's Entertainment Inc (NYSE: HET) is selling for $85.25 and has a take offer of $90-14% annualized rate of return.
- Tribune Company (NYSE: TRB) is trading at $29.50 with a take-price at $34-30% annualized return.
- The most attractive arb play from a return perspective is Tribune but that deal also carries the most risk. Tribune already has a considerable amount of debt and is attempting to add more debt and use the company's ESOP plan to close the deal. In addition, the fundamentals of the newspaper industry continue to remain not very good.
Use the widening arb spreads to make some nice money. Cash available to finance these deals is still aplenty. Lending terms are simply coming back to the planet earth, as sensible lending covenants are re-introduced.
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