Nancy Utterback was elected to the first team of All-American Municipal Analysts in the new High Yield category.

Last year, she was elected the top analyst in the Industrial Revenue and Pollution Control Revenue Bond sector.

She faced very tough competition from George Gregorio of Loews/CNA and Howard Sitzer of Greenwich Partners.

Utterback said, "My work continues to focus on airlines. I'm also looking at the Mutual Benefit Life Insurance backed bonds, as well as bonds issued by cities and states in fiscal recovery."

Last year, she noted, much of her analytical work was on municipal bonds that are backed by airline leases and loan programs.

"Continental has been providing us with interesting case studies in how trustees treat bonds in chapter 11 scenarios," she said, adding "It's very complex."

Chapter 11 provided Utterback with the means of testing the assumptions she had made about security arrangements that support the bonds and how the agreements hold up in court.

"Last year, I speculated that deals secured by loan agreements from Continental would not be paid, while lease payments would be paid," she said.

Indeed, Continental's loans were not paid under chapter 11. "Whether or not a lease is assumed depends on how vigorous the bond trustee is on behalf of bondholders," he said.

"They [trustees] have been struck by the importance of their roles."

Utterback has concluded that her "weakest link" analysis of the security arrangements tends to be true. "Unfortunately, the worst case scenarios do happen," she said.

In the airline sector, Utterback believes that AmericaWest has a fifty-fifty chance of surviving the consolidation within the industry.

Pan Am was supposed to be auctioned off by the end of last week, she added, and she suspects TWA will file for bankruptcy.

"About half a dozen stronger carriers" will survive, she said. "But, the demise of the those airlines is strengthening the remaining airlines."

In terms of strength, Utterback ranks Delta the healthiest, followed by American and United airlines. She noted that spreads between these airlines have been converging to about 30 basis points at present, significantly down from 100 basis points last year.

Moving on to discuss the Mutual Benefit Life Insurance Company situation, Utterback said, "It's an example of how credit quality on the speculative range of the spectrum increasingly depends upon the courts or rehabilitator [state] - financial analysis enters less and less into the picture."

While bids are range from 65 to 70 nothing trades, she said, so there is no liquidity. "All an investor can do is hold on and pray," she said. But, a glimmer of hope exists because "the bulk of Mutual Benefit-backed deals have decent projects supporting the bonds."

Utterback Suggests Buying United

When asked for specific recommendations, Utterback suggested buying United Airline issues. "You'll have missed the big pop," she said, "but I track it closely and the bonds have improved by at least a half of a point every month."

New York City bonds have been a real favorite in the high yield sector, Utterback reported, with yields that were comparable to BBB levels.

There are so many NYC bonds that liquidity isn't a problem, she adds. "When I saw Cities at 8.50 earlier this year, it was a no brain decision to buy," she said.

But, with high yield funds eager to purchase the bonds, the yields have fallen. "I'm not happy at 8.30 for New York City paper," she said.

If investors can tolerate the risk, she suggested Philadelphia bonds.

Additionally, Utterback gives a strong buy signal for The Port Authority of New York/New Jersey issues because Continental's lease has been picked-up and they continue to building the strength of the system.

"Sell anything backed by an insurance company that has been downgraded from double-A to single-A in the last year," Utterback urged. "You tend to miss the move from single-A levels to zip, however, finding a bid is a bit problematic."

In the utility sector, Utterback noted Investor Owned Utilities have made major improvements. Only Public Service of New Mexico is currently trading at truly hihg-yield levels. "I expect to see continued improvement or stability from here on out," she said.

Utterback expects to spend the balance of the year spending "a lot of time in bankruptcy courts, to watch the sale of assets."

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