American credit market outlook

This could be the year major US cable companies begin generating substantial free cash flow, but do not look for much reaction in the US credit markets.
Despite turning the corner on this significant credit measure, companies such as Comcast Corp and Cox Communications Inc will face trouble from other sources, mainly the risk of losing core video subscribers, according to a new report from UBS.
In the face of competition from satellite operators, "we are concerned that the ability to drive free cash flow growth at an accelerated rate over the longer term has stalled," UBS said in a report on Friday.
Spreads on bonds of cable companies and the cost of insuring their debt in the credit derivatives market were little changed on Friday.
Cox Communications' 7.125 percent notes due 2012 traded at a spread of 105 basis points more than Treasuries, about 1 basis point tighter on the day, MarketAxess reported. A basis point is 0.01 percentage point.
Comcast Cable Communications Holdings' 8.375 percent notes due 2013 widened by about three basis points to 120 basis points more than Treasuries, according to MarketAxess.
In the credit derivatives market, the cost of insuring Cox's debt for five years was about 71 basis points, or $71,000 for every $10 million insured, unchanged from Thursday, while the cost of insuring Comcast's debt stood at 69 basis points, also unchanged.
Cable credit spreads have been flat-lining for months, partly because much of the good news in the industry has already been factored in, according to analysts.
Worries that companies will take on debt to acquire the assets of bankrupt cable company Adelphia Communications Corp are also putting a damper on the sector.
"What makes things difficult in this whole space in terms of identifying relative value is merger and acquisition risk," said Darin Feldman, telecommunications analyst at Aladdin Capital.
Cox, Comcast and Time Warner Inc are widely considered the most likely bidders for all or part of Adelphia.
According to RBC Dain Rauscher, one trade with money-making potential is to swap from regional telephone company bonds into cheaper and lower-rated cable debt.
Over the longer term, ratings between the two sectors will tend to converge, as competition from the cable and wireless sectors constrains ratings on the regional bells, said RBC telecommunications analyst Lowell Bolken.
"The yield spread gap between the two already has tightened quite a bit and has potential to tighten further," Bolken added.