American credit market outlook

Credit investors are bullish about chip maker Advanced Micro Devices Inc for several reasons beyond a favourable outlook for AMD in the server and personal computer market, analysts said.
The Sunnyvale, California-based company's credit spreads have been narrowing in the derivatives and bond markets since mid-August. AMD provides microprocessors, Flash memory devices, and other products to communications and computer companies.
AMD is not widely followed among credit analysts but its credit default swaps have been actively traded during the last month, which suggests many investors seek to bet on the credit.
In recent research notes, a few equity analysts said AMD will likely benefit from improving server and personal computer markets.
Among credit analysts, Sean Egan, managing director at Egan-Jones Ratings Co in Haverford, Pennsylvania, on Friday raised his rating on AMD to "B-plus" from "B."
"AMD's financial flexibility has skyrocketed as its share price climbed from $14 to $25," Egan said.
AMD has $675 million in net debt, which is total debt less cash, while its market cap has climbed to about $10 billion, Egan said.
In general, credit investors like to see a company's stock price rising because the company will be more inclined to pay for any potential acquisitions with stock, rather than from existing cash or issuance of new debt. Otherwise, a rising share price does not do much for credit measures.
John Atkins, corporate bond analyst at economic research group IDEAglobal in New York, said part of AMD's narrowing may be driven by a general tightening in the tech sector during the last three months, at a time when most other sectors have been flat or have seen some widening.
"It has looked like a real leadership sector lately," Atkins said.
Standard & Poor's and Fitch Ratings currently rate AMD "B" with a stable outlook.
"The company has been on a general healing track in terms of credit as a longer-term trend," S&P analyst Bruce Hyman said. "There have been general favourable trends in the business position of the company for quite some time."
Hyman declined to comment on future ratings actions.
Five-year protection on AMD debt against default was quoted at 225 basis points per year on Friday afternoon, which was 10 basis points tighter than Thursday, traders said. The spread has tightened steadily from about 280 basis points a month ago.