Two Junk Bonds Worth the Trouble

03/23/2011 11:13 am EST

Focus: BONDS

Marilyn Cohen

President & CEO, Envision Capital Management, Inc.

Debt from Clean Harbors and Spirit Aerosystems offers a measure of safety, thanks to promising business trends, writes Marilyn Cohen of Bond Smart Investor.

Clean Harbors (CLH) deals in hazardous waste treatment and disposal—waste packaging, liquid waste treatment, analytical testing—the toxic stuff, in other words.

Analysts covering the equity side of Clean Harbors are counting on the recession’s pent-up demand to benefit the company. Management’s expertise is varied. It extends from oil spill work, chemicals and refining, to household hazardous waste management.

Think about how many industries there are that need hazardous waste cleanup and treatment. My list includes the pharmaceutical industry, the chemical industry, steel and primary metals manufacturing, utilities, and underground tank removals. The company is an unsung cleanup hero.

Revenues were up 20% in the fourth quarter. Income from operations was up 54%. Industry trends have the wind on Clean Harbors’ back. For all of 2010, revenues were up 61%, to $1.73 billion.

The year was good—and 2011 looks even better. This junk-bond issuer has one bond issue and the rest of its debt consists of a term loan and revolver.

Certainly transporting, storing, and disposing hazardous materials has its liability and risks. However, the company has been an excellent risk manager.

Clean Harbors (CLH) 7.625% notes due August 15, 2016 (CUSIP: 184496AF4) are priced at 106.625 for a 6.165% yield to maturity. Rated Ba2 by Moody’s and BB- by Standard & Poor’s, the notes are callable beginning August 15, 2012 at 103.813, declining yearly thereafter.

Spirit Flying High
Spirit Aerosystems (SPR) designs and manufactures fuselages, propulsion systems, and wing systems for commercial and military aircraft. The company is a major aerospace component supplier, and will most likely benefit from Boeing’s (BA) Air Force tanker contract.

Spirit’s total-interest coverage runs 8.3 times, with moderate leverage. Cash at year-end was $482 million, and $631 million was available on its revolver. Spirit’s backlog is $28.3 billion—pretty healthy, I’d say.

Spirit Aerosystems (SPR) 7.5% notes due October 1, 2017 (CUSIP: 85205TAB6) are priced at 107.625 for a 6.07% yield to maturity. Rated Ba3 by Moody’s and BB- by Standard & Poor's, the notes are callable beginning October 2013 at 103.75.

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