Talk about a great escape!
Payden & Rygel Investment Counsel, Los Angeles, owned $90 million in WorldCom bonds as part of its core corporate holdings as well as some $4 million in WorldCom stock.
In March, before the world saw WorldCom Inc. stocks and bonds plunge to cents per issue, Payden & Rygel took the unusual move of selling its holdings rather than take a wait and see stance. At the time, news had broken that Bernie Ebbers, WorldCom's chief executive, had taken some large loans from the company. But it would be two more months before the full details would come out that eventually caused the debt to be downgraded below investment grade.
"We get paid to play in the game, but we get paid to play intelligently," said Brian Matthews, managing principal with Payden & Rygel.
Payden & Rygel's portfolio managers made this decision even though their own credit analysts advised holding the issues, Mr. Matthews said. Objectively, the news that was out at the time did not seem to have an affect on WorldCom's balance sheet. However, the huge loans and the fact that Arthur Andersen was auditing WorldCom's books, swayed the portfolio managers to a sell position.
Payden & Rygel's equity analysts are on the same team as the bond analysts, and when the bond portfolio managers decided to sell out of WorldCom debt, the equity side sold as well, he explained.
This is not the first time Payden & Rygel has gotten out of a holding . The company held $60 million in Enron Corp. debt, which it sold in the low 90s, Mr. Matthews said.
So, why did they sell? "There were a lot of intangible issues that had question marks," said Kevin Akioka, senior vice president with Payden & Rygel, adding the Enron scandal has made the market a different place for investment mangers. "It's all about credibility and veracity," he said. "When too much is unknown, then we can't take the risk on that name. We feel more comfortable exiting a name when we don't understand it anymore."
"We try to take a sober view," he added. "You can't get it right in every bond."
