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A Bet on GM's Bonds to Accelerate
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The billionaire becomes the third-largest GM shareholder after State Street Corp. of Boston and Capital Group Cos. of Los Angeles, data compiled by Bloomberg show. Capital Group, Brandes Investment Partners LP and Southeastern Asset Management Inc. increased their GM holdings in the first quarter by a combined 64 million shares as the stock hit a 13-year low.
GM is the largest company ever to have its credit rating cut to below investment grade. Standard & Poor's reduced GM's credit rating two levels to "BB" from "BBB-" on May 5. Ford was cut by one level to "BB+" from "BBB-."
GM's short-term bonds "have been trading more at 'CCC' price levels," Balestrino said, indicating why he sees value in the securities. His fund is holding GM and General Motors Acceptance Corp. bonds that mature from 2005 to 2033. Most of his Ford bonds mature in the next two years.
Since the end of December, the fund has boosted its allocation to corporate bonds and reduced its cash position on expectations for improving earnings, Balestrino said.
The Federated fund's investment-grade bond investments include Canadian gold miner Barrick Gold Corp. and U.S. refiner Valero Energy Corp.
Toronto-based Barrick Gold, the world's third-largest gold producer, last month agreed to pay cash to raise its stake in Highland Gold Mining Ltd. to 20 percent from 14 percent. The decision will help Barrick Gold develop projects in Russia.
Valero in April agreed to buy Premcor Inc. for $6.9 billion in cash and stock to become the largest U.S. refiner as record prices for gasoline and other fuels boost profits. The decision prompted S&P to cut the San Antonio-based company's ratings to one level above junk and its bonds fell. Balestrino is unfazed.
"Their business has never been healthier," said Balestrino, who started his career as an environmental consultant studying nuclear power development while pursuing a master's degree in urban and regional planning from the University of Pittsburgh. "They're just printing money."
