Securitization People and Markets

With the $14 billion of investment grade issuance that was issued this week, the investment grade corporate bond market has hit a $250 billion year-to-date total, which gets us halfway to the CreditSights full-year forecast for high grade supply. The pace reflects an uptick from May's subdued levels though we are still well shy of the thumping volume seen during March, and the average deal size is also rising. At $600 million we are heading into the top end of the range indicating both more depressed high yield primary market conditions of late and the effect of the sizeable programs of the likes of GE Capital. The impact of GECC's issuance activity is also evident in the average rating quality, which has been trending up over the last four weeks. The better bid tone in the market was seen with upsizing reported in higher quality issues in defensive sectors and ready demand found this week for even "troubled" names such as El Paso.

Shelley Ben Nathan has resigned from Bear Stearns, where she was a managing director and high-yield retail analyst, according to an e-mail message sent out to clients last Friday, which was her last day at the firm. "I have decided to change gears for a while and focus my energies full time on my family," she wrote. She has four children under five years old. Ben Nathan placed third in the high-yield retail sector for four consecutive years from 1997-2000 on the Institutional Investor All-America Fixed-Income Research Team. She did not return calls.

Banc of America Securities has hired an additional European economist as part of its expansion plans. Holger Schmieding joins the firm from his own independent economics shop, which he says he recently sold. Prior to running his own show, Schmieding worked at Merrill Lynch. Schmieding will work with Lorenzo Codogno, co-head of European economics in London. The duo reports to Mickey Levy, New York-based head of global economics.

A sell-side and buy-side analyst say it is time to begin reducing exposure to high-grade retailers, given the recent strong performance of the sector and the widespread belief that the economy is improving. However, they have differing views about which high-grade retailers should be taken off the table. A large East Coast buy-side firm has begun reducing exposure to high-grade retailers such as Albertson's Inc., Kroger Co. and Safeway Inc., primarily on the view that the names are too tight relative to the rest of the high-grade market. An analyst at the firm has expressed concern that these supermarket chains may take on more leverage a year or two down the road as they become increasingly acquisitive in order to stave off increasing competition from Wal-Mart Stores. Last Monday, the Safeway 6.5% notes of '11 (Baa2/BBB) were 100 basis points over Treasuries, the Kroger 6.8% notes of '11 (Baa3/BBB-) were 120 off the curve and the Albertson's 7.5% notes of '11 (Baa1/BBB+) were 105 off.

One analyst says investors should buy Tyco International, another says they should not. The divergent opinions follow L. Dennis Kozlowski's resignation last week as ceo of the conglomerate, and his indicted for tax evasion. Last Tuesday morning, when an indictment appeared probable, Tyco's 6.75% notes of '11 (Baa2/BBB) were trading at a bid of 82, six points below where they had traded the previous week.

Gregg Mattner has left Barclays Global Investors (BGI) where he was a principal who oversaw $60 billion in passively managed fixed-income assets. He says that when BGI made a decision last year to emphasize active rather than passive management and have him report to Peter Wilson, his fourth boss in 11 months, he became disenchanted with his role at the firm. "My most recent responsibilities were significantly different from what I was initially hired to do," he says. Mattner says he resigned. Calls to Wilson were referred to Tom Taggart, BGI spokesman, who characterizes the decision as a mutual one.

At least four high-yield portfolio managers say they would rather run the risk of underperforming benchmark indices than get hammered again in the telecom sector. None of them plan to buy the bonds of WorldCom, and half are also steering clear ofQwest Communications. The admission by the buy-siders is significant because the credits were expected to comprise a whopping 6.8% of the Merrill Lynch High-Yield Master II index, and over 7% of the Lehman Brothers high-yield index. The bonds were added to the widely followed indices last weekend due to recent downgrades. The junk managers say they have been down the telecom road before, and do not have the stomach to add further exposure to the sector, especially because their peers are of the same mind and therefore they will not risk underperforming them.

Payden & Rygel, a Los Angeles money manager with $34 billion in taxable fixed-income assets, has hired S. V. Balachander to the new position of senior v.p. and credit strategist. Brian Matthews, managing principal at Payden & Rygel, says he hired Balachander because the firm is growing its asset base and is always looking for good people. He will report to Chris Orndorff, managing principal in charge of credit.

Amid continued volatility in energy and utilities names such as Reliance Energy (A3/A), Dynegy (Ba1/BBB), El Paso (Baa2/BBB+), CMS Energy (Ba3/BB) and NRG Energy (Baa3/BBB-), analysts are offering a few names they say are not likely to be subject to the price swings of their peers. Wisconsin Energy (A2/A-), SCANA (A3/A), Southern Company (A3/A), Keyspan (A3/A) and Energy East (Baa2/BBB+) are all relatively stable, because they do not rely so heavily on trading profits, says Carol Levenson, director of research at Gimme Credit, an independent research firm. However, she warns that most are expected to sell assets to avoid rating downgrades, and concedes that few of these names are exceptionally cheap. Names she believes could outperform the sector are Dominion Resources (Baa1/BBB+) andExelon (Baa2/A). Dominion's 6.625% notes of '13 were bid at 204 basis points over Treasuries last Tuesday, while Exelon's 4.75% notes of '11 were 304 basis points over the curve. She also believes that Duke Energy (A1/A+), which does count on trading profits, may benefit from a flight to quality in the sector. Duke's 6.25% notes of '12 were 102 basis points over Treasuries.