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AT&T's $4 billion commercial paper backstop facility is said to be trading in the grey market in the 94-97 range, hampering the lead arrangers' attempts to sell down their own hefty exposures. Citigroup, Credit Suisse First Boston, Goldman Sachs and J.P. Morgan co-lead the line, and are said to have taken $550 million pieces, while a number of other banks contributed at the managing agent level. "While the lead arrangers are shopping this loan, the managing agents are selling it in the mid-to-high 90s," a banker said. A banker at one of the leads denied the deal was being offered at these levels, but several bankers confirmed the levels. Officials at the lead banks either declined comment on the record or could not be reached by press time. An AT&T spokeswoman did not return calls.

Advantus Capital Management is looking to swap some $60 million in corporate issues in a bid to add incremental yield. Wayne Schmidt, portfolio manager of a $1.2 billion taxable bond portfolio, says the firm is looking to make roughly six $10 million trades out of issues that have performed well in recent months and trade inside 100 basis points over Treasuries, and into credits that the market perceives as riskier. The firm has thus far had an easier time identifying credits to trade out of that ones it wants to buy, however. Candidates for sale include the Colgate-Palmolive 5.98% notes of '12 (Aa3/AA-), an issue that came in April at 78 basis points over Treasuries. Pricing on the issue was difficult to determine last Monday, but Schmidt believes it should sell in the mid- to low-60s. Another solid performer Advantus may sell is the Gannett Company 5.5% notes of '07 (A2/A). It was trading at 76 basis points over the curve last Tuesday.

Greg Sweeney, portfolio manager at Northern Trust Management, says he will add $15 million, or 5% of the firm's portfolio, to short-term adjustable-rate mortgage-backed securities. He will finance the purchases with new money coming from bond redemptions. He says he is making the move to collect more yield while staying on the shorter end of the curve, a strategy that limits loss of principal. He says he is positioning his portfolio for the next 12-18 months for a backup in rates. He reasons that the Treasury rally is bound to end once the economy begins to recover.

This chart, provided by Citibank/Salomon Smith Barney Inc., tracks bid-ask prices for par credit facilities that trade in the secondary market. It also tracks facility amounts, ratings, pricing and maturities.

Tesoro Petroleum is negotiating an amendment to its credit agreement that would push out all existing EBITDA-based covenants until Sept. 30, 2003, and replace them with minimum EBITDA and maximum capital expenditure covenants, said Sharon Layman, Tesoro v.p. and treasurer. As the company tries to work out the amendment, its bank debt has been dropping steadily in secondary trading from the low 90s to 84-851/ 2. Layman declined to comment further, citing the ongoing negotiations. But market players said the coupon on the "B" piece is likely to be raised to LIBOR plus 41/ 2% and the amendment fee is 3/8%.

London-based Jupiter Asset Management, which manages £300 million in fixed-income, is waiting for signs of stability in the equity markets and an economic rebound before extending its risk profile. John Hamilton, head of the fixed-interest funds, says he is keeping his eyes open for better corporate earnings and improved economic data before going more wholeheartedly into single-As and triple-Bs. "The market itself can be a lead indicator--when the spread between governments and triple-A corporates gets too tight, that could indicate the market as a whole has become much too risk-averse and too expensive to justify holding," he says. "Those are the kinds of signs I'm looking for. The trick is seeing them earlier than other people," he adds.

The primary market was back in force last week with over $10 billion of new deals launched as issuers across the credit spectrum took advantage of the ever-decreasing level of rates. Demand for the new deals was strong though near-term indigestion caused a weakening in secondary market spreads. Close to $1 billion of the volume was high-yield including the successful relaunch of a deal that was pulled in July. Risk appetite and demand for junk bonds is rising despite the continued poor returns in the sector. Bolstered by the number of $1 billion plus deals, the average deal size has jumped substantially in recent weeks and at $600 million is more than twice that seen during the July primary market freeze. Weighted average rating remains in the single-A range and the weighted average maturity at nine years is trending toward the low end of the year's range.

Jackson Chou, credit derivatives trader at Goldman Sachs in Tokyo, has left the firm, according to market officials. The reasons for his departure could not be determined by press time but officials noted that Chou has relocated to the U.S. At Goldman, he reported to Can Uran, executive director of global credit derivatives in Tokyo. Uran did not return calls and Chou could not be reached for comment.

Hermann Watzinger, former managing director and head of securitization and portfolio credit derivatives at Merrill Lynch in London, has joined ABN AMRO as German head of fixed income in Frankfurt. Watzinger said ABN is also planning to combine its fixed income and loan teams and he will become the German head for both desks after the merger. Watzinger, who left Merrill Lynch in July after the firm reorganized its credit department, will start next month.

The outstanding notional value of credit-default swaps has grown by 31% in the first six months of the year, while the combined interest rate and currency swaps market has grown 14%, according to the International Swaps and Derivatives Association's mid-year flash survey. The organization plans to release data tomorrow that for the first time will include igures detailing the size of the equity derivatives market. Stacy Carey, policy director in New York, said the organization decided to add equity derivatives to its survey because there is not a lot of data covering this market.

By Tom Groenfeldt

This week's Guest Column was written by a derivatives lawyer in London who wishes to remain anonymous.