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After enjoying smooth sailing for a long time, cash multi-sector collateralized debt obligations--also called asset-backed CDOs or multi-sector CDOs--are expected to find the going rough in the new year. The sector used to be considered more default-proof than corporate-backed CDOs, but downgrades have slowly made their way into the sector and are causing investors to take notice.

Triton Partners is readying its first collateralized debt obligation of CDOs for next year, with pricing set for the first quarter, says a CDO market official. Called Triton Opportunities Fund, the $300 million deal is entirely backed by CDOs. It is the second CDO of CDOs originated by Triton, after CDO Square, last year. Dresdner Kleinwort Wasserstein in New York is underwriting the deal.

The role of the underwriter in collateralized loan obligations is growing more critical in ensuring a deal clears the market, especially in a year when finding investors has proved such a tooth-pulling task, according to bankers and buyside managers. In a year full of defaults and downgrades, plain vanilla structures typically are not flying with investors. The underwriter has had to step up more in the last couple of months, stated Ty Anderson, ceo of Flagship Capital. "There have been some new structures, and the junior tranches particularly are migrating," he said. "You don't just put a single A or double B tranche into the market."

Vanguard Health System's $150 million acquisition add-on "B" loan was oversubscribed by last Tuesday. Pricing on the line was set at LIBOR plus 4 1/4%, with a 50 basis point upfront fee, according to a banker familiar with the deal. Pricing was not specifically determined at launch, but another banker had noted that shooting for pricing below LIBOR plus 4% would have been tough because of the company's speculative-grade ratings (LMW 12/16).

Wachovia Securities has priced the notes for Guggenheim Investment Management's debut collateralized loan obligation, using a credit swap system rarely employed in cash-flow arbitrage deals. The $448 million deal, called 1888 Fund, uses a proprietary Wachovia structure called APEX, which protects the fund against par erosion due to defaults as well as distressed sales of credit-risk securities through the use of the APEX credit swap, stated Belinda Ghetti, a credit analyst with Standard & Poor's. Wachovia bankers and Todd Boehly, a portfolio manager at Guggenheim, declined comment, as the transaction had not closed as LMW went to press.

BNP Paribas has made a number of appointments in its credit businesses in the Americas, according to an internal memo obtained by BondWeek. The appointments are part of a global reorganization the firm announced earlier this month integrating its derivatives, high-yield, high-grade and emerging markets businesses. David Fergione, who ran the high-grade business, has left the firm, according to a senior firm official. Fergione's departure was not mentioned in the memo and he did not return a call to his residence. However, Fergione has signed up for a free subscription to Bloomberg with the tag line: "Jerry Springer is really quality T.V. Go Birds!," according to one market observer, who added, "He may be on the payroll, but it sure sounds like he's spending his days at home to me."

United Rentals bank debt has been creeping up to the 99 range since the company announced that it was pursuing an additional $210 million in 103Ž 4% senior notes it recently issued. Traders said the bank debt traded in the 99-99 1/2 context last week. The paper was priced in the 97 5/8 98 5/8 range prior to the announcement of the bond issue on Dec. 10, according to LoanX. Roughly $100 million of the proceeds from the high-yield add-on will pay down a portion of the company's term loan, and the remaining amount is to be used for a repayment of the outstanding amount of the company's revolver. Calls to John Milne, cfo, were not returned by press time.

Columbus McKinnon refinanced its existing $150 million senior secured credit facility in creative fashion by obtaining a new $100 million senior secured line and a $70 million second lien secured term loan in a separate transaction. The Fleet Capital-led senior debt provided the amount the company was able to borrow from the bank according to its assets, while the second lien loan made up for the additional desired capacity, said Robert Montgomery, executive v.p. and cfo. "We needed another portion to sit below the [$100 million piece of] debt," he said.

The supply pipeline seems to be finally winding down recently, but volumes have continued be surprisingly robust and the market has resisted the temptation to close the books early on what has been a most difficult year. Investment-grade issuance for December has now hit our full month expectation, totaling $27 billion. However, it has been in the high-yield arena that the recent months have contrasted most strongly with the dearth of deals that came to market in Q3. There was a full $5 billion of high-yield issuance in the latest week, nearly equaling the $5.6 billion of investment-grade deals. This is a notable change from November when there was a strong dominance of supra, sovereign and other highly rated deals and indicates just how much of a rebound there has been in risk appetite. This can be seen in our moving average of the weighted average rating of deals issued, which has now dropped to the lowest level we have seen in 2002. With the holidays now upon us, volumes are likely to be depressed to year-end. And although the healthy state of the primary market in November and December augurs well for the New Year, the potential for escalation of the conflict with Iraq is sure to prove disruptive to markets and likely to cause another of the sudden drops in debt issuance that were seen frequently in 2002.

Credit Suisse First Boston and Salomon Smith Barney have wrapped up syndication of the $331.9 million debt package backing Texas Pacific Group's $675 million acquisition of Gate Gourmet, Swissair Group's airline catering business, after ratcheting up pricing. The credit was syndicated amidst a struggling airline sector, and its six-year, $160 million "B" piece saw pricing increase from LIBOR plus 41Ž 2% to LIBOR plus 61Ž 2%, with a 3% LIBOR floor. The original issue discount was also increased from 11Ž 2% to 4%.

Del Monte Food's new deal hit the street running last Monday with $1-5 million pieces of the company's new "B" term loan trading in the 100 5/8 to 100 7/8 range. One dealer said he had completed 30-plus trades in the name by last Wednesday. Another dealer expressed skepticism to the high levels where the bank debt was trading, citing the loan's lack of call protection. Still, relative to where the bonds are trading it is a good deal, he added. Del Monte's new 85Ž 8% senior notes are currently quoted in the 102 1/16 to 1023/8 context.

DRS Technologies has tapped the bank loan market to increase an existing $240 million credit facility by $100 million to back the merger between its wholly owned subsidiary Prince Merger Corp. and Paravant, a defense electronics manufacturer. Increasing the credit was the best and most efficient option to fund the merger, noted Donald Hardman, DRS treasurer. He said a high-yield issuance was always an option, but a company has to weigh whether it is willing to give up cheaper pricing in the bank loan market for longer-term debt. The company is also currently pursuing an equity offering that could provide financing for future acquisitions.