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The decision by the Federal Reserve to cut interest rates by one-half of a percent to 1.25% may have been greeted by the wider market as a welcome boost, but it is another kick in the face to the long-suffering prime-rate funds. The net asset value of the funds has fallen from a peak of $30.6 billion in 1999 to $17 billion as of September, and the prime-rate funds now only contribute 10-20% of total fund flows to the high-yield loan market, according to data fromBanc of America Securities. Furthermore, the effects of the current environment are starting to take a more drastic toll.

Prudential Capital Group is in the market trying to raise debt for a new $305 million collateralized loan obligation named Dryden 2002-3, joining a growing pipeline of potential new deals. But the conditions for selling the senior and mezzanine tranches are in stark contrast from earlier this year, when Prudential last priced a deal, said a banker. The spread on the triple-A tranche for Dryden Leveraged Loan CDO, which priced in July, is LIBOR plus 43 basis points (LMW, 7/14), a level far tighter than current price talk. In addition to a widening of spreads on the senior notes, a banker noted that a number of deals in the pipeline are struggling to raise the mezzanine and equity portions, although he declined to specify which ones.

Baar, Switzerland-based Glencore International, one of the world's largest natural resources companies and commodity traders, is preparing a rare securitization of its commodity inventories through a single-seller commercial paper conduit, according to Seth Vance, managing director, head of financial institution securitization and European collateralized debt obligations at Deutsche Bank in London. The $750 million deal, scheduled to be launched next month, is being structured and lead managed by Deutsche Bank's London-based securitization team.

A high-yield gaming and leisure analyst is recommending Royal Caribbean's bonds to investors looking to pick up additional yield versus the tight-trading gaming sector. John Maxwell, head of high-yield research at BNP Paribas, says the cruise operator is seeing a continued rebound in spite of the soft economy, as it recovers from last year's Sept. 11-related woes.

Standard & Poor's has assigned a preliminary BB- rating to Constar International's $250 million credit facility, which backs the beverage container company's spin-off from Crown Cork & Seal. Constar's total pro-forma debt is about four times EBITDA, although that ratio is expected to improve to 3.5 times. "Compared to the most aggressive companies, it's not a bad starting point given leverage," said Kyle Loughlin, director and analyst at S&P. Still, the distressed enterprise value may not offer lenders a full recovery in a default scenario.

Deutsche Bank is putting the final touches on a $700 million collateralized fund obligation backed by its own private equity portfolio, says a banker on the deal. Called DB Capital, the deal is being structured and lead-managed by Deutsche Bank's London-based collateralized debt obligation team. The deal is thought to be the largest CFO to date and the first to be sponsored by a bank.

Oaktree Capital Management recently completed the finishing touches on a nearly $1.34 billion distressed debt fund, and will begin the process of investing the funds in a market that has no shortage of distressed paper, according to BW sister publication Loan Market Week. The fund will be called OCM Opportunities Fund IVb. The completion of the new fund comes hard on the heels of the $2.1 billion OCM Opportunity Fund IV, which closed last December. "Fund IV closed quickly in 2001 with Oaktree's existing client base. Fund IVb, intended mostly for new clients, followed in 2002," said Howard Marks, chairman of the Los Angeles-based firm.

The bank debt of Cablevision Systems traded in the high 80s last week after a spate of positive news caused the paper to rally. There also was a rumor that the paper changed hands around the 90 level, but a trade at that level could not be confirmed.

General Cable has amended its secured credit facility to stave off covenant violations due to lower earnings and to increase flexibility in a tough environment, according to Christopher Virgulak, cfo. Virgulak explained that communications sales make up one-third of the wire and cable manufacturer's business, and the present downturn has left it in danger of violating leverage covenants.

Gray Television was able to secure slightly cheaper pricing for a new $450 million credit facility backing its acquisition of Stations Holding. Jim Ryan, cfo, said the Atlanta company was able to receive more favorable pricing because the acquisition of the 15 network-affiliated television stations--now known as Gray MidAmerica Television--increased and improved Gray Television's operating base, thereby enhancing its overall credit quality.

The secondary market continued to improve, and held up well even through Thursday's equity sell-off. A $450 million issue from Owens-Brockway was well-received, trading up to 101. Autos, airlines, commodity chemicals and homebuilding were all up on the week. Here is other action.