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The European Investment Bank has entered two interest rate swaps to convert a recent fixed-rate bond offering into a floating-rate liability. The firm entered a fixed-to-floating swap on the back of a recent GBP200 million (USD312.9 million) bond sale and a GBP100 million increase to an existing bond, said an EIB official. The swaps were put on as part of the bank's policy to hedge interest rate risk on its bond sales.

Capital Invest, which manages roughly E4 billion in fixed-income assets from its Vienna office, will reduce its corporate bond holdings further if the economic outlook in the U.S. and Europe continues to deteriorate. Andreas Schuster, portfolio manager, says the firm currently devotes roughly 15% of its portfolio to corporate bonds, but will reduce that to 10% if the general picture emerging from Europe continues to worsen and there are signs of continued weakness in the U.S. for the fourth quarter. For example, worsening data from economic surveys, in particular, consumer spending, could prompt the move. The firm has been reinvesting its assets in European government and euro-denominated government bonds, and will continue to do so.

Restructuring a company is often a zero-sum game. So, it is only natural that there would be some finger-pointing involved when things go wrong, as constituents fight to get the biggest piece of the pie. But during a role-playing session at the Distressed Debt Summit 2002 this past week, one speaker representing the interests of the secured lenders shed a little light onto his frustration when the finger was pointed at him. "As always, we are the culpable ones because we had the bad judgment to lend you money," he said.

Nelson Capital Management plans to swap 5% of the firm's $120 million portfolio into corporates from agencies but wants to see better corporate earnings reports over the next few weeks before making the move, according to Palo Alto, Calif.-based portfolio manager Brian Roberts. The move is predicated on the view that the economy is improving and corporate bonds will outperform agencies.

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

The Texas Permanent School Fund is planning to add up to 2-3% of its portfolio, or $140-210 million, to corporate bonds over the next two or three months in a bid to add yield. Carlos Veintemillas, portfolio manager overseeing some $7 billion of taxable fixed-income in Austin, says he is looking at short duration single- and double-A credits. To finance the purchases, the fund will use the proceeds from prepayments in its mortgage-backed securities portfolio, and new cash from royalties the fund receives for oil and gas fields on public lands. Veintemillas says he is waiting for evidence of increased capital expenditures by companies before making the move.

The Catholic University of America has made its first foray into distressed debt, investing $4 million in the asset class, according to Ralph Beaudoin, v.p. of finance and treasurer. The roughly $130 million endowment decided to enter the distressed arena because the asset class is performing well at a time when few other investments are, Beaudoin said, emphasizing the counter-cyclical nature of distressed debt. "Distressed is having its day in the sun," he added.

Levels for Venture Holdings' bank debt have been dropping since the company announced that the German courts had commenced insolvency proceedings against its German subsidiary Peguform. But the paper slipped further--into the low-60s--this week after Moody's Investors Service downgraded the company's credit facility to Caa1 from B2. According to the Moody's report, the company is now in default under its U.S. credit facility and acceleration of its debt maturities is possible.

Levels for Buhrmann's bank debt have been put under pressure since the company announced that it is withdrawing its prior earnings forecast due to the uncertain economic climate. The market for the company's term loan "B" has slumped about one point to the 97-98 range, although traders said no paper had changed hands. The company's U.S. revolver was quoted in the 90-92 range.

Salomon Smith Barney has combined its U.S. high-yield and high-grade credit trading businesses in an attempt to better allocate its resources to "crossover" credits--a booming area of the market consisting of bonds that are bought and sold by both high-grade and high-yield accounts. "We don't worry about where the bond trades, just that we have the best traders trading it," says Jim Zelter, head of the firm's global high-yield business, explaining the rationale for the new structure. Though other large dealers, including Morgan Stanley (BW, 8/19/01) and Merrill Lynch (BW, 1/13/01) have united high-yield and high-grade research, and Goldman Sachs has united its capital markets units, Salomon is believed to be the first large dealer firm to fully combine high-yield and high-grade credit trading.

A combination of lender fatigue and regulatory pressures has increased the supply of distressed bank debt available to hungry investors in the secondary loan market. "What we're seeing is a real opportunity for a distressed investor that will take the time to affect the turnaround and reap the rewards [because] the bank group is not necessarily ready to do so," said Lance Miller, director at Glass & Associates.

* If conference attendance is any way to measure the growth of a market, then the distressed debt market is on fire. This latest conference brought in so many attendees that delegates had to sit on the couches and chairs that lined the walls of the designated conference space.