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Merrill Lynch has launched 17 high-yield indices in the U.S. and Europe that cap the weighting of any single issuer at 3%. Malhar Korde, London-based assistant v.p. in the firm's portfolio strategy group, says a number of large high-yield money managers began using the capped indices as benchmarks almost immediately after they went live. Although the standard unconstrained indices will continue to operate, Korde believes the capped indices will quickly become the standard. "Given the shift we've seen already, it's clear the trend will be toward people using constrained indices," he says.

A new $210 million add-on term loan for Terex being led by Salomon Smith Barney and Credit Suisse First Boston has raised the ire of investors as the new paper is priced more generously than existing debt, sending levels for the old paper down to the mid- to high 90s. That twist has some existing investors looking for an exit and others asking for the old paper to be repriced to the same level as the new issue.

NIB Capital Bank is in the early stages of marketing the equity portion of a leveraged loan collateralized debt obligation. The size of the transaction has not been finalized and will depend on the appetite for the asset class, says Jeroen van Hessen, head of structured finance in The Hague. The loans are currently on NIB Capital's balance sheet and van Hessen says the bank is looking at all of its assets with a view to securitize them. The bank is aiming to complete another transaction by year-end. In future, NIB Capital will look to team up with asset managers to do collateralized debt obligations, but it wants to establish a track record first.

Several fixed-income portfolio managers say they are slowly building their corporate bond positions. And, some of them say a U.S. invasion of Iraq will serve as a catalyst for their strategy. "We're in the process of forming a bottom. If you're underweight corporates or don't have corporates, this is a really good time to begin adding," says John Burger, portfolio manager at Merrill Lynch Investment Managers (MLIM). He cautions, however, that he expects extreme volatility over the next two months or so.

Moody's Investors Service has downgraded Key3Media Group's $100 million senior secured credit from B3 to Caa1 due, in part, to the company's unlikely ability to meet imminent bank covenants. The Los Angeles trade show and conference management company has a severe liquidity problem that could lead to covenant violations and a likely default on bond interest payments, explained Christina Padgett, senior credit officer at Moody's.

A $20 million piece of Enron bank debt was believed to have been auctioned by Société Générale at the 13 1/2 level last week, although the catalyst for the latest activity was unclear. Recent reports indicated that the company's former cfo, Andrew Fastow, would be indicted as early as this week. In addition, the bankruptcy court's examiner recently filed a preliminary report that begins to unveil the complicated partnerships that allowed Enron to disguise debt and pump up its financial results. Calls to Société Générale were not returned by press time.

GMAC Residential Funding Corporation is planning to execute its second residential mortgage-backed securitization through its Dutch subsidiary GMAC Hypotheken. A high-ranking GMAC official says the deal, which should come to market by year-end, will be similar in size to its first deal, which launched in July. The new deal has not yet been mandated.

GSC Partners, formerly known as Greenwich Street Capital Partners, is looking to buy assets to wrap up a new collateralized debt obligation backed by middle-market bank loans. The vehicle, known as Gemini Fund Ltd. 1, reportedly is structured as a cash-flow arbitrage deal comprising a $436 million triple-A tranche, a $20.8 million A1 piece and a $40.2 million Baa1 tranche. The $26 million in preferred shares issued were not rated. The vehicle is more than 80% ramped up, with the remaining ramp-up period extending no later than the end of January 2003. Calls to officials at the firm were not returned.

Global eXchange Services (GXS), a business-to-business e-commerce company being purchased by Francisco Partners from General Electric, has a limited track record both operating as an independent company and sustaining profitability improvement following its recent cost restructuring actions, according to Standard & Poor's analyst Emile Courtney. As a result, the agency has rated its proposed $210 million credit facility and $235 million of senior subordinated notes BB- and B, respectively. Moody's Investors Service, meanwhile, points out that GXS will have to exist without the benefits of GE's brand identity and advertising. Moody's therefore has assigned a Ba3 rating to the bank debt and a B2 rating to the notes.

Despite benchmark indices showing spreads are approaching historic wides, traders report that the market remains extremely bifurcated, with better credits steadily improving and troubled credits simply unchanged.

J.P. Morgan approached Alliant Techsystems and suggested that the company refinance its $472 million "B" term loan in order to achieve lower pricing. "Our advisor suggested that the timing was right," said Eric Rangen, cfo, explaining that Alliant had been performing well and there was strong demand in the market for quality paper. As a result, the Edina, Minn., company was able to lower its interest rate spread by 75 basis points to LIBOR plus 21/ 4%, he noted.

Orest Stelmach, high-yield portfolio manager at Steinberg Priest & Sloane Capital Management in New York, says chemical producers MacDermid, Noveon, Hercules and Methanex are ones that produce significant free cash flow even in a down cycle, and stand to do significantly better once the economy turns. He has recently purchased these bonds, using a mandate the firm won from CALPERs.