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Service Corp. International saw its 6% notes of '05 (B1/BB-) drop nearly two points to a bid of 88 after the unexplained resignation of Jerald Pullins, coo of the funeral services provider. A successor has been chosen from within the firm.

A committee of 15 WorldCom investors with over $8 billion in the company's bonds has formed a committee and tapped Houlihan Lokey Howard & Zukin last Wednesday to serve as its financial advisor in negotiations with the scandal-ridden telecommunications company. The committee hopes to unite with two other groups of investors that own the bonds of WorldCom's subsidiaries: MCI and Intermedia to give it more clout. Jeffrey Werbalowsky, senior managing director and co-head of Houlihan Lokey's financial restructuring group, acknowledged that his firm is advising what he called an "informal" group of WorldCom bondholders, but declined further comment. A WorldCom bankruptcy was widely viewed as imminent at press time. Jim Millstein, managing director at Lazard Frères, which is advising WorldCom, declined comment.

Robert Fraley has left Merrill Lynch, where he was a director and a distressed analyst, to join Fortress Investment Group. Fraley had worked at Merrill Lynch in various positions since 1996. It could not be determined whether a replacement will be hired. Neither he, nor Barbara Scholl, managing director and head of distressed research, at Merrill Lynch, returned calls. Randal Nardone, Fortress coo, declined to comment.

European high-yield issuers are proceeding with deals this month despite poor investor sentiment, continued credit downgrades and abysmal equity markets. "It's ironic that the busiest two weeks of the year for high-yield coincides with the worst weeks for overall market sentiment," says one high-yield trader in London. With three or four more deals in the pipeline, investors have been lightening up on holdings considered too rich, which, coupled with general financial market woes, has put the secondary high-yield market off by two or three points, he adds.

The hardball tactics adopted by banks continues, with CMS Energy the latest company to face the backlash of a market struggling to come to terms with the aftershock of accounting scandals. The Dearborn, Mich., energy company was able to get all 21 banks in its lending group to agree to amend $1.15 billion in existing bank facilities last week and six banks to agree to a new $150 million line, but not without some painful concessions. "Probably the hardest decision was to agree to a limit on common dividends on CMS stock to about 50% of the current level," said Al Wright, cfo, in a conference call to analysts. Other bad medicine includes a hike in the spread to 3% over LIBOR on most of the lines and covenants that dictate asset sale proceeds must pay down outstanding amounts on the new facilities before they can be used for other purposes.

Volume was light last week, say traders, but several beaten up names got a lift, including Qwest Communicationsand Paxson Communications.The cable sector also turned in a decent week.

Appleton Capital Management, a Dublin-based commodity trading advisor with $110 million under management, will launch a fixed-income arbitrage hedge fund on September 1, according to BW sister publication Alternative Investment News. The Appleton Fixed-Income Opportunity Fund will be run by Stephen Lane, previously a trader at ABN AMRO, says Jeremy O'Friel, head of marketing. The fund will mostly trade European and U.S. investment-grade corporate debt, he added.

Moody's Investors Service has downgraded Solutia's secured credit facility from Ba1 to B1 and its senior unsecured notes and debentures from Ba3 to B3. The rating agency made the move because Solutia and its bank group have yet to hammer out an agreement to refinance the credit facility, which matures on August 13. The company, however, contests the premise for the downgrade. "We are still confident that we will get the amendment and extension approved," said Kevin Wilson, treasurer.

Masonite International has so far delivered on pledges to reduce debt through the divestiture of its Towanda manufacturing plant, but the company still faces challenges in dealing with the heavy debt load incurred to finance its combination with Premdor last year. The Towanda sale, mandated by the Canadian Department of Justice, enabled the Mississauga, Ont., door manufacturer to repay a $100 million term loan, said Joseph Snider, senior analyst atMoody's Investors Service. Now Masonite is attempting to repay a high-cost subordinated seller note and replace it with an expanded bank facility, he noted.

Masonite International has switched its lead bank from Bank of Montreal to SunTrust Bank for an amendment to its bank facility. According to bankers, SunTrust took the initiative in presenting a simplistic plan to the company. That plan calls for the repayment of $126 million in subordinated debt at $105 million and a reduction in interest expense on its credit (see Credit in Focus, page 5). Officials at both banks declined to comment on the switch, and Robert Tubbesing, cfo of Masonite, did not return repeated calls.

Bonds of merchant energy companies were lower last week following news that Duke Energy, an investment-grade credit that many believed would stay free from scandal, engaged in round-trip trades to artificially boost trading volumes.

Merrill Lynch and J.P. Morgan are preparing to launch syndication of the long-awaited bank facility backing Code Hennessy & Simmons' $275 million buyout of Otis Spunkmeyer. The $140 million bank piece, which launches on Wednesday, is split between a $120 million "B" term loan and a $20 million revolver. Tenor on the revolver is six years and six-and-a half years on the "B" piece. Pricing and ratings could not be ascertained by press time. Officials at the banks declined to comment.