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At least four high-yield portfolio managers say they would rather run the risk of underperforming benchmark indices than get hammered again in the telecom sector. None of them plan to buy the bonds of WorldCom, and half are also steering clear ofQwest Communications. The admission by the buy-siders is significant because the credits were expected to comprise a whopping 6.8% of the Merrill Lynch High-Yield Master II index, and over 7% of the Lehman Brothers high-yield index. The bonds were added to the widely followed indices last weekend due to recent downgrades. The junk managers say they have been down the telecom road before, and do not have the stomach to add further exposure to the sector, especially because their peers are of the same mind and therefore they will not risk underperforming them.

Merrill Lynch and Bank of America are launching bank and bond deals for Advance Medical Optics (AMO) this week to facilitate the spin-off of the business from Allergan. AMO is an opthalmic surgical and contact-lens care business, and the spin-off will leave Allergan as a pure-play specialty pharmaceutical company, explained a buysider. The bank deal is said to be split between a $100 million "B" loan and a $40 million revolver, while $175 million of senior subordinated notes will be offered, she said. Ratings are said to be B1 and BB- for the bank debt and B3 for the senior sub notes. Pricing on the five-year revolver is LIBOR plus 3% and the "B" is offering LIBOR plus 31/ 2%, said a banker, who noted launch is slated for June 4.

Merrill Lynch has been selected to lead a staple-on financing for Code Hennessey & Simmons backing the potential leveraged buyout of Otis Spunkmeyer fromFirst Atlantic Capital. A banker familiar with the deal said Code is in exclusivity talks and is likely to close the deal within a few weeks. Merrill shopped the business and is now likely to provide a $150 million bank deal, pending the sale. There could also be either a mezzanine or high-yield piece to accompany the deal, the banker added. Otis makes frozen cookie dough, pre-baked cookies, muffins, bagels, pastries, and brownies. Estimates of the sale price have been over $260 million. Officials at Merrill declined comment and calls to officials at Code, Hennessey were not returned.

Nextel Communications bank debt held its ground last week, trading in the 83 1/2-84 range after its international unit NII Holdings filed for an expected bankruptcy. The market for the name had been quoted in the 85 1/4 to 85 3/4 range in mid May, but ticked down to the 84 1/2 level after Moody's Investors Service downgraded the name two weeks ago.

Payden & Rygel, a Los Angeles money manager with $34 billion in taxable fixed-income assets, has hired S. V. Balachander to the new position of senior v.p. and credit strategist. Brian Matthews, managing principal at Payden & Rygel, says he hired Balachander because the firm is growing its asset base and is always looking for good people. He will report to Chris Orndorff, managing principal in charge of credit.

More than $100 million of Warnaco Group's bank debt traded in the 30-32 range last Wednesday after the company told investors it is pursuing a stand-alone plan rather than seeking a merger or acquisition. The trading that followed was likely the work of arbitrage players getting out of the name after buying it in hopes of a quick M&A deal, said Jim Fogarty, company cfo. "We are not in liquidation. We have been running an M&A process and putting together a stand-alone plan," said Fogarty. But as the bankrupt company focuses on maximizing value, the best option is a stand-alone plan, he said.

An amendment requiring a 51% vote was approved last week by investors on the Appleton Papers deal, giving Bear Stearns permission to create a "C" tranche on the debt. But buysiders said completely filling the tranche should prove challenging as existing investors in the senior part of the deal are especially unhappy with the company's plans to draw down on the bank debt to pay down $50 million of outstanding senior subordinated notes.

Amid continued volatility in energy and utilities names such as Reliance Energy (A3/A), Dynegy (Ba1/BBB), El Paso (Baa2/BBB+), CMS Energy (Ba3/BB) and NRG Energy (Baa3/BBB-), analysts are offering a few names they say are not likely to be subject to the price swings of their peers. Wisconsin Energy (A2/A-), SCANA (A3/A), Southern Company (A3/A), Keyspan (A3/A) and Energy East (Baa2/BBB+) are all relatively stable, because they do not rely so heavily on trading profits, says Carol Levenson, director of research at Gimme Credit, an independent research firm. However, she warns that most are expected to sell assets to avoid rating downgrades, and concedes that few of these names are exceptionally cheap. Names she believes could outperform the sector are Dominion Resources (Baa1/BBB+) andExelon (Baa2/A). Dominion's 6.625% notes of '13 were bid at 204 basis points over Treasuries last Tuesday, while Exelon's 4.75% notes of '11 were 304 basis points over the curve. She also believes that Duke Energy (A1/A+), which does count on trading profits, may benefit from a flight to quality in the sector. Duke's 6.25% notes of '12 were 102 basis points over Treasuries.

UBS Warburg has hired Troy Dixon, a veteran pass-through trader fromCredit Suisse First Boston to fill some of the gaps created by the departures of collateral traders Dave Brown andJohn Morris, according to pass-through trading chiefBrian Cohane. Dixon, who left CSFB approximately two weeks ago and will join the firm on June 17 after his "garden leave" non-compete expires, will trade the 30-year Fannie Mae/ Freddie Mac sectors and report to Cohane. Dixon had been at CSFB since July 2000, coming from Donaldson, Lufkin & Jenrette, which he joined in May of that year. Prior to that, he was trading MBS at Nomura Securities International.

Ellen Luntz, a director of loan sales at Barclays Capital, has reportedly moved to BNP Paribas, where she will be working as senior salesperson, handling both primary and secondary sales. Luntz will begin working next Monday and will report to Bucky Kahn and Dan Whalen, co-heads of syndication, trading and placements. At Barclays, Luntz reported to Dhuane Stephens, head of sales for the bank's loan group. Luntz began working at Barclays early last summer when she was hired as part of the bank's effort to beef up its par desk. Before that, Luntz worked at Goldman Sachs. A BNP spokesperson did not return calls by press time. A spokeswoman from Barclays confirmed Luntz's departure.

Investors poured into Fleming Companies' $350 million "B" loan even as they chirped for a juicier spread. Now they are hoping there will not be a flex down. The deal was more than two times oversubscribed and the company is weighing its options. "It is still too soon to say whether there will be an upsize or a price flex, but considering the progress of the "B" it is obviously something to think about," said Matt Hildreth, senior v.p. and treasurer of Fleming. Deutsche Bank and J.P. Morgan lead the credit, which is currently priced at LIBOR plus 21/ 4%. But there is opposition to a flex of yet another credit. "The buyside would be pretty [angry] if pricing went lower. It's getting uneconomical for a lot of them," one banker said.

Small pieces of Adelphia Communications' Century Cable facility were said to have traded in the 88-89 range last week as the market waited out whether Adelphia would obtain a waiver on its bank debt after a grace period for the company to file its 10K expired on May 30. By Thursday afternoon the company had reportedly received a 14-day waiver.