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Change is in the air in Moscow. The Russian people are at last looking to the future, rather than yearning for the Soviet past, and president Putin still has at least 12 months before elections take centre stage to keep up the momentum of reform. Market watchers say that 2002 is a real opportunity for Russia's banking sector to embrace this new zeal for modernisation - but the question remains whether investors, domestic and foreign, can leave behind the shadow of 1998. Guy Norton reports.

The bank market has quickly forgotten the losses incurred after a moratorium on $4bn of commercial bank debt was declared in 1998 and Russian borrowers have discovered a new found popularity. Top oil and gas borrowers are negotiating five year tenors, less complex structures and tighter margins; financial institutions are enjoying looser terms and a diverse range of corporates are edging closer to the market. Ruth Lavelle and Colette Campbell investigate the changing perceptions of Russian risk.

After an 18 month hiatus, Russia returned to the international equity markets in February with a $226m IPO from Wimm-Bill-Dann, an ambitious corporate which shrugged off allegations of mafia links to sell over 12m shares. Fellow manufacturer Danone took a 4% stake in the company, and, as Guy Norton reports, there were plenty of other investors convinced by the story.

Glasgow, Scotland-based Abbey National Asset Management, which manages roughly £4.5 billion in fixed-income assets, is shortening duration in gilts in an attempt to protect itself from potential weakness in the market on the back of improved economic growth. Rod Jack, the firm's fixed-income investment manager who focuses on the U.K. government market, says the next purchase will likely be the U.K. 5% bonds of '12, which are being auctioned this week and should bring interest into the market, because investors want to increase their liquidity. The firm has recently upped its allocation to cash from 2-3% to 5-6% on the view that yields will continue to fall.

The Allstate Corporation is looking to add $20-25 million in bonds of distressed investment-grade telecoms, such as Qwest Capital Funding,Sprint Corp., or WorldCom. Mark Cloghessy, portfolio manager overseeing the firm's $13 billion investment-grade bond portfolio, says he believes investor concerns that these companies will not be able to maintain access to funding are exaggerated, and that spreads will narrow. He would like to add the Qwest Capital Funding 7.25% notes of '11 (Baa3/BBB), which were trading at 490 basis points over 10-year Treasuries on March 22. The issue was trading 130 basis points wide of the Qwest Corp. 8.875% notes of '12 (Baa2/BBB) on March 22. Cloghessy says that while Qwest Corp. produces more cash flow, he does not believe it justifies the spread differential, noting that Standard & Poor's gives the Qwest Capital Funding issue the same rating. Cloghessy would rather add Qwest than Sprint or WorldCom because he does not own any Qwest paper. However, he is concerned about the Securities and Exchange Commission inquiry into the company. Before investing, he would like some assurance that the company will go ahead with a planned convertible bond issue to provide much-needed liquidity.

A time of the signs ... Loan Market Week has been remiss in not updating the story of the riveting saga it first reported on back in December: the state of the large sidewalk sign in front of J.P. Morgan Chase's Park Avenue headquarters. When we last reported on the condition of the imposing nameplate, the banking behemoth had covered it with a blue vinyl slab with the name and logo smartly embossed in white letters. The new covering went over the metal panels sporting the JPMorganChase name which went over the granite/marble sign sporting the Chase Manhattan name. The metal panels were looking a little rough, with some details in the letters knocked out and some minor discoloring on the borders. But in an incredible plot twist, it turns out the blue sign was just a temporary measure until a brand spanking new metal sign was set to be mounted, in all its glory. Stay tuned.

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.

Reto Koller, portfolio manager with Winterthur Investment Management, will switch from a neutral Treasuries exposure to a barbell strategy in a couple of weeks by moving out of five- to 10-year Treasury allocation and buying into three-month and 30-year Treasuries. The move would involve 10% of the portfolio or $200 million. A barbell strategy increases protection against price depreciation along the intermediate part of the yield curve. Koller reasons that by mid-April, the Treasury curve will flatten ahead of the first Federal Reserve tightening which he anticipates will be in May following signs the economy is growing. He says that the market's anticipation of the Fed move will lead to a flatter yield curve as early as mid-April. Koller says a trigger for his barbell strategy will be when the yield differential between the long bond and the two-year Treasury decreases to 200 basis points. Last Monday, this yield differential was 211 basis points.

Bank of America's $225 million "B" term loan for American Seafoods Group is over two times oversubscribed, while B of A and Credit Suisse First Boston's $800 million DaVita "B" has $1 billion in commitments. A banker said the Seafoods recapitalization is almost complete, with 80% on the pro rata also filled. A meeting was held on March 21 for institutional accounts. The credit consists of a $75 million five-and-a-half-year revolver priced at LIBOR plus 3%, with a 1/2% commitment fee. The $90 million term loan "A" has the same tenor and spread and the "B" is priced at LIBOR plus 31/ 2%. "The original transaction was put in place in January 2000, when Centre Partners Management, members of management and two native Alaskan equity investors purchased the company," explained Scott Perekslis, managing director at Centre Partners (LMW, 3/11).

Aquila Power Services, a newly formed holding company of private-equity firm First Reserve, tapped Deutsche Bank for a $100 million senior secured debt package backing the acquisition of Welding Services and is currently eyeing further acquisitions. "Aquila was founded by First Reserve to capitalize on the growth for services and equipment in the power industries," explained James Bennett, a v.p. at Aquila. "The firm [Aquila] does not have a specific fund devoted to acquisitions, but First Reserve does have over $2.5 billion under management," he added. The acquisition is the second after the acquisition of C&W Fabricators for $60 million, Bennett said, but he declined to name potential targets or a timeframe. Welding Services is a specialty mechanical maintenance contractor.