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Standard & Poor's recent announcement that it considers Qwest Communications International's recent debt restructuring to be a distressed exchange could trigger credit-default swaps, but protection buyers are holding fire on triggering around USD1 billion (notional) in contracts. If Qwest's action is deemed to be a credit event it would be the first case following an optional restructuring, said market watchers. Traders said as soon as one buyer triggers a contract others will follow suit as most Wall Street players do not have directional positions on the name and will be forced to trigger their hedges as soon as buyers trigger swaps the firms have sold to them. If a seller of protection refuses to pay out a New York or English court will likely rule on the issue.

Fischer Francis Trees & Watts is looking to shift up to $300-500 million out of selected banking names in the first quarter in a bid to add yield. Sai Choy, portfolio manager at the $37 billion fixed-income investor, says the firm will look at the new issue market as well as the integrated utility sector, where there may be fresh buying opportunities in the event of further credit erosion.

Gartmore Investment Management, which manages £1.5 billion in sterling- denominated corporate bonds, is seeking to increase its allocation to telecom names and high-yield bonds. Paul Grainger, fund manager for the firm's sterling corporate bond fund in London, says Gartmore has been adding selectively to telecoms and will continue to buy on weakness and volatility. In addition, he will buy high-yield sterling bonds on a name-by-name basis.

The high-grade market looks to be among the best options for bond investors in an overall low-yield environment created by last year's massive Treasury rally, according to several portfolio managers and strategists. They argue that total returns for high-grade bonds will almost certainly be less than last year's 9-10%, they should outperform government securities due to improving corporate credit quality and a reduced supply of new paper.

Apparently if a tree falls in a forest it doesn't make a noise if no one is around to hear it. At least that is what one loan market player said with regard to the effect of Tyco International's accounting disclosure on the deserted secondary bank loan desks last week.

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.

Lawrence Shaw, portfolio manager at Alliance Capital Management, is pondering protecting or reducing his portfolio's triple-B corporate exposure by 10%, or $100 million, in anticipation of greater corporate sector volatility due to the potential war with Iraq. He has not decided if he will do this via the use of credit default swaps or by rotating into Treasuries. Shaw says he will make the move this week or next based on the amount of new corporate issuance.

Kmart's bank debt continues to lag after the holiday season produced weaker than expected results for the retail sector. Levels on the company's three-year, pre-petition revolver continue to be quoted in the 25-30 context, according to dealers. The $1.1 billion loan is led by J.P. Morgan. "The retail season shaped up to be poorer than expected," said one trader, noting that buyers for the paper have backed off. Kmart reported a loss of $383 million, or 76 cents per share, for its latest quarter.

Lehman Brothers is set to close by the end of this month a $30 million add-on piece for Corrections Corporation of America's (CCA), six-year "B" term loan. Pricing remains at LIBOR plus 31/ 2% on the now $595 million institutional tranche. The piece was sold to participating investors in the existing facility, said a banker familiar with the deal. He added that a 10 basis point up-front fee was offered. A Lehman official declined to comment.

Stanfield Capital Partners has launched a distressed debt hedge fund and has hired two managing directors to work on business development, said Kevin Murphy, managing partner. He declined to provide further details regarding the new fund but added Stanfield is planning to add two or three analysts in the first quarter this year. Stanfield has tapped Richard Johnson, a managing director at hedge fund firm Lucerne Partners, and Marion Patterson, an executive in the hedge fund placement group at Links Capital Group.

Any boost that Tyco International's bank debt holders could expect to reap from the company's disclosure that past aggressive accounting measures would have no material effect on the company's financial statements was muffled due to the slow holiday week. The company's revolver expiring in February is inching closer to par as a refinancing approaches and Tyco's bank debt maturing in February 2006 was quoted in the mid 90s. But, bank debt levels remain largely unchanged.

United Rentals has completed an offering of $210 million, 103/ 4% senior notes and has amended its current credit facility to give the company a softer cushion for its minimum interest coverage ratio requirements. "It was an opportunistic move based on the availability of capital in the high-yield market to get additional flexibility [for the credit facility]," said John Milne, president, cfo and director for the Greenwich, Conn.-based equipment rental company. "We anticipated to be in compliance," said Milne, explaining that the company wanted the extra breathing room as the construction industry is exposed to cyclical changes and the market downturn. "It's not a change in our view of our business," he added.