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The University of North Carolina at Chapel Hill may look to hire one additional distressed debt manager over the next six months. The roughly $1 billion endowment is nearing the top of the allocation range with which it is comfortable, but there may be an opportunity to move a little higher, according to Mel Williams, v.p. and director of private equity investments. "The distressed market is still attractive, and there are some strategic gaps [in our portfolio] that we might be able to fill with a new manager," Williams said. He noted, however, that it has yet to be determined whether any additional investment will go to a new manager or an existing one. UNC's seven-person investment team will make a decision before the end of the year on the additional allocation and how to best fill it.

Though bond spreads have already widened significantly for Royal Ahold NV, an international supermarket retailer headquartered in the Netherlands, a buy-side analyst suspects that the worst may be yet to come. Arguing that the company has grown largely through acquisitions, the analyst calls Ahold "the WorldCom of supermarkets." While she has no evidence to suggest that the company is fudging its numbers, she questions how same store sales could be growing by roughly 4-5% along the Eastern seaboard, while competitors such as Krogers and Delhaize Group are seeing sales anywhere from slightly down to barely improved. "It's really hard to imagine that when same store sales are unchanged everywhere else, Ahold is just kicking everyone's butts."

The bank debt of Wyndham International dropped from the low 80s--with a $2 million piece of its "B" term loan trading at 73--following the company's announcement that it would revise its EBIDTA guidance for the third quarter downward from $82-87 million to $60 million. The market for the name was wide last week, with offers sinking to 76 and bids falling into the high 60s by Thursday evening. Traders said there were likely be more buyers than sellers at those levels, while others noted that the revision was expected.

Armstrong World Industries has reduced the borrowing capacity under its debtor-in-possession facility for the third time in two years. The facility, which started as a $400 million revolver, is now down to a $75 million letter of credit facility. Because the new agreement eliminates the company's ability to borrow under the line, Armstrong will save substantially on fees, dropping its annual payments from $174,000 to $59,000 after paying $125,000 in fees for the changes. "This reduced facility is more than sufficient, and we are pleased with the resulting savings in related fees," said Leonard Campanaro, cfo.

Even though the first-loss tranches of collateralized loan obligations have been responsible for keeping some deals from coming to market all year, the double-B and triple-B tranches of deals that have gotten off the ground are being touted as some of the best picks for the final quarter of 2002. According to Lang Gibson, director of structured credit research at Banc of America Securities, there is real value in these tranches of CLOs, which offer high risk-adjusted returns.

Bank of America, Key Bank, Merrill Lynch and Morgan Stanley are set to lead a $875 million credit for The Timken Company backing its $840 million acquisition of Ingersoll-Rand's Torrington subsidiary. Glenn Eisenberg, cfo, said the facility will comprise a five-year, $500 million revolver and a one-year, $375 million term loan. A bank meeting could be held by the end of this week to discuss terms of the facility, a banker familiar with the deal noted. Officials at the lead banks either declined to comment or did not return calls by press time.

Bank of America, Deutsche Bank, BANK ONE and Lehman Brothers have pegged this Thursday as the date for the senior managing agent meeting for the credit backing Ball Corp.'s $900 million acquisition of Schmalbach-Lubeca. The bank deal totals approximately $1.45 billion, including a $500 million multi-currency revolver that will have between $100 million and $150 million drawn at closing, according to a banker familiar with the transaction. The bank debt also will include a $250 million "A" term loan denominated in either euros or British pounds, a US$500 million "B" tranche and a E200 million "B" piece. An approximately $300 million senior note offering denominated in euros and U.S. dollars will accompany the bank debt.

Barclays Capital Asset Management reportedly is warehousing assets for its second CDO composed of U.S. leveraged loans. The vehicle, called Venture CDO II, is slated to total $300 million and will consist of at least 90% loans and a maximum 10% bucket of high-yield bonds. A spokeswoman for Barclays declined to comment on the firm's plans, and bankers at Credit Suisse First Boston, which has been tapped to underwrite the notes, did not return calls for comment.

The recent downgrade of British Energy, which in turn prompted downgrades for three static collateralized obligations, has some CDO bankers even more wary of static style deals. These same types of deals have been hit before by events surrounding Enron, WorldCom, Tyco, Qwest and the like, says one CDO expert of the recent CDO downgrades.

Canyon Capital Advisors, a Beverly Hills-based asset manager, is readying Canyon Capital CBO, a $375 million deal that will be its first collateralized debt obligation of the year, and its second overall, says a CDO market official. J.P. Morgan Securities is underwriting the notes, which are set to price at the end of the month or early November. A mix of 75% high-yield bonds and 25% leveraged loans back the notes. The collateral pool has a single-B weighted rating average. No price talk levels were available at press time last Thursday. This deal comes at a time when high-yield CDO issuance has slowed down significantly, due to investors' skittishness on high-yield bonds; but with wider high-yield spreads, those deals are attractive from a structurer's standpoint as they offer cheap collateral and good arbitrage, notes a CDO analyst (BW, 9/9).

Standard & Poor's has lowered Lucent Technologies' corporate credit rating from B to B- and placed the company on watch with negative implications, following the announcements of a $1 billion restructuring charge, a cancelled $1.5 billion revolver and downsizing plans. The downgrade also reflects S&P's concern over the Murray Hill, N.J., communications supplier's ability to raise positive cash flow over the coming year due to the continued industry slump. "The [communications] industry is extremely challenged," said S&P analystBruce Hyman, adding that he doesn't foresee any significant revival for Lucent until 2004.

With credit deteriorating, collateral managers of collateralized debt obligations are pushing for extended ramp-up times for their deals. Scott Roberts, president of Deerfield Capital Management in Chicago, a collateral manager that has originated 13 CDOs totaling $6.5 billion, says that, "having the flexibility to have the longest ramp-up as possible is crucial" because the manager needs to buy the best possible bonds for the deal. He adds that, "If we are not comfortable with the ramp-up period, we won't do a deal with a dealer."