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Expected returns in this latest go-around through the corporate credit cycle are not likely to be as high as when defaults peaked in the early 90s, according to conference participants. Historically, the greatest returns for investments in distressed debt have come at the times of greatest supply, said Marc Lasry, managing partner of Avenue Capital. But while the supply of distressed debt may be at an all-time high, return rates have yet to reach the levels experienced in the early 90s. According to data from Credit Suisse First Boston, overall default recovery rates in the early 90s were roughly 37%, compared to recovery rates of only 27.6% for the 2000-2001 period.

Lehman Brothers' London-based head of European equity derivatives sales Francois Pham-Quang has left the firm to open a fund specializing in the securitization of music industry assets, according to BW sister publication Derivatives Week. The fund, called The Music Fund, will securitize the future earnings of several types of music assets, such as catalogues of published songs. The concept is similar to The Pullman Group's securitization of royalty streams, colloquially know as Bowie bonds. However, the financial technology used will look more like mortgage-backed securities, according to Pham-Quang. He predicted the fund would start trading when it has raised $150 million. It has seed capital of some $30 million.

European securitization analysts are not overly concerned about the huge amount of asset-backed paper scheduled to hit the market this quarter. Analysts expect between E40-55 billion in new deals to price this quarter, but believe the market will be able to absorb it. The European ABS market saw a substantial amount of issuance last year and spreads did not widen, notes Robert Paterson, head of securitization research at Morgan Stanley in London. Last year, E56.4 billion in ABS paper was priced in the fourth quarter. Paterson says investors still consider asset-backeds to be a safe haven from corporate bond volatility. Approximately E83 billion in European ABS paper has been issued year-to-date. Analysts expect the total to reach between E125-135 billion by Dec. 31.

European asset-backed investors, who traditionally would buy into collateralized debt obligation equity tranches, are beginning to consider consumer ABS equity tranches as a diversification play, says Birgit Specht, head of European securitization research at Dresdner Kleinwort Wasserstein in London. Investors are moving down the credit curve in the consumer sector due to continued volatility in the corporate bond markets, she adds.

Exopack recently replaced $130 million of senior and subordinated debt with a new $120 million credit led by BNP Paribas in order to lower its borrowing costs, according toJohn Heaps, cfo. The company originally secured the debt in conjunction with its spinoff from International Paper. But with a year of solid performance under its belt, the Spartanburg, S.C., specialty packaging company was prepared to return to the market, Heaps said.

XL Capital Assurance, a New York-based financial guarantor, has added two analysts to its credit group. Delia Fance, group v.p. consumer products at ABN AMRO, joins as managing director, responsible for credit analysis of corporate bonds. She reports to Patrick Mathis, senior managing director and chief credit officer, who heads the credit group. Fance was unavailable to comment. She replaces Neil Pack, who has been promoted to head of West Coast public finance.

Banc of America Securities, Salomon Smith Barney and Wachovia Securities have reduced the size of the proposed bank deal for FMC Corp. by $50 million following the issuance of $355 million of senior secured notes. The 101/ 4% notes were priced in a very tough market at 98.7 to yield 101/ 2%, one banker said. Calls to the company and the banks were not returned.

FTN Financial released collateralized mortgage obligation structuring veteran Charles Smart just seven months after being brought on to add to its nascent New York mortgage effort (BW, 2/3). Smart was not able to be reached. He had overseen the issuance of four seperate $250 million deals, transactions that had been highly profitable for the growing regional dealer, according to several FTN Financial insiders. Deke Iglehart, the Memphis-based head of fixed-income sales and trading, declined to comment, citing corporate policy. John Hanlon, the head of the CMO effort, was vacationing in Italy and was due back today.

Greenwich Capital Markets is the newest addition to Freddie Mac's 10-year reference note underwriting group, according to agency desk co-head Scott Graham. The firm was included in the underwriting group announced last Monday, which also included joint lead managers Merrill Lynch and Morgan Stanley. Jerome Lienhard, senior v.p. of investment funding at Freddie Mac, did not return a phone call seeking comment. An agency pro at a competing primary dealer says both Freddie and Fannie Mae tend to heavily scrutinize a dealer before admitting them to their selling groups, both of which contain 10 members. Potential managers are evaluated on their agency bond trading volume and research, capital base, the experience level of their agency team and trading volumes in related products, such as Treasuries and mortgage-backed securities.

A $397.5 million real estate collateralized debt obligation, whose collateral is managed by GMAC Investment Advisors, is expected to price later this month. Goldman Sachs, Wachovia Securities and Morgan Stanley are on a roadshow until the end of this week to sell the debt of G-STAR 2002-2 CDO, says a CDO market official. Goldman and Wachovia are joint lead-managers while Morgan Stanley is co-manager. No indicative pricing was available at press time. Brian DiDonato, portfolio manager at GMAC Investment Advisors in Horsham, Pa., did not return calls.

J.&W. Seligman & Co. unloaded the last of its J.P. Morgan Chase holdings last Monday, selling $6.63 million of the 5.25% notes of '07 (A1/A+) at a spread of 164 basis points over Treasuries. The bonds had widened to 189 basis points over the curve by last Friday morning. "We're probably out for good," says Paul Pertusi, portfolio manager of $1.75 billion in taxable fixed-income at the New York-based asset manager. He cites concerns about the bank's overall strategy and execution.

OppenheimerFunds subsidiary HarbourView Asset Management and Merrill Lynch Investment Management are shopping for assets for two new collateralized loan obligations, as both firms try and chalk up their second deal in a year. Both firms are tapping the market at an opportune moment, one portfolio manager stated, explaining that spreads on notes being issued to fund the transactions are rising but the underlying asset spreads also are widening considerably. The Merrill Lynch deal is a $328 million cash-flow arbitrage transaction called LongHorn CDO III, said a banker. Merrill closed on LongHorn CDO II, a $350 million vehicle, in February. The approximately $300 million HarborView vehicle, underwritten by Salomon Smith Barney, will be the firm's fifth CDO and it follows hot on the heels of HarbourView CLO IV, a $350 million vehicle that closed in January.