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European high-yield issuers are proceeding with deals this month despite poor investor sentiment, continued credit downgrades and abysmal equity markets. "It's ironic that the busiest two weeks of the year for high-yield coincides with the worst weeks for overall market sentiment," says one high-yield trader in London. With three or four more deals in the pipeline, investors have been lightening up on holdings considered too rich, which, coupled with general financial market woes, has put the secondary high-yield market off by two or three points, he adds.

The hardball tactics adopted by banks continues, with CMS Energy the latest company to face the backlash of a market struggling to come to terms with the aftershock of accounting scandals. The Dearborn, Mich., energy company was able to get all 21 banks in its lending group to agree to amend $1.15 billion in existing bank facilities last week and six banks to agree to a new $150 million line, but not without some painful concessions. "Probably the hardest decision was to agree to a limit on common dividends on CMS stock to about 50% of the current level," said Al Wright, cfo, in a conference call to analysts. Other bad medicine includes a hike in the spread to 3% over LIBOR on most of the lines and covenants that dictate asset sale proceeds must pay down outstanding amounts on the new facilities before they can be used for other purposes.

Volume was light last week, say traders, but several beaten up names got a lift, including Qwest Communicationsand Paxson Communications.The cable sector also turned in a decent week.

Appleton Capital Management, a Dublin-based commodity trading advisor with $110 million under management, will launch a fixed-income arbitrage hedge fund on September 1, according to BW sister publication Alternative Investment News. The Appleton Fixed-Income Opportunity Fund will be run by Stephen Lane, previously a trader at ABN AMRO, says Jeremy O'Friel, head of marketing. The fund will mostly trade European and U.S. investment-grade corporate debt, he added.

Moody's Investors Service has downgraded Solutia's secured credit facility from Ba1 to B1 and its senior unsecured notes and debentures from Ba3 to B3. The rating agency made the move because Solutia and its bank group have yet to hammer out an agreement to refinance the credit facility, which matures on August 13. The company, however, contests the premise for the downgrade. "We are still confident that we will get the amendment and extension approved," said Kevin Wilson, treasurer.

Masonite International has so far delivered on pledges to reduce debt through the divestiture of its Towanda manufacturing plant, but the company still faces challenges in dealing with the heavy debt load incurred to finance its combination with Premdor last year. The Towanda sale, mandated by the Canadian Department of Justice, enabled the Mississauga, Ont., door manufacturer to repay a $100 million term loan, said Joseph Snider, senior analyst atMoody's Investors Service. Now Masonite is attempting to repay a high-cost subordinated seller note and replace it with an expanded bank facility, he noted.

Masonite International has switched its lead bank from Bank of Montreal to SunTrust Bank for an amendment to its bank facility. According to bankers, SunTrust took the initiative in presenting a simplistic plan to the company. That plan calls for the repayment of $126 million in subordinated debt at $105 million and a reduction in interest expense on its credit (see Credit in Focus, page 5). Officials at both banks declined to comment on the switch, and Robert Tubbesing, cfo of Masonite, did not return repeated calls.

Bonds of merchant energy companies were lower last week following news that Duke Energy, an investment-grade credit that many believed would stay free from scandal, engaged in round-trip trades to artificially boost trading volumes.

Merrill Lynch and J.P. Morgan are preparing to launch syndication of the long-awaited bank facility backing Code Hennessy & Simmons' $275 million buyout of Otis Spunkmeyer. The $140 million bank piece, which launches on Wednesday, is split between a $120 million "B" term loan and a $20 million revolver. Tenor on the revolver is six years and six-and-a half years on the "B" piece. Pricing and ratings could not be ascertained by press time. Officials at the banks declined to comment.

Morgan Stanley is leading a refinancing for New World Pasta designed to trim interest costs on the basis of the company's de-leveraging efforts. The existing $150 million "B" term loan is priced at LIBOR plus 4%, but the new loan is being offered at LIBOR plus 31/ 4%. The deal was launched last Thursday. Calls to Morgan Stanley were not returned.

Nextel Communications gave the market the best news it has had in some time with an extremely positive earnings call last Tuesday, which traders described with strongly- worded adjectives such as "heroic." The 9.375% notes of '09 (B3/B) went as high as 72, before settling at 68 by Thursday afternoon. They started the week at 59.5. Other wireless bonds also got a lift on the news. The Airgate PCS 13.5% notes of '09 (Caa1/CCC) were up four points to 28.

Wireless names were the topic of conversation in the secondary market last week, with Nextel Communications leading the pack. "Strong results caused the market to tick up," one investor said, referring to Nextel. Indeed, the name rallied from the high 70s after the company announced promising second quarter results last Tuesday. Some market players claimed that the paper traded as high as 86 after the news, but others said it peaked in the 85-85 1/2 range, trading into retail. The highest Street trade was 84 7/8.