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Tyco International's February 2003 bank debt traded in the 87-89 range last week, down from the 94-95 level the previous week. Dealers had opposing views on what was causing the paper to move. One said that market players were worried the company would not be able to complete its spin-off of the CIT Group because of the weak equity market. Another pointed out that trading levels for the bonds have fallen an average of 15 points, causing pressure on the bank debt. But others suggested that the downturn had more to do with a cloud of suspicion hanging over any company that had a hint of accounting issues. Calls to the company's spokesman were not returned by press time.

Moody's Investors Service has added Jim Brennan as a collateralized debt obligation analyst in its New York office. He will report to Isaac Efrat, managing director, and will rate various CDO transactions from cash-flow deals to synthetic transactions, including arbitrage and market value deals. Brennan says he started two weeks ago and that his position is a newly created one. He joins from Mutual of Omaha in Nebraska, where he reported to Donna Ennis, v.p. of structured securities. Mary Kavan has replaced him there, he says.

Moody's Investors Service has declared the U.S. wireless industry a higher credit risk and will engage in an intense industry review that may lead to revised ratings on several wireless companies. The rating agency's primary concerns include doubts on long-term subscriber growth, market saturation and increased competition.

Xerox's recently renegotiated credit line saw some serious action in the secondary loan markets last week and, as LMW went to press, one desk had quoted the new paper off three points due to reports that the company will restate its revenue once again. "They are trading all over the place," one trader added. Both Lawrence Zimmerman, cfo, and the company's spokesperson could not be reached by press time.

Just as leveraged buyout funds were the outstanding asset class of the early 1990s and venture capital funds led the pack in the latter half of the 1990s, the first five years of the millennium will belong to distressed funds, according to Wilbur Ross, chairman and ceo of WL Ross and Co. And the distressed funds that will really succeed are those funds equipped to deal with the defaults of smaller companies, Ross said. That is because the majority of defaults in the current crop involve less than $250 million in liabilities, and these smaller companies are under-researched by Wall Street, which does not have the analytical resources to deal with one new bankruptcy every two or three days, he explained. As a result, the vast bulk of sell-side research is focused on a handful of big names, like Kmart and Enron.

BNP Paribas is on the lookout for asset-backed analysts for its London-based ABS research team. One of the new hires will replace Ingrid Blauer, the former head of ABS research who left the firm about a month ago for personal reasons, says a Paribas insider. Another will be an addition to the team, bringing the total number of ABS analysts in London to three. Currently, Leo Wang, who has been at the firm for some time, is handling all the ABS research duties.

Approximately $639 million in collateralized loan obligations for PIMCO and Blackrock Financial Management are likely to price this week, and more than $1 billion from three other managers is on the way. But a stocked pipeline may be crimped by a dearth of equity investors and solid assets, spelling doom for many of the dozen or so new CLOs being structured. "Raising equity is very tough if you don't have the experience," said David Hinman, executive v.p. and portfolio manager at PIMCO. "Of the 12 to 14 CLOs in the market, about half won't get done. This is healthy, as it imposes discipline."

UBS Warburg has done an about-face on Herbalife International by canceling a Euro 100 million bond sale after investors pushed for too high of a yield. Instead, the $165 million "B" term loan has been upsized to $180 million and the $150 million U.S. bond portion has been bulked up to $165 million.

Bids for WorldCom bank debt plummeted into the teens last week following news of the company's fraudulent booking of approximately $3.8 billion in expenses, but no paper traded and most of the desk activity seemed to be limited to shrugging and head-shaking. The company's $2.65 billion line was quoted at a five-point premium to its bonds when LMW went to press on Friday. The $2.65 billion line is pari passu with approximately $30 billion in bonds, but the bank debt currently is bid at that premium because there is a sliver of hope that the banks will be able to negotiate some extra security that will put their exposure ahead of the pack. If not? "Sell the bank debt if it is at a premium to bonds," one trader said. "They are all going to be lumped together and the bank debt has a smaller coupon."

The entire secondary market took a hit in the wake of WorldCom's announcement, with names like Nextel Communications and Charter Communications trading down. Nextel's bank debt traded at 78 on Wednesday and improved to 78 3/4 on Thursday, but the paper still was down from the 83 1/2 level, where it had been trading earlier this month. Charter started out on Wednesday with an 88 to 91 bid-ask spread but firmed up to 89 to 92 market later in the day. The name had been trading solidly in the 92 range earlier last week.

Two Australian mortgage lenders are expected to launch Eurodollar securitisations in the next fortnight, and a third will tap the global market. The deals will be an opportunity to test the asset backed market's newfound status as a safe haven, in the context of widespread anxiety about WorldCom's hidden losses.