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Lord Abbett originated its first collateralized debt obligation transaction--a $179 million deal likely to close next week, says a CDO market official. Called Golden Night CBO, the deal, underwritten by Merrill Lynch, is only the third high-yield CDO to have been priced this year following Salomon Smith Barney's Newton CDO, which was priced in the first quarter, and Bear Stearns' Silver Lake Funding, which was priced three weeks ago. CDO structurers say conditions for high-yield arbitrage are better in the past two months with high-yield bond spreads widening. Yet, they add, finding investors remains challenging. This official says Golden Night was first marketed in early July with a $300-400 million target size. Due to the challenge of finding mezzanine and equity investors in deals backed by high-yield collateral, the deal was downsized to $179 million, he says. Scott Bohner, CDO director at Merrill Lynch, declined to comment. Chris Towle, portfolio manager at Lord Abbett, did not return calls by press time.

Magellan Health Services jumped into the spotlight last week as Moody's Investors Service placed the company on review for a possible downgrade over concerns that it might violate its bank covenants. Bank debt levels were said to have dipped from the 97-98 range into the mid-90s after the report, although no trades could be confirmed. "No one wants to get in front of anything with risk," a dealer commented.

The high-yield market "appears headed for a long bounce along the bottom," according to Marty Fridson, chief high-yield strategist at Merrill Lynch. However, at least one junk manager, Brendan White of Fort Washington Investment Advisors, thinks the time is right to increase high-yield allocation.

The $130 million credit facility backing Code Hennessy & Simmons' $275 million buyout of Otis Spunkmeyer is being allocated today. Approximately 20 accounts are said to have subscribed to the "B" term loan, which will close and fund later this week. Merrill Lynch and J.P. Morgan offered the 6.5-year "B" piece at 98 and reduced the size of the loan by $10 million to $110 million. Code Hennessy threw in additional equity to cover the reduction. Officials at Merrill declined to comment.

Roughly $10-15 million of Owens Corning bank debt changed hands last week as levels slid from the high 50s into the low 50s. One trader noted that investors were still nervous about the asbestos issues facing the company. In its most recent 10-Q filing last Monday, the company stated that "any estimate of liabilities for pending and expected future asbestos claims is subject to considerable uncertainty because such liabilities are influenced by numerous variables that are inherently difficult to predict."

PETCO Animal Supplies has clinched cheaper pricing after coming to market in an effort to cut its borrowing costs. By replacing a $193.5 million "B" term loan with a new "C" loan of the same size, the company was able to cut its interest rates from a spread of LIBOR plus 31/ 2% to LIBOR plus 3%. Norman Dowling, v.p. of finance, said it was a combination of strong company performance and market conditions that encouraged the company to go forward with the refinancing.

Kevin Corgan, v.p., has moved to the investment-grade trading desk from his position as co-head of the junk desk. Corgan referred calls to Ed Canaday, a firm spokesman, who says the move was made because the investment-grade desk needed an experienced trader as trading volumes have increased on that desk due to market volatility. Prior to joining the high-yield desk, Corgan had worked in high-grade. Corgan now reports to Paul Huchro, head of the high-grade desk. Lester Brafman stays on as the sole head of Goldman's junk desk.

Last week's tone was modestly positive, aside from a few credit-specific blowups. Kmart's bonds dropped some 20 points after the Chapter 11 retailer asked for an amendment to its credit facility. Echostar saw some volatility, but ended the week unchanged. Here was other action.

Levels for XO Communications' bank debt have shot up thanks to an amended tender offer by Carl Icahn'sHigh River partnership. The amended tender offers a price of 70 for XO's senior secured bank debt and the current market for the name has followed, although dealers maintain that no one was trading the paper.Carl Icahn could not be reached by press time.

Imagistics International, formerly Pitney Bowes Office Systems, has amended its $225 million credit facility to reduce pricing and increase its share repurchase limits. The motivation behind the amendment is primarily to reduce the interest rate, explained Charles Wessendorf, v.p. of investor relations. "The credit metrics have improved measurably and, based on performance, Imagistics warrants the new interest rate," he said.

J.P. Morgan and Credit Suisse First Boston are preparing a financing package backing J.P. Morgan Partners' $500 million acquisition of Brand Services from DLJ Merchant Banking. A banker confirmed the deal would be launched next month, but he declined to be more specific. Pricing and terms could not be ascertained. Calls to J.P. Morgan and CSFB were not returned.

Bank of America and Credit Suisse First Boston are preparing to launch a $500 million debtor-in-possession facility for U.S. Airways on Sept. 4. The one-year credit will provide the Arlington, Va., airline with funds while it seeks to achieve cost savings from aircraft lessors, financiers and other key stakeholders. Pricing on the $250 million revolver and $250 million "A" term loan is LIBOR plus 31/ 2%, a banker noted, adding that the banks are offering a 1% upfront fee on the revolver. Officials at CSFB and B of A did not return calls.