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Pension fund and endowment investment in distressed debt in 2002 is far ahead of previous years as funds are placing money in one of the few areas offering attractive returns. In the first six months of this year, there have been eight completed searches resulting in 13 mandates, according to Loan Market Week andiisearches.com . By comparison, there were only two completed searches over the same period last year, and just nine searches completed in all of 2001. Furthermore, the distressed debt market should maintain its momentum in the second half of this year with three additional searches in progress and one more likely to begin shortly.

Goldman Sachs and J.P. Morgan filled the eight-year, $305 million "B" term loan for Berry Plastics at a comparatively tight spread of LIBOR plus 3 1/4 % last week. In fact, the "B" piece was well oversubscribed, with a number of new investors piling into the deal, according to one banker. She noted that it is still too early to say whether pricing on the deal will be flexed. Calls to Goldman and J.P. Morgan officials were not returned.

Graham Packaging's new $700 million credit facility and proposed $100 million offering of senior secured notes have garnered speculative-grade ratings as both Standard & Poor's andMoody's Investors Service are pinning weight on the company's planned initial public offering. S&P has assigned a B rating to the credit facility and a CCC+ rating to the notes, while Moody's has assigned corresponding ratings of B2 to the credit and Caa1 to the notes.

UBS Warburg has altered the structure of its financing package for Herbalife International, upsizing the bond portion from $220 million to $250 million. In addition, the $165 million 'B' term loan will be reduced by $5 million and $17 million in mezzanine financing will be shelved. One banker said a shortage of paper for the consumer products sector in Europe is spurring on the $100 million Euro-denominated bond piece. A Herbalife spokesman could not confirm details by press time. UBS officials declined to comment.

At least two portfolio managers say they are considering shifting their positions in auto credits because spreads have begun widening in the sector after a three month rally. David Killian, portfolio manager at Stone Ridge Investment Partners in Malvern, Pa., says he is considering swapping out of 10-year General Motors paper to pick up a similar yield in five-year maturities. He says he would add GM because that is the auto credit in which he is currently lightest. He wants to wait and see if the name weakens further. Last Friday, GM's 6.125% of '07 were trading at 146 over five-year Treasuries. He says the notes were at least 50 basis points wider some three months ago.

Providence Capital is getting ready to roll out a hedge fund focusing on distressed bank debt. According to sister publication Alternative Investment News, the fund, called Mauretania Partners, will launch July 1. Historically, opportunities with companies that defaulted on their bank loans were due to fundamentals, such as cyclical markets. But now, in the post-Enron world, the firm is seeing more cases of distressed companies as a result of unethical management, according toTom Schmidt, founder.

Three leveraged credit facilities recently syndicated by Credit Suisse First Boston were oversubscribed last week, despite some investor grumbling over the opportunistic nature of the refinancings. Over the past couple of weeks, CSFB has been shopping a $255 million facility for Buffet's and a $530 million "E" term loan for Mueller. The firm also came to the market recently with a $600 million "C" term loan, jointly led by National City Bank, for OM Group. A CSFB banker declined to comment.

Debbie Grosser has left Salomon Smith Barney, where she was a director and corporate bond analyst covering the utility sector. A person familiar with the firm's plans says it has not yet decided what to do about a possible replacement. Calls to Robert Waldman, head of corporate bond research, were referred to Mary Ellen Hillery, a firm spokeswoman, who confirmed that Grosser has left but declined further comment.

Claudio Phillips, head loan trader at Salomon Smith Barney, resigned this week. Phillips reported to Jonathan Calder, head of loan sales and trading at Salomon. A spokesman for Salomon confirmed his departure but would not comment on whether the company will look to hire a replacement.

Los Angeles-based Special Value Investment Management, an affiliate of private investment firm Tennenbaum & Co., has closed an $885 million arbitrage collateralized debt obligation that includes what is believed to be the largest-ever equity tranche in a market-value CDO. The CDO, called Special Value Absolute Return 1, is composed of distressed securities including leveraged bank loans, high-yield bonds, equities and mezzanine pieces. The equity tranche is $300 million more than 30% of the vehicle. The average equity tranche for a CDO is 15%. "Our philosophy is to be cautious, and we don't want to be close to a default," said Michael Tennenbaum, former vice chairman of investment banking at Bear Stearns and founder of the investment firm, of the big equity cushion.

Tyco International's bank debt ticked up last week from the high 80s to the low 90s as investors look forward to the company's spin-off of the CIT Group. One trader said a sizeable amount of the company's February 2003 facility had traded in the 93-94 range earlier last week. Mid-week bids for the name were believed to sink to the 92 1/4 92 1/2 range before recovering to the 93 1/2 level after there were no sellers. A spokesman for the company declined to comment on the trades.