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Roughly $20-30 million of Pacific Gas & Electric's bank debt traded above par last Thursday, creeping up from 97-98 after the market digested an 8-K filing from the company that included an accrued interest provision on its existing debt. Traders said Deutsche Bank and Merrill Lynch were involved in the trades. Levels on the debt reportedly climbed to the 101 1/2 102 1/2 range on the letters of credit and the 101-102 range on the revolver. Traders explained the surge in the debt levels came from optimism surrounding an expected approval of a provision in the company's Chapter 11 reorganization plan that would give Class 5 General Unsecured Claims accrued interest on their investment. "The claim is fully covered, you're not going to take a discount on your principle," explained one trader. Officials at Deutsche Bank and Merrill declined comment.

Last weekFitch Ratings downgraded two tranches of the liabilities of Pilgrim Investments' collateralized loan obligation, Pilgrim CLO 1999-1, removing them from credit watch negative. A $60 million class B tranche has been downgraded from BBB+ to BBB- and a $10 million class C tranche from BB+ to BB-. Michele Zacharias, analyst at Fitch, said the current downgrade reflects increased levels of defaults and deteriorating credit quality of underlying assets.

Shoney's replaced Bank of America and other lenders on a $135 million credit for its subsidiary Captain D's with a private equity fund that is hooking up with the company.Lone Star Funds has a merger agreement with Shoney's pending and the fund has taken out the bank debt as part of the union. The fund's new role as lender on the credit, which was given an extension by banks until March, eliminates Shoney's plans for a bond deal to take out the debt originally set to mature in December 2001. Shoney's, under pressure from banks and rating agencies, had been considering a bond deal heavily backed by Captain D's assets to raise capital to pay down the line. "We were looking for longer-term financing and then there was a change of plans when [Lone Star] came in," said Ernie McDaniel, Shoney's treasurer. Calls to officials at Lone Star Funds were not returned.

Deutsche Bank and RBC Capital Markets have landed lead roles on an underwritten credit facility backing Petro-Canada's C$3.2 billion (USD$2 billion) acquisition of the international oil and gas operations of Veba Oil & Gas from Veba and BP. A banker familiar with the deal said the two banks are looking for co-arrangers for the C$3.5 billion loan and general syndication is slated for next month.

XL Capital Assurance, the New York-based asset-backed securities guarantor, has hired Steven Katz for a newly created position as a director in its credit group. Katz comes from Woodcliff Lake, N.J. based buy-side fixed-income manager Seix Investment Advisors. Katz will do credit research on diversified financial companies, with an emphasis on auto-finance and home-equity companies, two of the largest sectors within the ABS market. He will report to Patrick Mathis, senior managing director and chief credit officer who heads the five-person credit team. Katz says he made the move because he wanted the opportunity to expand his credit expertise within a smaller company atmosphere.

Allied Irish Bank has hired Vaughn Buck, a project finance pro from NRG Energy, to bolster its emerging project finance team in North America. AIB has been operating for a while in Europe, but the project financing capabilities are being extended to the U.S., said Paul Carey, director, corporate banking for AIB in New York. The recently established team of 12, set up about a year ago, concentrates on acquisition finance, leveraged finance, and is moving up in project finance, he said. AIB has already participated on some deals, but is indicating a long-term commitment to the market, while the sector is facing some short-term problems, he said.

The AIB move coincides with a round of cuts at Bank of America's project finance department. Charlotte-based Brian Goldstein, head of U.S. project finance, London-based Parker Knight, head of international finance, Hong Kong-based John O'Neill, responsible for Asian project finance and several bankers associated with Enron have been let go by the firm. One banker said the departure of key personnel such as Dennis Magna and Jerry Stalun to Duke Capital Partners last year marked an important point, as they were never replaced. It looks like B of A is merging project finance into the loan syndication group, said one banker, noting the high costs associated with a separate group.

Barclays Capital Asset Management is in the market buying up assets for a new $300 million collateralized loan obligation. The deal, right now referred to in the market as Venture CLO, will be backed with 90% senior secured leveraged loans and 10% high yield bonds. Hans Christensen, portfolio manager at Barclays, declined to comment on the transaction. Underwriter Credit Suisse First Boston is reportedly beginning the marketing process on the deal this week with plans to price notes for investors in roughly three weeks. Officials at the firm declined to comment.

BNP Paribas has relinquished its ambition to win U.S. high-yield lead underwriting mandates and has parted company with David Weinstein, U.S. head of high-yield origination and capital markets. Instead, the firm will concentrate on developing as a co-manager and shoring up its position in the secondary market, according to an official familiar with the plan. David Barcus, a merchant banker, will lead the U.S. origination business under newly promoted global origination head John Ong. Weinstein and Barcus declined comment. Ong did not return calls.

Banc of America Securities is shopping a $200 million, asset-based, three-year revolver for South Korean automaker Hyundai Motor, as rivals cut plants citing excess capacity. The company is the sole distributor of auto parts in the U.S. for Hyundai, which recently confirmed plans to build a new vehicle-assembly plant in the U.S. to support booming sales in North America. General Motors, Daimler Chrysler and Ford Motor have all said plants will be cut. Hyundai cars are generally inexpensive compared to their U.S. rivals. The spread on the credit is LIBOR plus 2%. Commitments are due Feb. 6 and $150 million had been raised by presstime.

Morgan Stanley reportedly bought two yards of dollar puts/Canadian dollar calls Wednesday. The move sent one-week implied vol rocketing from 6.5% to 8.5%. The trade was executed in an hour and one trader said it is the equivalent notional size as goes through in an average week.

Political risk is always the wild card when investing in China. But Amcham's chairman-elect in Beijing, Chris Murck, points out that the real risk for businesses is not the risk of social instability or insurrection: it is that arising from the legal and policy environment of a fast-changing country. "The degree of administrative discretion that still exists means that when people change, so does the implementation of the policies for which they were responsible," he says.