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Credit-default protection widened 400 basis points on Gap after speculation that the largest U.S. clothing chain was at risk of violating its loan covenants. Credit derivatives traders reported that the clothing company was among the most heavily traded last week despite overall low volume in the run up to Christmas.

Trading on the U.S. dollar/Argentina peso forward market came to a near halt last week as market players backed away in the wake of the country's ensuing political and economic chaos and waited to see if the currency peg to the U.S. dollar breaks. By Friday the market had already adjusted for the pending break by pricing the one-month forward between ARS1.40-2. "Nothing is happening in the market now. It's so illiquid. There is no interest to buy or sell. The market is nonexistent," said Hank Lynch, v.p. of foreign exchange options at FleetBoston.

UBS Warburg has agreed to join Morgan Stanley and J.P. Morgan in standardizing credit-default swap agreements between the major counterparties, according to Mike Pohly, head of credit derivatives at Morgan Stanley in New York. Officials at UBS did not return calls.

HBOS Group, the U.K. retail banking giant formed by the merger of Halifax and Bank of Scotland, is considering making the jump to becoming a credit market maker from an end user, with USD20 billion in credit investments. Officials from the two fractions in London said the new entity is contemplating starting a credit trading desk under the HBOS banner that may boost its credit portfolio by USD5 billion. The firm currently invests in cash and synthetic products, including synthetic collateralized debt obligations and mortgage-backed securities.

Brendan White, a portfolio manager with Cincinnati-based Fort Washington Investment Advisors, is going to shift 5%, or $55 million, of the firm's high-yield assets from double-B and above bonds into single-B's. The move is based on the view that both the high-yield market and the economy are set to rebound in the next six to 12 months. White says he has not started the reallocation yet, although the move is imminent, and that there are no specific triggers other than a close look at economic output figures, consumer confidence numbers or a rally in the stock market, all signs he is confident are improving.

Cavanaugh Capital Management (CCM) will begin buying corporate bonds for its portfolios for the first time since 1994, in an effort to pick up additional yield. Megan Brune, portfolio manager at the Baltimore-based firm, says CCM will seek to allocate up to 5% of money currently under management to corporates, selling Treasuries in accounts with high Treasury exposure. CCM may also allocate up to 10% of incoming money to corporate bonds. Brune says CCM expects $40-145 million in new money over the next three months.

Loan Market Week thanks all those who sent Christmas cards, but special mention must be made to Santa and helpers at the HypoVereinsBank loan syndication team. For the second year running, they sweep the LMW award for best greetings card with a picture of the fresh-faced bunch wearing Santa hats with the tune of Happy Holidays To You in the background. Last year they dressed as elves.

Burlington Resources in Houston, which has recently issued USD1.5 billion in fixed-rate debt, is being bombarded by calls from bulge-bracket investment firms pitching interest-rate swaps following its purchase of Canadian Hunter Exploration earlier this month. "Numerous banks are pitching us deals. The phone is constantly ringing," said Dan Hawk, v.p. of the treasury.

Deutsche Bank and Credit Suisse First Boston held a bank meeting last Wednesday, looking for managing agents in a $1.25 billion bank deal refinancing a $1.75 billion PanAmSat note, currently provided to the company by General Motors. The $1.25 billion credit is part of a series of financings, connected to acquisitions by EchoStar Communications. The credit is split between a $250 million revolver, a $400 million term loan "A" and a $600 "B" loan with pricing on the pro rata at LIBOR plus 23/ 4% and 31/ 4% over LIBOR on the "B" tranche. "This is one of the ways General Motors is getting cash," a banker said.

CoreComm is attempting to expand its J.P. Morgan-led credit facility after deleveraging the balance sheet through an exchange of debt for common stock. An official with the company, who declined to be named, said CoreComm is currently in talks with J.P. Morgan to increase the $156.1 million facility, though he would not say by how much. The credit facility expansion is part of an ongoing process to recapitalize CoreComm. The official declined to comment on whether the facility will be used to pay down bonds or other debt securities.

Dynegy bank debt swooned from par to 85 last Tuesday shortly after its debt was downgraded. By week's end some traders said bids had edged back up to the high 80s, but players were taken aback by the initial drop. "[Fifteen points] is a pretty big hit," a dealer said, noting the credit had consistently been a par name. Moody's Investors Service notched the debt down to Baa3 from Baa2 because of concerns over power sector pricing pressures, and Dynegy's legal tussle with Enron following the failed takeover.