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Some investors are avoiding European utilities, fearing there may be more downgrades in the works as companies are forced to add debt to their balance sheets to finance acquisitions. Nicole Jackman, head of European corporate bond management at State Street Global Advisors in London, says she's underweight utilities, especially highly rated ones, because she is worried about downgrades. For example, last week Electricidade de Portugal (Aa3/AA-) was put on a negative outlook by Standard & Poor's in response to fears its financial profile will erode.

High-yield strategists and investors are split over whether portfolio managers should continue to increase credit risk in their portfolios, as they have done in recent weeks. Spreads between single-B credits and higher-rated double-Bs were at a record 505 basis points on Oct.5, but had narrowed to 335 basis points last Monday. Walter McGuire, global high-yield strategist at Deutsche Banc Securities, expects that gap to narrow another 10 basis points by year-end, but he says investors should move even further down the credit ladder, adding some triple-C rated names to their portfolios. McGuire projects credits yielding 20-30% (which include a number of triple-Cs) will return 5% over the next two months.

Securitizations from Latin America, particularly Brazil, should grow in number next year, according to London asset-backed bankers and analysts. Aside from six bank deals, the region saw only two corporate securitizations this year: Petrobras, Brazil's blue-chip oil company, and PDVSA Finance, a securitization vehicle launched by Venezuela's state-owned oil company PDVSA. Nancy Shue, structured finance analyst at Standard & Poor's in New York, predicts that strong exporting companies will likely seek structured deals featuring political risk insurance in 2002, as the international debt capital markets remain firmly shut to LatAm corporates--at least for plain vanilla bonds. Already, Companhia Brasileira de Bebidas (CBB) has announced its intention to launch a $500 million securitization featuring a guarantee by its parent company Companhia de Bebidas das Americas and carrying political risk insurance. CBB will use some of the proceeds to refinance existing debt and other companies will likely follow suit as the need for more creative financing methods increases.

An aggressive financing package from adviser Lehman Brothers propelled GTCR Golder Rauner's $800 million cash bid for TSI Telecommunication Services past other competitors. GTCR principal David Donnini confirmed Lehman bid aggressively, but could not comment on the other firms' approaches. Sources familiar with the discussions said Lehman was very aggressive in stepping up with the money and allowing for generous leverage ratios--a step that set it apart from competing bids. "The bids [for TSI] were due a couple of weeks after Sept. 11 when the market was volatile and Lehman stepped up when not every other institution was willing to provide to the other sponsors," one source added.

Germantown, Tenn.-based Equity Inns, a hotel real estate investment trust, has joined the club of companies in the hotel industry that have amended credit lines to relax covenant ratios. Howard Silver, president and chief operating officer for Equity Inns said the decline in the revenue of the hotel industry following the Sept. 11 terrorist attacks put Equity Inns in a position where it did not think it would make the various covenants. "The bank group are pretty understanding as most of these banks are in the other hotels' lines," he said. "The industry has been smashed." Other hotel companies that have sought covenant relief include Starwood Hotels & Resorts Worldwide and RFS Hotel Investors

Richer spreads on loans and increased interest from investors looking for euro credit exposure have given arbitrage collateralized debt obligations the needed boost to fill the European arbitrage pipeline. Investors have long scoffed at the CDO market in Europe, saying there was a lack of high-yield collateral and liquidity. But pricing and structural developments in the European leveraged loan market are making loans there look more like their counterparts in the U.S. The latest deal to capitalize on increased interest is Prudential M&G Investment Management's E513 million ($458 million) Panther II CDO, which is buying up assets now.

Maritrans secured an $85 million credit facility on Nov. 27 to support additional funding needs at lower pricing. Walter Bromfield, treasurer, explained the company tapped the bank debt market to refinance $66 million in debt--a portion of which was a $33 million indenture with a fixed rate of 91/ 4%. By replacing the bonds with floating-rate debt, the company was able to finance its debt at a cheaper rate. The new deal is priced against a grid based on performance beginning at LIBOR plus 41/ 2%. In addition to the bonds, a $33 million revolver was also part of the overall refinancing on the deal. "This was an opportunity to lower the cost while increasing the financing," said Bromfield.

London-based industrial analysts are concerned that the reaffirmation of Fiat's Baa2 stable rating from Moody's Investors Service last week is not accurate given the amount of work the company has to do to de-leverage. "Given the fact that they're restructuring so heavily and haven't performed well even in good times, I'm surprised with the stable outlook," says Victoria Whitehead, analyst at Bear Stearns in London. "It's not a good company. The rating is deceiving," she adds. Whitehead believes Fiat should be rated Baa3 with a negative outlook. Calls to Eric de Bodard, managing director at Moody's in London, were not returned.

Federal-Mogul's bank debt traded up three points early last week to 58 in a $5 million trade, despite predictions in the market that a "buy now" push will further depress the sector down the road. While some said they expect a quick bankruptcy exit and a strong recovery for the auto sector, others said zero-percent financing packages will hurt future sales. Calls to Mike Lynch, cfo, were referred to spokeswoman Kim Welch and were not returned.

Westar Capital, a buyout fund, received a hybrid $75 million asset-based facility for the purchase of Igloo Products last month. Michel Glouchevitch, managing director at Westar, said Fleet Capital was a natural choice because of the longstanding relationship the fund had with the bank. "We had familiarity with the bank and knew they had the wherewithal to underwrite the transaction," he said, adding he's pleased with the package that was arranged. "Fleet has a long relationship with Westar and was invited to join," explained Linda Jahnke, senior v.p. at Fleet.

Gaming and travel investors and analysts say they are hard-pressed to find credits they can recommend, as many names are trading at higher prices than they were before Sept. 11. John Maxwell, gaming and lodging analyst at BNP Paribas, says that pricing in the sector reflects investors' willingness to overlook weak operating numbers through at least the first quarter in an attempt to be fully invested by year-end. Given that benchmark credits such as the MGM Mirage 8.375% notes of '11 (Ba1/BB+) were yielding 8.5% last Tuesday, the only two credits in which he sees value are Pinnacle Entertainment and Royal Caribbean Cruises. While Maxwell does not yet have a buy recommendation on Pinnacle, he sees little downside risk in the 9.25% notes of '07 (Caa1/B-), which were trading at 88 last Tuesday. He believes investors have already factored weak operating performance numbers into the price of the bonds. Also, he believes Pinnacle may be looking for a joint partner to fund a property it is struggling to complete in Lake Charles, La. If it were to find such a partner, he says the bonds would trade up five points.

Goldman Sachs' $120 million deal for IPC Trading Systems garnered positive support last week, with one banker commenting on the tiny $15 million revolver, noting "this is what the market wants." Commitments to the $105 million "B" term loan could not be ascertained, as Goldman officials did not return calls. Pricing on the deal is LIBOR plus 41/ 2%, said a banker, and there is call protection at 102 and 101 in the first two years.