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The Landesbanks have until 2005 before they lose their state support and are brought into line with private banks. To overcome the competitive shock, they will have to become more cost conscious and develop broader funding sources for their borrowing strategies. And speculation is already mounting, not just about individual Landesbanks' future ratings, but how the whole sector will finally shake out.

The big bang in capital markets activity resulting from Germany's pension reforms never happened. The political truth is that the controversial new pension funds are being eased in gradually. Assets will take so long to accumulate that predictions of a flourishing market in longer dated corporate credits remain speculation. And in the meantime, issues like RWE's 15 year deal are just exceptions to the rule.

Kreditanstalt für Wiederaufbau's euro benchmark programme, launched this year, is just the latest move by the German development bank to position itself as close to the Bund as possible. The bonds have achieved high levels of liquidity, supported by the new EuroMTS trading platform. Replicating this success in the dollar market is one of KfW's aims for 2002.

First Union is wrapping up a $175 million revolver for Danville, Va.-based Dimon, and is on the road as lead arranger with a $175 million note offering for the leaf tobacco merchant. Ritchie Bond, senior v.p. and treasurer, commenting through a company official, said refinancing portions of the current debt with additional long-term debt improves capital structure flexibility while likely increasing the effective cost of borrowing in at least the short term. First Union led the last revolver and Deutsche Bank is a lead manager on the bond deal. Closing of both the bond and credit facility is expected at the end of the week. The company official declined to comment on pricing, which on the current $250 million revolver arranged in June 2000, is LIBOR plus 31/ 4%, according to Capital DATA Loanware.

It is still early days onExopack's $110 million credit launched by BNP Paribas, CIT Group and Heller Financial two weeks ago -- but bankers suggest the asset-based deal will be a relatively safe bet right now. The credit includes a $60 million revolver, a $30 million term loan "A" and a $20 million capital expenditure facility. There is strong collateral and asset coverage, which is what lenders are looking for right now, bankers said. Pricing on the pro rata is LIBOR plus 3% based off a grid, noted a banker.

Golden Tree Asset Management managed to close a $700 million high-yield collateralized debt obligation comprised of loans and bonds despite the moribund high yield market and the fact the fund was priced and sized on Sept. 10, one day prior to the World Trade Center attacks. The closing of the fund was on Sept. 28.

Harsco renewed a $131 million credit facility on Sept. 28 as a back-up to its commercial paper program. Robert Yocum, assistant treasurer, explained that the deal replaces a same-sized, 364-day deal. Pricing remained the same, but Yocum declined to reveal specifics. There were also no material changes to the covenants. Harsco is an industrial services and products provider.

Hayes Lemmerz' bank debt traded down to the 75 range, a six-point drop in a week, following a conference call by the company. According to sources, on Oct. 9 the paper was bid at 81. Then last Wednesday a class action lawsuit was filed against the company on charges that it made a series of misrepresentations to the market concerning its financial results for fiscal 2000 and the first quarter of fiscal 2001. The allegations center around charges that a reported net loss of $41.8 million for fiscal 2000 was understated by at least 31% and was actually $56.4 million for that fiscal period. Hayes Lemmerz, based in Northville, Mich., is a worldwide manufacturer of steel and aluminum products. Calls to William Shovers, cfo, were not returned.

Analysts on the buy- and sell-side are generally uneasy regarding the weakening economy's effect on non-depository financial companies, and while they are not betting on further spread widening, only Household Finance is being touted as a clear weakness play. Van Hesser, analyst at Credit Suisse First Boston, says bonds of Household Finance were cheap at last Monday's levels. The 6.75% notes of '11 (A2/A+) were bid at 172 basis points above comparable Treasuries, and 15-30 basis points behind big banks such as Bank of America, First Union, and U.S. Bancorp. He says Household bonds could close that gap by 10 basis points over the next three to six months. He says Household's spread levels reflect concerns of rising unemployment, but that the company's strong track record makes it a buy. A buy-side analyst at a large West Coast firm believes the bonds are fairly valued, however, arguing that 15-30 basis points is an appropriate discount in a weak economy for a financial name without depository assets.

High-yield wireline analysts say there are still opportunities to recover par at a substantial discount in the sector, even though a number of names have tested new lows in recent weeks. Anthony Klarman, analyst at Deutsche Banc Securities, recommends Allegiance Telecom (B3/B) because it is conservatively capitalized and should meet its goals and be EBITDA positive by next year. He declines to set target levels for the bonds. The 12.875% senior notes of '08 were marked at 55 last Tuesday. Alexi Coscoros, analyst at Bear Stearns, says he believes Allegiance paper is a good buy for medium-risk investors, though he favors Time Warner Telecom (B2/B-) because companies such as Allegiance that lease their equipment from larger carriers have yet to prove their business models. Coscoros says blue-chip investors can expect to recover par from Time Warner's bonds. He believes the 10.125% senior notes of '11 could trade up to 78 within a year: they were bid at 68 last Tuesday.