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Phoenix Investment Partners, historically an issuer of collateralized bond obligations, has tapped the leveraged loan market for the first time to attract investors into its $300 million collateralized debt obligation, Nova CDO 2001, which closed last month. Nelson Correa, managing director of alternative products, said discussions to warehouse leveraged loans for the vehicle started roughly six months ago as arbitrage spreads became attractive in the leveraged loan and high-yield markets. At the same time, luring equity investors into deals became more difficult. "Loans make the deal more attractive because investors are more receptive because of the higher recovery rates," said Correa, explaining that equity typically dictates deal size and finding equity investment in a rising default rate environment would have been challenging on a purely high-yield deal. Correa said the company is working on an upcoming multi-sector deal and is keeping its eye on Europe as it continues to plan deals other than CBOs.

USG Corporation's levels reportedly started the week in the low 60s, jumped to 68, and dropped bak to 61 as speculation surrounds the company about whether it will stay out of Chapter 11 bankruptcy. Dealers say levels plummeted to the low 60s from the 80s early last week. A reported $20 million total changed hands. "With uncertainty about whether they're going to file or not, people will start punting it," a trader remarked. "Once they know what's happening, it'll trade back up. The weak hands are gone." USG, based in Chicago, Ill., manufactures sheet rock.

Venator Group, a New York-based specialty athletic retailer, replaced $125 million of its outstanding $300 million bank debt with a convertible deal, refinancing only the remaining $175 million in the loan market. "The convertible market today is very deep and liquid, so we wanted to take advantage of that and at the same time rely less on the bank market, which isn't as deep as it once was," said Peter Brown, v.p. of investor relations at Venator. "We were able to convert something more temporary into something more permanent," said Brown, noting that the maturity on the notes is four years longer than on the bank debt. Brown explained the company will receive slightly more than the $300 million it refinanced as the $175 million credit facility was oversubscribed and raised to $190 million. The company now has a new three-year, $190 million credit facility in addition to $125 million in seven-year convertible outstanding notes. The notes have a coupon of 5.5% and convert to stock at a price of $15.806 or a premium of 23%, said Brown.

VoiceStream's "A" and "B" tranches both traded up over par last week, with some dealers attributing the notch up to the merger to Deutsche Telekom. One trader explained that investors believe Deutsche Telekom will call the paper at par in the near future, which will buoy levels. The investor relations department did not return calls.

Washington Group's levels made a slight recovery last week with a trade into the 65-67 range from the low 60s. The size of the piece could not be ascertained. Dealers emphasize that the company's legal snare over Raytheon Construction & Engineering is still real, but say things aren't all bad. "If they're able to neutralize their problems with Raytheon, things should be looking up for them," said a trader. "If you look at the future business, there are tons of power plants that need to be built. It's the legal situation that's still bad." Another market watcher remarked that the company's ability to secure interim financing is the real issue to watch. "The company melts down if the banks don't supply the credit," he said. Last Wednesday the company secured debtor-in-possession financing, said a spokeswoman.

Supply is turning back up again after a two-week lull, although it is still nothing like May's pace. The four-week moving average is still under $17 billion for high yield, emerging markets and corporates, down from the $20 billion plus per week in May. The primary market has also become more measured. While deals flew out the door on top of secondary market levels in May regardless of credit concerns, investors are taking a harder look in June. Average weighted credit quality of deals has remained stable around single A, although better quality credits are generally sticking at the shorter end of the curve. The high yield calendar also remains relatively active, with just short of $2 billion priced in the last week.

360networks, Inc. levels reportedly plunged to 28 last week over uncertainty regarding pending debt payments. The company is looking for additional funding to meet a gap of close to $350 million it was counting on Alcatel to provide and has yet to announce how it will secure the money. Dealers also noted that telecom equipment maker Alcatel will not put more money into 360networks after it wrote off the remaining $500 million of a $700 million investment in the company two weeks ago. Calls to a company spokeswoman were not returned by press time.

BancTec closed a $100 million revolving credit facility with Heller Financial and the company will pay off an existing $50 million deal with J.P. Morgan Chase. BancTec had been under violation with covenants on its existing deal. Brian Stone, cfo, says the new facility offers enhanced flexibility. "This allows us to replace the Chase facility with a more flexible financing structure, one that also provides BancTec with ongoing working capital financing," he said, adding that the new facility was preferable to the proposed extension terms from the Chase group. "We received a better interest rate and more availability [in funding] under the new facility." The new deal also pays down the remaining balance on the Chase credit. BancTec, based in Dallas, is a provider of maintenance services for major computer companies, government and corporate customers.

Commercial banks and investment banks are squaring off amid the Financial Accounting Standards Board decision to reassess a ruling that loan commitments aren't considered derivatives. FASB is now reassessing the ruling as a result of pressure from investment banks, including Goldman Sachs, which went on the offensive in April to convince the FASB that the definition of a derivative should apply to credit arrangements. As it stands, securities firms must account for the fair value of their loan commitments while commercial banks can keep the loans off their books, making their balance sheets appear stronger and allowing them to offer below-market rate loans.

National City Bank is looking for commitments for American Greetings Corporation's $375 million revolving senior secured credit facilities. David Poplar, investor relations manager for the Cleveland, Ohio-based cards company, said the loan consists of two tranches: a $150 million, 364-day revolverg and a $225 million, five-year facility. American Greetings is also in the process of negotiating a three-year asset-backed trade receivables securitization facility of up to $250 million and is selling $400 million in senior subordinated notes due 2008.

Barclays Capital has turned its attention to U.S. investment grade research, the latest stage in a widespread effort to build up its U.S. fixed income business. The firm is looking for a head of investment grade research and senior analysts in a number of sectors, particularly industrials, utilities and financials, according to John Stathis, managing director and head of global market sales and research.

More than $50 million of Finova Group's bank debt traded and the paper jumped about seven points as the company's plans with Berkadia were finalized. Over the week the paper went to 92 from 85 and one desk reported trading $20 million of the paper last Thursday alone. Early last week, a U.S. Bankruptcy Court in Delaware approved Berkadia's plan to bail out Finova. That effectively ended a bidding war Berkadia had been waging with Goldman Sachs and General Electric Capital Corp., which had teamed up to present their own counter offer. Finova is a commercial lender based in Scottsdale, Ariz. Calls to the company were not returned. Calls to Berkshire Hathaway, Goldman Sachs, and GE Capital were not returned by press time.