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The distressed market was in high gear last week, with an estimated $300 million changing hands as the tide begins to turn and investors start to go after the reams of paper dumped into the market over the past several months. One dealer said last week's volume was about double what is normally done in the distressed market in a typical week.

Moody's Investors Service has downgraded Choctaw Generation Limited Partnerships's $470 million senior secured bank loan rating from Baa2 to Baa3, due to continuing delays in the construction of the Red Hills Generation Facility power plant. A recent fire during construction has further delayed the project, and under a purchase power agreement between Choctaw and the Tennessee Valley Authority beginning June 1, Choctaw may be obliged to cover the cost of providing replacement power to the TVA should the plant not have commenced operations by new year. Due to alleged changes in labor conditions that have been presented by the contractor, the rating is under review for possible further downgrade.

Casual Male Corp.'s $135 million in debtor-in-possession financing throughFleet Retail Finance will pay off more than $97.9 million it owes under a pre-petition loan agreement with several lenders as well as roughly $3 million it owes under another pre-petition loan with Fleet. Michael O'Hara, the company's first senior v.p. and general counsel, said that the Canton, Mass.-based retailer has filed for Chapter 11 bankruptcy and the loan will fund the business as it emerges over the next year, rather than see an enforced sale of assets. Until February, Casual Male was known as J. Baker Inc.

Franklin Templeton Investments is reportedly in the process of warehousing assets for a $400 million collateralized debt obligation--Franklin Templeton CLO II-- which will have an underlying asset base comprising 95% leveraged loans and 5% high yield bonds, according to market sources. Chauncey Lufkin, portfolio manager at Franklin, declined to comment on the vehicle. Merrill Lynch will underwrite the deal and is reportedly also stepping up as an equity investor. Officials at Merrill Lynch did not return calls by press time.

Patrick Steiner, head of European high-yield and high-yield telecom research at J.P. Morgan Securities in London, will become a principal at Octagon Credit Investors, according to a J.P. Morgan insider. Octagon is a leveraged loan and high-yield private equity investment firm with some $1.75 billion of assets under management. It is owned by its senior management andJ.P. Morgan Chase & Co., but independently operated. James Ferguson, who is still a senior portfolio manager, founded it in 1994. Calls to Ferguson and Steiner were not returned.

J.P. Morgan Chase has been selected as the principal lead arranger for the proposed credit facility backing Domtar Inc.'s, $1.65 billion acquisition of four paper mills from Georgia Pacific Corp. that will likely lead to a $750 million term loan. Jean Sebastien Van Brugghe, manager of investor relations for Montreal-based Domtar, said a bridge facility of $1.65 billion will be put in place, in order to demonstrate that Domtar has the financing to fund the acquisition, and enable Georgia Pacific to pay down their own debts.

Sensing a $3 billion deal could struggle in the current market, Kroger Company opted to avoid rolling up two separate credit facilities and instead went to market with a smaller deal. The company, which merged with Fred Meyer a year ago, opted to refinance and reduce its existing $1.9 billion deal, cutting it to $1.6 billion. Larry Turner, treasurer, said the company will refinance the roughly $1.1 billion existing Meyer facility next year. "We expect that a year from now we'll need less money," he explained. Turner said the new facility offers additional flexibility. Kroger's former credit was done in 1997, and the Meyer facility a year later, when "it was a sweet spot for borrowers. The lenders would call it a trough."

Metropolitan West Asset Management has hired Hahn Kang as specialist portfolio manager in charge of ABS, according to Tad Rivelle, MWAM chief investment officer. Hahn joins MWAM in Los Angeles from Lehman Brothers in New York, where he worked for seven years as an ABS trader, with a focus on secondary prime mortgage ABS. He will report to Rivelle. Kang says that his position was newly created, in order to give the asset management firm a new exposure in the ABS business.

More insurance companies are looking with interest at loans as an investment class and chipping in to commingled funds. Bankers and fund managers have long been pitching to insurers the virtues of loans' senior status and floating-rate component, and some of the biggest and earliest institutional players in the market were insurance companies. But increasingly, smaller insurers are jumping in, an investment consultant to insurance companies told Insurance Finance & Investment, an LMW sister publication. He noted the product had previously suffered a lack of awareness among smaller insurers, but it was now stepping out into the light.

Deutsche Bank has boosted its credit derivatives effort with hires in trading and structuring. Aelisa Kim Cipriani, director in the CDO team at Morgan Stanley in London, started Monday as a director in collateralized debt obligation structuring, according to Jeffrey D'Suza, head of European collateralized debt obligation business in London. This is a new position, he said, adding the department is growing in response to increased demand for structured products. Deutsche Bank also transferred Michael Furtado, a lawyer in the firmÕs legal department, to the CDO team. Furtado said he will focus on the execution and structuring of CDOs.

Hong Kong Citic Pacific's global bond issue was increased from $350m to $450m last Friday. The transaction was over twice oversubscribed at launch. The Baa2/BBB- rated deal carries a 7.625% coupon. HSBC and Merrill Lynch were joint lead managers.

Enron Corp, the US energy company, helped expand the credit spectrum in the Samurai bond market this week, when it became the first triple-B rated US corporate to launch a deal for a tenor of over one year. Merrill Lynch sole lead managed the dual tranche bond issue for the Baa1/BBB+ rated company, following a roadshow in Japan two weeks ago. Mizuho Securities and Tokyo-Mitsubishi Securities were co-managers.