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Fiduciary Trust Company International, a New York City-based portfolio management firm with some $18 billion in taxable fixed-income, is considering an expansion into select high-yield and/or telecom credits, says Stuart Hochberger, executive v.p. and head of fixed-income. The possible move into telecom is in marked contrast to other investors who have been reducing exposure to the sector. Hochberger is pondering this foray because he says telecom has been beaten up badly in recent trading. He says some combination of better prospective profits, combined with additional Fed easing or better growth throughout the economy, might convince the firm to add 3% to high yield, possibly selling investment-grade financials such as the Citigroup (Aa2/AA-) 7.25% of '10. He says that specific credits he is considering for purchase include Global Crossing (Ba2/BB), France Telecom (A3/A-) and Deutsche Telekom (A3/A-), but would not speculate on a timetable for execution.

Credit Suisse First Boston and J.P. Morgan Chase are preparing a $2 billion, 364-day loan for Nortel Networks Corporation. Earlier this month the Canadian networking group said it would post a $19.2 billion second quarter loss in response to weaker than expected sales of telecommunications equipment. Officials at Nortel did not return calls.

Morgan Stanley and Bank of America are trying to drum up interest in PacifiCare Health Systems' $500 million bank deal by pre-marketing the credit to institutional investors in one-to-one meetings before general syndication begins this week. Buysiders have been cool to the credit and say it could test the market's appetite for HMO deals in the hot health-care sector. "This will be a tough deal to get done," said one buysider, explaining that PacifiCare is not only part of the still shaky HMO segment of the market but an HMO with large exposure costs associated with its senior citizens-focused business. Bankers and buysiders noted that Morgan Stanley and B of A have been meeting with investors individually to lure larger institutions into the deal in effort to secure big commitments.

The market, hungry for a solid credit, is awaiting Suiza Foods' break into the secondary market. The deal is still waiting for final documentation to be completed, but it has been touted as one of the strongest deals of the year as the "B" tranche was well oversubscribed by investors. "It will trade well over par," one trader predicted. Yet a few dealers are cautiously optimistic about levels and they expect the term loan to trade higher than the pro rata. "The pro rata struggled more in syndications," a trader noted, adding that appetite for pro rata deals isn't as strong.

After slowing the previous week, the primary market turned hostile last week, with just $12.3 billion in paper priced. Better quality credits stuck to the short-end of the curve, issuing paper 5 years and in. Credits with any noise around their stories had a tougher go of it. Eastman Kodak, for example, postponed a 5Y deal when one of its key customers filed for bankruptcy protection. A2/A+ Kodak was talked in the +160 bp area before the deal was postponed; it came the next day at +175 bp, wide to most single-A paper including European Telecom paper. Despite the increased scrutiny each deal came under, there was still a relatively robust junk calendar, with $3.6 billion of below investment-grade paper done. The average deal size for the week was $275 million, the lowest recorded level for 2001. Average ratings were still around the A- level although on a duration-weighted basis credit quality was much lower. The primary market should remain slower this week as participants look ahead to the June 27 FOMC meeting.

J.P. Morgan, First Union and GE Capital have committed to Deutsche Bank and Bank of America's $210 million credit facility for Charlotte, N.C.-based MedCath Corporation. A banker familiar with the credit said that Chase and First Union took $25-30 million dollar commitments. GE Capital's stake could not be determined.

Millennium Chemicals expects to pay an increase in net interest expense of about $2 million per quarter on its new J.P. Morgan Chase and Bank of America-led refinancing. "The market has changed since the last $500 million credit facility was taken out five years ago," said Mickey Foster, v.p., investor relations for Millennium. Conditions are tougher and Moody's Investors Service has downgraded the company, he noted. The old $500 million five-year revolver was set to mature at the end of the month.

RCN Corporation's bank debt in a $5 million trade last week dropped to the high 60s from an offer of the mid-70s. Dealers say competition from other providers may be straining the company's profits, despite offering services at prices cheaper than some competitors. "They launched their deal two years ago, and people were very optimistic about it," a trader said. "Now they're not meeting their projections, and they've built out. There's just a high level of competition." Still, dealers expect the cable industry will stay in focus. "Cable television is one of the utilities," said a market watcher. "It's up there with electricity and water. No one wants to lose their MTV."

Credit Suisse First Boston and Bank of America last Friday launched syndication of a $520 million refinancing credit for Houston-based Lyondell-CITGO Refining. The one-and-a-half-year loan consists of a $450 million term loan and a $70 million working capital facility, with all-in pricing of LIBOR plus 2%. There is also a commitment fee of 50 basis points on the working capital facility. The credit refinances a similar loan completed in September last year with B of A and CSFB, said a banker. Calls to company officials were not returned by press time.

An avalanche of small telecom trades piled up to at least $100 million in volume last week as market players continued to try to touch the bottom of the deep end with their toes. The biggest divers in distressed land were Level 3 Communications-- down to 68 after trading in the 80s just weeks ago--and 360networks, which traded at 19 late last week. The credit was trading at 97 last fall.

Ethan Heisler, director of corporate bond research at Salomon Smith Barney, and an Institutional Investor ranked second-teamer, recommend investors seek value in the bonds of double-B and triple-B smaller, off-the-run regional banks such as Sovereign Bancorp (Baa3/BBB-), Dime Bancorp (Ba2/BB) and Riggs National (Ba2/B+). He says the bonds are the safest way to pick up decent yield in the investment-grade corporate sector while avoiding blow-up risk. While there are some indications of investor interest in this paper, many portfolio managers have their doubts.