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All eyes are on Federal-Mogul's bank debt this week as the clock ticks on the company's opportunity to file for Chapter 11 bankruptcy. If the company does not file by March 31, the debt is expected to trade up about 10 points, according to some traders. Dealers last week were reportedly talking down levels in an effort to snag the paper. Levels on the "B" tranche were quoted in the 50-52 range.

Moody's Investors Service downgraded the $300 million unsecured revolving credit of Jo-Anne Stores, Inc. to B1 from Ba3. Moody's said the downgrade reflects revised expectations about Jo-Anne's ability to achieve previous profitability and leverage targets during 2001 and 2002. In addition, the Jo-Anne Etc. superstores have not performed to expectations. The ratings reflect Moody's belief that leverage and debt protection measures will not improve for the next 12-18 months and that profitability will remain challenged due to inventory rebalancing centered around the Etc. superstores. In the wake of the downgrade, the ratings outlook is stable as the company's management focuses on cash flow and conservative financial strategies in the face of disappointing operations. Moody's believes Jo-Ann's financial condition is unlikely to deteriorate further, although profitability and balance sheet measures are expected to change in the short-term.

Levels for Nextel Communications' bank debt fell two points after the company issued disappointing first quarter earnings, citing slowing business. The paper went to 98.50 on the "B/C" tracnhes and to 97 3/8 on the "D" paper, dealers said. "It was a pretty big surprise," said a trader. "They've performed well and are a stable credit." Yet Nextel is expected to ride out the rough spot. "All the dealers make their markets in Nextel," one observer pointed out. Another trader said the company is simply falling prey to a weakening sector. "Nextel is not the problem; it's across the board. At the end of the day it's as rock solid a credit as you can get," he said.

New York Life Investment Management is forming a lending unit designed to fund middle market leveraged buyouts, said Hugh Wade, senior managing director. Madison Capital Funding will have the full backing of NYLIM with transaction sizes ranging from $15 million to $200 million, according to Corporate Financing Week, an LMW sister publication. Wade said the unit is similar to that of Massachusetts Mutual's Antares Capital.

Bank Of New York, Bank of America, Commerzbank and HypoVereins Bank are looking for banks to round out the syndicate on a $500 million construction loan to Boston Properties. The 42-month loan funds the construction of the Boston real estate investment trust's second office tower in Times Square, a $640 million project.

Peter Siedem is heading to J.P. Morgan Chase's distressed desk from Lehman Brothers, according to market watchers. Siedem was the head distressed trader at Lazard Freres before switching to Lehman about a year ago. He could not be reached for comment. A Lehman spokesman declined to comment. Officials at Chase would not comment.

The bank debt for Teligent is said to be slipping in a market with weak appetite for telecom paper. Last week paper was offered in the low 20s, and a dealer said the market is as low as 15. "There's a lack of financing for telecom buildouts," said a market watcher. "[Teligent] is afflicted with the same change in sentiment that a lot of these telecom names are afflicted with. They had issued a lot of bonds and bank debt on build out plan, and a customer base isn't materializing to service the debt. The indicated market is 15-25, but it might be a tighter inside market." Calls to the company were not returned.

Dearborn, Mich.-based Rouge Industries closed a $250 million revolving credit facility with lead arranger Congress Financial Corporation, opting out of its historic relationship with BANK ONE over pricing issues. Gary Latendresse, cfo, said the company chose a new lead arranger in response to Congress presenting the most favorable bid to the company. "We looked at all factors--fees, interest rates, covenants, and reporting and overall Congress was the strongest in these categories," he said. In describing a tough loan market for the U.S. steel industry, Latendresse said, "If there are any modifications on a loan, given the opportunity they're upping interest, covenants and security requirements because the steel industry is not in good financial shape," he said.

The market is still shaken and stirred on Washington Group's announcement earlier this month that it may have to file for Chapter 11 bankruptcy protection. Early last week the bank debt traded at 60-61, then hit a low of 55. "There's still a lot of uncertainty of how things will shake out with Raytheon," a dealer said, citing the legal snare between the two companies after Washington Group bought out the construction and engineering arm of Raytheon. "Everyone's pointing fingers, and it's very difficult at this point to figure out what's going on."

Moody's Investors Service assigned a Ba3 rating to Williams Communications Group's incremental $950 million bank facility because of the risk associated with transitioning from network construction stage to broadband service provider. "The source of revenue is different from when a company is up and running and lit versus a company at its transition point," said John Page, senior analyst. "A typical model for a company is to construct the network and meanwhile pre-sell wholesale components to reduce construction costs. As you finish, you have capacity you can wholesale." The company reports that 88% of its Year 2000 network revenues were comprised of recurring service revenues, including increasing revenues derived from its preferred carrier alliance with SBC Communications. Williams, based in Tulsa, Okla., is a national provider of communications services and network systems.

Lehman Brothers and Salomon Smith Barney are pitching an original issue discount on their deal for Williams Communications, a pioneering twist market players say amounts to a "disguised up-front fee" to entice disheartened investors into the $300 million institutional piece of the struggling deal. Bankers said the six-year term loan "B" is being offered at a discount to par at 96 3/4 as a way for the firms to answer present buyside concerns regarding secondary telecom trading levels and the negative effect telecom paper is having on the net asset values of their funds. But at press time last week agents had only one commitment in. Scott Schubert, cfo of Williams Communications, declined to comment. Officials at Lehman Brothers declined to comment and Salomon Smith Barney officials did not return calls.

The Australian taxation office is proposing new rules that will better define the accounting and therefore tax treatment of convertible and hybrid securities. The proposals are designed to increase transparency, and define whether such instruments are equity, in which case their distributions will be franked (and therefore taxed at a lower rate for Australian investors), or whether they are debt instruments, in which case the interest payments will be tax deductible for the issuers. As it stands, Australia's tax regime has discouraged the issuance of convertible bonds in favour of either hybrid securities such as the Woolworths income securities or convertible preference share issues. The Woolworth notes, for example, are perpetual income securities and are tax deductible as interest paying notes for the issuer.