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Volkswagen Financial Services has entered an interest-rate swap to hedge a EUR50 million (USD46.5 million) floating-rate loan taken out last week. Clement Denks, treasurer in Braunschweig, Germany, said in the three-year EUR50 million (notional) swap the financial division of the German-based car company pays a fixed rate of 4.67% and receives three-month Euribor. The interest rate on the three-year loan is a few basis points above three-month Euribor. Three-month Euribor was 4.65% on Wednesday.

First American Asset Management has doubled its inflation-indexed bond exposure, from 2% to nearly 6%, by buying over $120 million in TIPS over the past six weeks, according to portfolio manager David Steele. The trade was driven not only by concerns about inflation, but also the perceived rich valuations of Treasuries, especially at the short end of the curve. The firm plans on remaining active, at least for the time being, in the 30-year TIPS sector. Steele plans on keeping the TIPS position at least until one of two things occur: the yield on the benchmark 10-year TIP bond drops through the 3% level (it is currently 3.50%), or the two-year note yield backs up 75 basis points, to 5.42% from its current 4.67% yield.

Morgan Stanley Dean Witter's nascent high yield index picked up a big backer recently when Barclays Global Inverstors' recently launched high yield index fund decided to use the MSDW index over the high-yield index from index titan Lehman Brothers. According to Thomas Sponholtz, head of fixed income product development at Barclay, "there was little choice but to use the MSDW index," given their belief that the Lehman index was simply not representative of today's junk market given the liquidity problems in the bonds underlying the Lehman offering. Sponholtz and his team compared the 200 liquid and widely held names in the MSDW HighYield Core Investible Index to the 1100 plus in the Lehman Brothers High Yield Index and concluded that the Lehman index did not replicate the market: "because many credits never trade, we had no idea where to price or value these credits."

Bond players are worried that a planned tax reform in the European Union could undermine the market. The change, which is set for March 1, would introduce a withholding tax for investors in EU countries with strong secrecy laws, such as Austria, Belgium and Luxembourg. Last November, the EU decided tax authorities should share information between countries on citizens who declared income, but there is a seven-year exemption for these countries to charge a withholding tax instead, until they change their banking laws to conform with the rest of the Union. Not only could this hurt the European banking industry as investors choose to open accounts in non-EU countries such as Switzerland, but it also will have far reaching effects on the European bond market.

Up-front fees on pro rata tranches increased to 4.3 basis points, just edging out last year's annual high of 4.2 basis points for every one million dollars committed in October and November. According to Portfolio Management Data, fees on institutional pieces remained consistent at 2.4 basis points, ticking up just enough to beat 2.3 basis points in December 2000.

Gannett Welsh & Kotler will look to shed some of its Treasuries with maturities of 23 or more years and the May of '16 STRIPS it owns for shorter-maturity agencies if the yield on the 30-year, which currently stands at 5.51%, reaches 5.30%. David Carter, lead portfolio manager for $400 million in taxable-fixed income, says he would make the move to defend against a possible rise in interest rates as economic growth picks back up following the current slowdown and round of Federal Reserve rate cuts. He says he could reduce the total amount of long-maturity bonds from 19% of the total portfolio to about 10%, and pegs the possibility of the long-bond yield falling to 5.30% at 50-50. He expects rates to continue to drift down as the economy slows, pointing in particular to the drop-off in consumer confidence, which he believes is "a huge driver" of the economy. He is awaiting more easing this year by the Fed, though he declines to speculate as to how much, and adds that a combination of loose fiscal and monetary policy could begin to produce a rebound by late 2001 or early next year, though not any sooner. "I think if it's going to be v-shaped it's going to be the roundest 'V' I've ever seen," he says.

Fifth Third/Maxus Investment Advisors is looking to boost its asset-backed allocation from roughly 3% of its $500 million taxable fixed-income portfolio to 10-15% in anticipation of a more prolonged economic downturn. James Bernard, senior fixed income portfolio manager, says he wants to sell corporates and agencies to buy ABS in order to have "real live assets backing up our debt, especially given the number of corporate credits that have balance sheet concerns in the down economy." As an intermediate buyer, he would look to four- to six-year credit-card and auto paper, sectors in which he believes he can find well-structured paper with decent prepayment lockouts. Bernard, whose purchases are usually $1-3 million in size, is not attracted to any names in particular, but he will steer clear of infrequent issuers whose paper is not as liquid. He adds that he is comfortable selling agencies because spreads have narrowed in recent months and there is still political risk associated with GSEs.

Chattanooga, Tenn-based CBL Associates Properties two weeks ago closed and tapped a new five-year, $212 million loan to fund its $1.3 billion acquisition of The Richard E. Jacobs Group's interests in 21 malls and other properties. John Foy, cfo, said the $124 million cash portion of the transaction was funded with $120 million it drew on the new loan as the remaining $92 million will be used for capital improvements. Wells Fargo led the deal and participants included U.S. Bank, FleetBoston Financial, Key Bank, and Commerce Bank-the only bank that has not previously participated on a company loan. Foy said the company's long-standing relationship with Wells Fargo drove it to choose the bank as the lead on the credit. Merrill Lynch advised on the acquisition.

Moody's Investors Service assigned a Ba3 rating to Collins & Aikman Products Co.'s new $50 million senior secured bank term loan "D" and confirmed its existing rating of Ba3 on the company's $575 million senior secured bank credit facilities. That deal includes a $250 million revolver, $100 million term loan "A", a $125 million term loan "B", and a $100 million term loan "C". Lisa Matalon, senior analyst at Moody's, pointed to the expected impact of deterioration of both the automative market and more general economic environment as factors prompting the updated ratings and negative outlook the agency has on the company.

Equant NV signed a $300 million credit facility last month for general corporate purposes. "It's for continued investment in our global network as well as operational and support systems and working capital," said Daan Heyning, treasurer. The facility matures in 2002 and has no separate tranches. He declined to reveal the pricing. The 364-day revolver provides Equant with additional resources until the closing of the proposed transaction with France Telecom and its Global One subsidiary. The global supplier of data networks, services and applications to multinational businesses is based in the Netherlands.

Emmis Communications' $1.4 billion credit is emerging as one of the strongest media deals in the market as the credit continues to trade above par. Last week a $5 million piece traded at 100 3/4, slightly higher than its previous level two weeks ago at 100 1/4. "It's a solid name with lots of cash," one trader said simply. Emmis, based in Indianapolis, Ind., owns and operates more than 20 radio stations in New York City, Los Angeles, and Chicago as well as two radio networks. It recently bought Lee Enterprises for $500 million. A company spokeswoman did not return calls seeking comment.