Securitization People and Markets

Mike Smith,Merrill Lynch's last trader who focused exclusively on high-yield, walked off the desk last week, according to a member of the firm's high-yield department and several traders at rival firms. It could not be determined who was assuming Smith's duties. Smith could not be reached. Jeff Chandler, Merrill's new head of high-yield, declines comment on Smith. Rivals say that distressed trader Eric Dobbin was made head high-yield trader to fill the void, but Chandler insists that Dobbin has been responsible for distressed and high-yield bond trading since last late year, and that neither his title nor responsibilities have changed. Dobbin referred calls to Chandler.

Moody's Investors Service has made three additions to its London-based structured finance and insurance teams. Andrew Farr, the agency's in-house recruiter for the structured finance group, says the new structured finance hires are in response to increased deal flow in the sector. He adds that the group, which is now 87-strong, should break the 100 barrier this year. "Our numbers are swelling," he says, noting that the most recent additions have been to the commercial mortgage-backed securities group and the structured investment vehicle group.

Nomura International is developing a fixed-income underwriting business in North America and is looking to hire a banker to fill the newly created position of head of North American debt capital markets. Stefano Ghersi, London-based global head of DCM and to whom the new hire will report, says previously Nomura only had an informal fixed-income underwriting effort in North America. Now, as part of its global fixed-income push, the region will play a key role in the firm's expansion plans, he said. The firm is looking to recruit a major player from a top firm to lead the effort.

Allied Irish Bank's surprise announcement last week that a rogue foreign exchange trader had racked up $750 million in losses, has European bank analysts worried that spreads will widen dramatically throughout the sector. Just after the losses were announced, AIB's tier-one bonds widened by roughly 45 basis points to 200 basis points over German bunds. "There is a risk of contagion to firms closely associated with investment banking and with derivatives trading exposure," says Olivier Szwarcberg, a banking analyst at Bear Stearns in London. As of last Thursday however, only a few banks had been affected. Bonds of Standard Chartered widened out by 10 basis points, while Fortis Bank and Bank Of Ireland were trading up to 12 basis points wider at LIBOR plus 166 and 156 basis points, respectively.

Bank One Capital Markets is readying its first European structured investment dollar- and euro-denominated medium-term note programs as well as commercial paper programs in both currencies. Ultimately, the SIV will reach a capacity of $20 billion, says Jim Irvine, managing director and head of structured investment vehicles in London. The SIV, called White Pine, will manage its interest-rate and foreign exchange exposure through swaps. The swap counterparties have not yet been selected, but Irvine says they must be rated at least A- long-term or A1 short-term.

Alison Falls, director of research and chief credit strategist for Banc of America Securities, has retired after 22 years at the firm. She did not return calls left at her home in Ohio. Falls reported jointly to Tom White, global head of high-yield trading, sales, and research in New York, and Jim Kelligrew, head of global high-grade fixed income in Charlotte, N.C. White says the firm will be naming her replacement within a few days. He would not comment on whether the firm was considering someone from outside, but said "we have several very talented people internally who we are considering for her role." In the interim, Michael Johnson, a principal, has taken over Falls' investment-grade strategy responsibilities. Ali Balali, also a principal, has been leading high-yield strategy and overseeing the Banc of America Large Cap high-yield index that Falls developed. Johnson and Balali are believed to be candidates to replace Falls, possibly as co-heads. They referred questions regarding their present and possible future roles to Kelligrew and White.

A group of bondholders has formed a committee that has hatched a plan to seize control of the restructuring negotiations surrounding financially distressed Dutch cable operator United Pan-Europe Communications, from its parent, UnitedGlobalCom (UGC), says a member of the committee. The bondholders, representing some $2.2 billion of $5.5 billion in outstanding high-yield bonds, formed the five-person committee last week. Early this week, the committee will appoint a financial advisor who will seek a strategic investor to pay down a E1 billion exchangeable loan held by UGC. The committee-member says he expects UGC to use the loan, along with its one-third share of UPC's bonds, to gain a disproportionate stake of the equity in a planned debt-for-equity swap. Eliminating the loan would shift the equity balance to the bond holders. The committee member says that if negotiations fail and UPC goes into receivership, a court-appointed trustee will allow the payment of the loan as it will be in the interest of the bondholders.

A buy-side and sell-side analyst are divided on whether Lyondell Chemical Company's planned purchase of Occidental Petroleum's 29.5% stake in Equistar Chemicals will benefit Lyondell bondholders. And, in an unusual turn of events, it is the sell-sider who is the bear. "Because any significant decrease in Lyondell's debt depends on an increase in Equistar's currently depressed levels of profitability, which may be a long time in the future, I'd not be buying bonds on this news," says Mark Hughes, head of European high-yield research at BNP Paribas. He argues that, given the almost six times leverage on a senior secured basis, Lyondell's 9.875% notes of '07 (Ba3/BB) should be bid at 95.625. Last Tuesday, they were some four points higher, at a 99.5 bid, two points higher than they were before the deal was announced.

Investors and analysts are beginning to wonder for how long the sterling corporate bond market can sustain its rally in light of recent negative credit events, such as the Enron bankruptcy. "This has been an incredible rally. But you have to ask when it is going to stop. We've seen a huge sovereign default [Argentina] and several corporate defaults. If this continues, we are going to see fundamentals deteriorate rapidly," argues Andrew Burton, credit analyst in the Royal Bank of Scotland's financial markets division in London.