Securitization People and Markets

A loophole in Securities & Exchange Commission tender rules has opened the door to a breed of bond tender offers that various bond market buy-siders are calling "predatory" and "exploitative." The practice, alternately called "mini-" or "trashy-" tenders, takes advantage of an SEC rule enabling any firm to tender for up to 5% of a company's bonds (or stock) without registering their activity. With increasing frequency, this has given rise to firms which send banks, money managers and mutual funds--both large and small--official looking tender offers for a company's bonds at up to 15 points below market price. One veteran buy-side trader, Jim Claire of Evergreen Investment Management, calls these companies "shady operators," arguing that they try to exploit bond managers' fiduciary obligation to pass on tenders to clients. Claire continues, "I hope someone gets around to shutting these [crooks] down."

Fixed-income investors are questioning whether Providian Financial's bonds are worth buying, and wonder if the new ceo, Joseph Saunders, can keep the company afloat long enough to make the remaining 31/2 months of interest and principal payments on its 6.75% notes of '02. There were no bids on the notes last week, according to one high-yield trader, who reasons that the low 80s would be an appropriate price for the bonds, given that Providian's 6.70% notes of '03 are bid at 78. This trader continues that the last trade he saw in these bonds was nearly a month ago, which was at 80. Those levels caused an East Coast buy-side analyst to wonder whether the bonds might be worth a gamble. He reasons that Saunders, a credit-card industry veteran, presumably did his due diligence prior to joining the company. Still, the analyst believes it is not worth the risk. Of Providian's bonds, he says, "I didn't own them on the way down, and I'm not going to step in at this point."

Casey Walsh, the co-head portfolio manager responsible for Prudential Financial's more than $8 billion in high-yield assets, has resigned effective Dec. 31. Paul Appleby, who had been co-head of high-yield with Walsh, will now be the sole head. Mike Collins, a high-yield credit analyst and strategist at Prudential, will assume Walsh's portfolio management responsibilities. Walsh did not return calls placed with his secretary as of press time last Wednesday of the holiday-shortened week.

The high-yield trading, sales and research arm of RBC Capital Markets will to move from its current location in Greenwich, Conn. to company offices in Purchase, N.Y., according to Dan Elkaim, head of high-yield sales. He says the high-yield group is making the move to unite high-yield sales and trading with a newly hired leveraged finance group from Indosuez Capital led by Kenneth Kencel that is operating out of Purchase. Another change precipitated by the addition of Kencel's group is that Max Holmes, who had been head of high-yield origination, will now work with the leveraged finance group.

Despite a flurry of good news that has lifted European telco credits, analysts are still warning investors to proceed with caution. In the past weeks, Colt received an equity injection from Fidelity, Jazztel has begun to restructure its balance sheet and KPN, as well as Sonera, have begun to focus on debt reduction. Last week, Sonera's 5.625% notes of '05 tightened roughly 70 basis points to 250 basis points over five-year swaps and KPN's 7.25% notes of '06 have come in almost 300 basis points in the past month to about 500 basis points over five-year swaps. "The recent rally is far from being a long-term uptick," warns a London-based industry analyst.

Macquarie Corporate Finance USA, a New York-based division of Australia's Macquarie Bank, is seeking to acquire several U.S. electric transmission grids and will securitize these assets to finance the acquisitions. Tom Capasse, division director in the New York unit, declined to specify what companies will be acquired. Steve Fetter, the head of Fitch's global power group, says the purchase of transmission grid assets through securitization has never been done before.

The £2 billion sale lease back deal of 6,700 properties owned by British Telecommunications, which has been delayed since September, will kick off next week with a roadshow, according to an official at Schroder Salomon Smith Barney, which is underwriting the deal. The deal, dubbed Telereal, should be one of the largest deals out of the U.K. this year. It had been delayed because of the massive amount of legal work involved in securitizing so many properties. British land property firms Land Securities Trillium and William Pears, will fund roughly £1.8 billion of the purchase with an offering of asset-backed bonds. The final structure of the deal has not been set and the offering circular is scheduled to appear this week. The SSSB official said the deal will have tranches ranging from triple-A to triple-B, but couldn't comment on price talk.

Credit Suisse First Boston is once again the far and away leader in terms of volume of high-yield issues managed since 1998 that subsequently defaulted, according to BondWeek's third annual Turkey Tables. Morgan Stanley and Goldman Sachs moved up considerably, due mostly to the tremendous number of defaults this year.