Securitization People and Markets

Two distressed securities analysts have widely different views of the worth of WorldCom's holding company bonds, all of which were trading at 13.5 cents on the dollar last Tuesday morning. Matt Breckenridge, an analyst at DebtTraders, which holds a proprietary position in WorldCom, believes the bonds are worth far more. He says he would begin selling the bonds in the 40s or 50s, a level he believes the bonds will reach as investors gain a better understanding of what the company's future EBITDA will be. He says the bonds trade at approximately one times EBITDA, and adds "You can buy any company's bonds at one times EBITDA and make money." He estimates the value of the company at four times EBITDA, arguing that it will not decline rapidly because it has a number of customers locked into long-term contracts. Breckenridge says the industry consultants with whom he has spoken are largely advising their clients to continue using WorldCom's services, though some are advising clients not to sign any new contracts. Breckenridge would not disclose the size of DebtTraders' position in WorldCom.

Quantitative models used to identify potential defaults and ratings shifts in the corporate bond market are gaining in popularity given the shocks of Adelphia, WorldCom and numerous other Chapter 11 filings, say investors and executives at the two independent providers of this software.

A convertible bond, backed by a fund of hedge funds and offering investors daily redemption options at net asset value will hit the Eurobond market at the end of the month, says Lars Jaeger, partner with Partners Group. Partners, a Swiss hedge fund asset manager, has structured the securitization and Merrill Lynch will underwrite the offering, he says. The notes will consist of one E200-300 million tranche offered to European institutional investors. Partners plans on offering U.S. dollar-denominated tranches at a later stage. The notes have a 10-year maturity, offer a 1% coupon and are capital-protected by Société Générale. In addition, the deal may be rated AA- by Standard & Poor's, says Jaeger. Bill Berry, the Merrill Lynch banker in charge of underwriting, did not return calls.

Merrill Lynch has hired Craig Krandel from Credit Suisse First Boston's mortgage backed securities sales group. Krandel had left CSFB and was unavailable for comment by press time last Wednesday during the holiday-shortened week. Krandel, whom a senior Merrill official says will start in approximately one month given CSFB's non-compete policy, will be in a newly created slot. Harley Bassman, head of Merrill's mortgage group, declined comment citing corporate policy.

Weiss, Peck & Greer, the U.S. investment arm of Holland's largest asset manager The Robeco Group, is prepping its second collateralized debt obligation. The deal should be priced early next month, says a CDO market official. Called Robeco CDO V, the deal will be--as was Robeco CDO II sold last year--backed by high-yield bonds and loans. The arranger for the deal, Rabobank, in New York, is currently marketing the equity and the lower-rated debt tranches. Calls to Weiss and Rabobank were not returned.

OppenheimerFunds has hired James Sivigny as a senior high-yield analyst covering the oil and gas, utility and chemical sectors. Sivigny will be based in New York and report to David Negri and Tom Reedy, co-heads of high-yield at OppenheimerFunds. Negri says the firm will look to add an additional analyst or two, primarily to follow the healthcare and cable sectors. It has already begun interviewing candidates. He says the hires are primarily replacements, though OppenheimerFunds has added some new junior research positions. He declined to go into further detail, however.

Holders of WorldCom's approximately $30 billion in bonds are beginning to form committees and hire legal representation in an attempt to recover as much as possible from the scandal-ridden telecommunications company. Distressed players say they expect a long and bitter fight between several classes of bondholders, not to mention bank lenders, who account for about $3 billion. Scott Klein, managing director at MW Post Advisory Group, says he is organizing a group of MCI bondholders, but did not elaborate, and did not return calls by press time last Tuesday during the holiday-shortened week. At least two sell-side traders say they are aware of a committee of intermediate bondholders that is forming. A group of investment-grade bondholders, each of whom has $500 in exposure, is also said to be seeking legal counsel.

Deutsche Bank has hired Gavin Colquhoun fromMerrill Lynch to trade crossover credits. At Merrill, Colquhoun's duties will be assumed by Pat Collins, who will trade distressed names, and Billy McManus, who just relocated from New York, will trade the dollar crossover book and names with euro components, according to a high level Merrill official. Merrill is now in the market to hire a new high-yield trader, adds the official. It could not be learned to whom Colquhoun will report. Calls to a Deutsche Bank spokeswoman were not returned by press time.

The bonds of Household International are well oversold, according to sell- and buy-side analysts, but the same three researchers are split on Capital One's bonds, with the buy-siders recommending their portfolio managers steer clear of the credit, as it is too risky. Van Hesser, high-grade analyst at Credit Suisse First Boston, believes fears of slower-than-expected GDP growth have caused spreads to widen on Household and Capital One. However, he argues that they are cheap despite the 2-3% growth scenario forecast by CSFB economists.