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Some funds like Highbridge are seeing cash inflows; Fortress, Elliott file their Dreier bankruptcy claims; The return of convertible bonds; Private equity fund raising these days is tough

Investment grade corporate bonds the next bubble to burst?

That's what RBS credit strategist Bob Janjuah thinks.

Investors should be wary of buying investment-grade debt because defaults will “far exceed anything we have seen for 30 plus years,” Janjuah wrote in a note to clients. “And how would the IG corporate credit market fare if it knew that well over 50 percent of such issuers will see multiple ratings downgrades over the next 24 months?”

Standard & Poor’s said last week that 75 companies with rated debt of $174.5 billion are potential “fallen angels,” meaning investment-grade companies that may be downgraded to junk status. That’s the most in 18 years, according to S&P.....

“Major issuers” with ratings of AAA or AA, the top two categories, may be “seriously at risk of multiple downgrades,” Janjuah wrote.

Corporate Bonds Are Next ‘Bubble,’ RBS’s Janjuah Says - Bloomberg

Retrenchment: Looking for work at SAC Capital? Those with a bond focus need not apply

Even some of the largest, most well heeled hedge funds are doing less bond business these days.  So if you're looking for a job on that side of the business, other than the new distressed funds that may be hiring, pickings may be slim.  BreakingViews reports in the WSJ that even Stevie Cohen's $16 billion SAC Capital has gotten rid of many of its bond geeks, with a more narrow focus on fixed income and that may reflect more pervasive hedge fund trends...

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Junk Bonds: Expecting the worst bust since 2001?

That's what the spreads are implying according to Bloomberg.  There are now 147 issuers with bonds trading at distressed levels vs around 60 back in November. 

What's a bust for some is a potential bonanza for others.

Junk bonds are off to their worst start since 1990, falling 1.8 percent and triggering $17 billion in losses this month, according to index data compiled by New York-based Merrill Lynch & Co. Yields relative to Treasuries are rising at the fastest pace in at least 11 years as prices drop.

The pain may only get worse. Speculative-grade borrowers made up the majority of U.S. corporate debtors for the first time last year, according to Standard & Poor's. The default rate will soar to more than 8 percent this year, the highest since Enron Corp.'s collapse rippled through the market in 2002, estimates Zurich-based UBS AG. Yields show retailers, homebuilders and mortgage companies are among companies at the greatest risk as banks rein in lending.

Warren Buffett bought $2 Billion TXU bonds

Warren Buffett went on a high yield shopping trip last week, swallowing $2 Billion TXU Corp Bonds in two issues.  Berkshire Hathaway bought $1.1 billion of the 10.25% bonds @ 95 and $1 billion of 10.5% PIKs @ 93.....

Warren Buffett put $2 billion of Berkshire Hathaway's cash to work at the end of last week when the company purchased high-yielding bonds issued by Dallas-based power producer TXU Corp., according to a person familiar with the deal.

TXU was bought earlier this year in a landmark $45 billion leveraged buyout led by Kohlberg Kravis Roberts. As with many LBOs carried out in buoyant markets, banks agreed to make large so-called bridge loans to help finance the deal, but they got stuck with those loans when demand dried up for LBO-related debt. TXU can now use the proceeds from the bond sale, whose total size was $3.9 billion, to help pay down the bridge loans. The bonds were issued through a subsidiary.

Buffett's purchase will be welcomed by the banks that made the bridge loans because, since the credit crunch started in the summer, they've had to take large writedowns on LBO debt on their balance sheet. Citigroup (Charts, Fortune 500), Credit Suisse, Goldman Sachs (Charts, Fortune 500), JP Morgan Chase (Charts, Fortune 500) and Lehman Brothers (Charts, Fortune 500) all participated in the debt financing of the TXU buyout, which originally included $11.25 billion of bridge loans.

Buffett's Berkshire buys $2B in TXU bonds - Fortune

Offshore hedge fund tax breaks scrutinized; Looking back on the six year LBO run; Dan Dorfman on $1,000/oz gold and why it's not impossible; Junk bonds setting up for a bigger rout?

• Hedge fund offshore tax breaks at risk as the Senate Finance committee is   looking at taking away shelter benefits
• The WSJ looks at the huge six year LBO run where they proclaim "The   party is over"; August and September deals registered the weakest totals   since November 2004 after the credit crunch hit.
• Dan Dorfman on how $1,000 an oz gold is coming closer to reality
• Pummeled junk bonds recovering, but on borrowed time for a bigger rout?

SEC probe: Were rating agencies "unduly influenced" to provide high sub-prime debt ratings?

Did banks and other debt issuers pressure rating agencies to give sub-prime  bonds higher ratings than they deserved?  The SEC aims to find out:

The SEC, led by chairman Christopher Cox, revealed it is looking in to whether agencies such as Moody's and Standard & Poor's were "unduly influenced" by banks who paid for credit ratings.

The revelation by Mr Cox during testimony before the Senate Banking Committee is the clearest indication to date that regulators believe sub-prime mortgage bonds were unduly inflated in return for payment.

The news will send shivers among both the banking and ratings fraternity, as the SEC is all-powerful in the world of securities regulation, and will come down hard on any institutions found to have broken the rules.

SEC to investigate ratings agencies - Daily Telegraph

Fortress sub-prime unit halts loan buying; Tough markets for hedge funds not terrible for all; Number of distressed bonds on rise

Music to a vulture's ear: S&P says defaults could soar to $35 billion in 2008

The next big wave in corporate defaults could come in 2008 with some $35 billion in debt defaults according to Standard & Poors.  And that amount could be conservative:

The amount of debt on which U.S. companies fail to make interest payments could soar to $35 billion by the end of 2008 as higher borrowing costs and wary investors limit access to credit, Standard & Poor's said.

Companies rated B or lower by the New York-based ratings company could default on $35 billion in debt during the next 15 months, up from $4.5 billion so far this year, according to an S&P report published today.

``These companies are highly reliant on financial market access to support operational cash needs, but the plentiful liquidity for high-yield borrowers is almost surely a thing of the past,'' S&P analysts led by Paul Coughlin said in the report. ``Over the coming year, there are some risks of a protracted economic slump, a sustained rise in borrowing costs and the inability to satisfactorily execute planned asset sales.''