Among Distressed Bonds, Some Have More Appeal

In the debt markets, the bonds of five big regional banks are considered distressed, but in the wake of broad declines in such bonds, some are now more distressed than others.

"As time goes on and people get a clearer picture" of what the future holds for the five banks, they are being more discriminating, said Williams Downes, a vice president at Keefe, Bruyette & Woods Inc.

He and others said that right now, Bank of Boston seems to be at the top, or strongest, level of distressed debt. While it is still rated below investment grade, some institutional accounts have been buying it recently, he said.

Confidence Is Regained

He said investors have had renewed confidence in the institution since it successfully raised enough money to bid for failed Bank of New England.

Some put Shawmut National Corp. in at the top as well. "Shawmut's [bonds] look interesting," said Neil Crowder, investment analyst at IDS Investment Services, Minneapolis.

He said Shawmut would survive and its bonds were cheaper than Bank of Boston bonds.

Not surprisingly, Southeast Banking is the unanimous choice for the bottom position. In the wake of news that it might seek Federal assistance to complete a merger or raise capital, its bonds have fallen from about 30 cents on the dollar to about 18 cents in the last few weeks.

Two Have Cloudy Futures

Experts put Midlantic Corp. and MNC Financial Inc. in the middle. They don't look like they are about to fail anytime soon if at all, but high exposure to real estate construction loans makes their futures cloudy.

Overall, bank bonds, including distressed bank bonds, have fallen lately, stung by news of rising nonperforming assets at Wells Fargo & Co. and other California banks. However, those at the top of the list of distressed banks haven't fallen as much as the others have.

Bank of Boston's subordinated debt due in 2000 has fallen from $79 to $73 in the past three weeks, or 7.5%. Meanwhile, Midlantic's subordinated debt due in 1999 has fallen from $50 to $42, or about 16%.

Differences Are Broad

Senior notes of Shawmut National due in 1996 have fallen 13.5% in the past three weeks, from $67 to $59.

Since Southeast Banking indicated it would consider Federal assistance to help it deal with its problems, its debt has fallen from about $50 to $15, or 70%.

All distressed bank debt had become popular with speculative investors in the early part of this year as the issues appreciated as much as and sometimes more than their stocks.

Explaining why he likes Shawmut debt more than debt of MNC, for example, Mr. Crowder said he was more concerned about the Washington, D.C. real estate market than he was about New England's.

He said the New England market is farther through its downturn than is Washington.

Furthermore, he said Shawmut does not have the kind of exposure to construction loans that MNC or Midlantic does.

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