Billion-dollar vulture investor Zell/Chilmark Fund put the first notch in its belt yesterday with a surprise bid for bankrupt Carter Hawley Hale Stores Inc.'s junk bonds.

The Chicago-based fund, which has not completed a single deal since its launch in July 1990, offered 40 cents on the dollar for $550 million of the troubled retailer's bonds -- about twice their recent market value.

Carter Hawley, operating under Chapter 11 since February, gave its blessing to the offer, which comes with a $50 million credit line to help the retailer refurbish its stores.

The bid whisked Carter Hawley's bonds 20 points higher, with its 12-1/2% senior subordinated debentures of 2002 climbing to 40 1/2.

"Carter's Chapter 11 is a function of taking on too much debt, and addressing that debt problem is bondholders' concern," said Marcus Lane, managing director at Credit Research & Trading, specialists in distressed debt.

Though substantially below par, yesterday's offer appears fair, Mr. Lane said, noting that Zell/Chilmark "needs to buy this at a fairly big discount because the company is too over-leveraged."

Carter, saddled with $1.3 billion of debt, sought protection from its creditors in February after Bank of America cut off what little credit the retailer had left on Jan. 18. The liquidity crisis that led to bankruptcy also forced Carter to default on its junk bonds.

Zell/Chilmark's offer is at least six points more than most analysts' projections for bondholders recovery in a two-year bankruptcy. Earlier this year, Carters bonds traded as low as 14 cents on the dollar.

"From a credit standpoint, [the offer] doesn't mean a lot," said Dorothy Lee, analyst at Moody's Investors Service. But a single major bondholder -- such as Zell/Chilmark would become -- "would facilitate the restructuring process and open up Carter's prospects going forward."

Unlike many other vulture funds, Zell/Chilmark, brainchild of real estate developer Samuel Zell, originally set out to gain control of troubled companies by buying up their debt securities. But yesterday's deal -- complete with a nod from Carter's management -- appears friendly.

Officials at Chilmark and Carter did not return telephone calls yesterday.

But last August, John C. Haeckel, partner at Chilmark, told The Bond Buyer: "We just want to buy companies. Our M.O. is not just to acquire securities in an attempt to effect a restructuring."

"That's generally what their modus operandi is, but I think in this situation it is something that would be more friendly because [Carter] did authorize it," said Dianne J. Vazza, senior vice president at Georgeson & Co., a proxy solication firm. "I wouldn't consider it hostile."

Market players say Zell/Chilmark will likely play a key role in Carter's reorganization and be rewarded with a large chunk of ownership.

Takeovers involving bankrupt companies accounted for just 1.7% of merger and acquisition activity in 1990, according to Securities Data Co./Bond Buyer. But that share is rising, with bankruptcy deals accounting for 3.3% of all M&A transactions in the first half this year.

Elsewhere in the high-yield market, junk bonds of RJR Nabisco Inc. climbed as the food and tobacco giant released generally favorable second-quarter earnings.

RJR, the market's largest single issuer, said it earned $79 million in the quarter ended June 30, compared with a loss of $108 million in the comparable period last year.

RJR traced muchof that improvement to a sharp decline in interest expense. Earlier this year, the company sold equity and lower-coupon bonds to refinance its high-cost debt.

RJR said its total interest expense for the quarter fell to $541 million from $770 million a year earlier.

In late trading, RJR's 15% subordinated debentures of 2001 were up 1 at 117 3/4, while its 13 1/2% subordinated debentures of 2001 were trading at 110 3/4, up about 1/2 point.

Among new issues, Security Pacific Corp.'s Security Pacific National Bank Home Equity Loan 1991-2 offered $962.3 million of securities backed by home equity loans in two tranches.

The first piece, $866.1 million of three-year securities, was priced as 8.10s to yield 103 basis points over the Treasury curve.

The second piece, $96.2 million of two-year securities, was offered as 8.36s for a risk premium of 147 basis points over government securities.

The offering, sold via Merrill Lynch Capital Markets, is expected to carry triple-A ratings from the major agencies.

In other news, Thomson Corp. announced yesterday it has reorganized its mortgage and asset-backed securities financial information sesurities financial information service companies as the Asset Backed Securities Group under the leadership of Richard C. Trepp, chief executive, and Joseph Melillo, chief operating officer.

The Asset Backed Securities Group provides data for investment, trading, and operations professionals in the asset-backed and mortgage securities markets.

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