Convertible market heads lower on interest rate hike worries; Charter lower

By Sara Rosenberg

New York, May 10 - The overall market tone Monday was negative as generally speaking convertibles were lower primarily driven by fears of a rise in interest rates, which also caused stocks and high-yield bonds to fall

"The markets are pricing in higher rates sooner than later. Things are coming in," an analyst said. "Overall market's for sale. Typical sectors that have outperformed in a rising rate environment are food guys, tobacco. But, convert issuance in that is kind of muted."

"The market's down. Usually converts do better than stocks when the market goes down but it doesn't seem to be going that well," a trader said. "The market seems to be better for sale on fear of rates going higher and stocks being down."

On Monday the Dow Jones Industrial Average closed at 9990.02, down 127.32 and the S&P 500 closed at 1087.12, down 11.58.

"[Also], the high yield market is wider. When high yield widens all the general converts with high yield debt widen. If it's a convert that's not investment grade, those have gone down since high yield widened," the trader added.

Non-farm payroll data released Friday led many to believe that the Federal Reserve could raise interest rates as early as June as opposed to previous expectations of an August timeframe.

As previously reported, in April, non-farm employment increased by 288,000 compared to analysts' forecasts of around 173,000. Furthermore, the unemployment rate was about unchanged at 5.6% compared to expectations of around5.7%. In March, non-farm payrolls increased by 337,000.

Charter lower

Charter Communications Inc.'s 5.75% and 4.75% convertibles were both down 1.75 points on the day, according to a trader, following the company's release of first quarter numbers, with the 5.75% quoted at 95.25 bid, 96.25 offered and the 4.75% quoted at 92.5 bid, 94.5 offered.

The stock closed at $3.61, down $0.25 or 6.48%.

Not only did the convertibles and the stock head lower on the news, but the company's high yield bonds were said to be lower by about two to three points on the day and the company's bank debt was said to be lower by about a quarter to three eighths of a point.

Pro forma, for the three months ended March 31 Charter reported revenues of $1.185 billion, an increase of $55 million, or 5%, over pro forma first quarter 2003 revenues of $1.13 billion. Pro forma operating costs and expenses rose $40 million, or 6%, compared to the year ago pro forma period, primarily due to increased programming and marketing costs. And, pro forma adjusted EBITDA totaled $450 million for, an increase of $15 million, or 3%, compared to the year ago period.

Actual results for the quarter were revenues of $1.214 billion, an increase of 3% over last year's first quarter revenues of $1.178 billion and a net loss applicable to common stock of $294 million or $1.00 per share compared to $182 million and 62 cents per share in the same period last year. Adjusted EBITDA totaled $463 million, an increase of $5 million, or 1%, compared to the year ago period, according to a company news release.

Pro forma net cash flows from operating activities for the three months ended March 31, 2004, were $112 million, a decrease of 27% from $154 million for the year ago quarter, primarily a result of increases in cash interest expense, special charges, loss on debt to equity conversion and changes in operating assets and liabilities.

At March 31, the St. Louis cable company had $18.108 billion of outstanding indebtedness, and $153 million cash on hand. Unused availability as of the closing of the amendment and restatement on April 27 of the Charter Communications Operating LLC credit facility was approximately $1 billion.

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