New deals activity provides some boost to trading volume

By Ronda Fears

Nashville, Tenn., July 29 - Convertibles market volume was boosted by the heartening move upward in stocks and a somewhat unexpected slight surge in new deal activity. Volatility, however, dropped sharply, but most hedge fund had begun unwinding late last week.

Corning Inc. launched a $500 million mandatory preferred deal for midweek, with the dividends guaranteed, and Scios Inc.'s small bond was seen higher in the gray market. Both were providing some trading volume, enhanced by the uptick in stocks.

"We'd been hearing some rumblings about another new deal this week, but hadn't really taken it to heart," said a convertible dealer.

"If the market tone had turned negative again, I don't think we'd be looking at this Corning. As it is, though, even with the stock under $5, it will be placed well. The collateralized coupon pretty much takes the guesswork out of that."

Even though Corning was downgraded to junk by S&P and Moody's on Monday, the deal was expected to do well, again, chiefly because the company is buying Treasury notes to secure the interest payments. The existing converts were already priced at junk levels, traders said, so the blow was minimal in the secondary market.

"The Corning converts, the zeroes are so far out of the money that they don't trade, and the 31/2s are trading really almost at distressed levels, certainly at junk levels," said a trader at a convertible fund in New York.

"It's awful. The devastation has been lingering for quite some time. But we bought these [existing] converts when they were upper-end investment-grade. Now, it's just sickening."

The new Corning mandatory is rated BB- by S&P and B1 by Moody's. It is slated to price after Wednesday's close.

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