Market settles into improved tone, but poised for declines

By Ronda Fears

Nashville, Tenn., Oct. 18 - There were no noticeable trends taking place in the convertibles market Friday, traders said, other than an overall improved tone on the earnings seen thus far. That said, traders cautioned players appear to be ready for a decline.

Lucent Technologies Inc.'s announcement it will seek a reverse split of its stock, following the likes of Nortel Networks Corp., pretty much stalled its securities, and traders said the news got a mixed reaction.

"It was a rough start today but the tone remarkably stayed pretty upbeat. It got real slow this afternoon, though," said the head convertible trader at a major investment bank.

"The mood still is sort of cagey, like people don't really think this [stock] rally will have any legs to stand on."

Lucent said it will seek a reverse stock split aimed at getting its stock to between $15 and $25.

Like Nortel, which announced plans for a reverse split to get its stock to $10 to $20, the measure was forced by the need to avoid getting delisted.

And the reaction to Lucent's move was similar to that of Nortel's, a bittersweet development for holders of the convertibles.

"We didn't trade any of the [Lucent] converts," said a dealer.

"If you look at the stock today, it had the lowest volume we've seen in weeks."

The Lucent 8% convertible was quoted flat at 21 bid, 22 asked and the 7.75% flat at 19.25 bid, 20.25 asked.

Lucent shares closed down 7c to 68c.

"If you believe they will be able to conserve cash like they say, then you're a buyer," said a buyside trader.

"You don't mind holding this if you believe they can pay off the puts, although some of the arbs could get stung. Then again, if there's a lot of short selling Lucent could get decimated. It depends on how things go and it looked today like the hedge funds were sitting on the sidelines for the most part."

Lucent said it ended June with $4.4 billion of cash and expects to close the year with $2 billion. The company reports third quarter results next Wednesday.

Nortel ended third quarter with $4.6 billion in cash and expects to end the year with about $3 billion.

Nortel's converts were not trading much Friday, either.

The Nortel 7% mandatory, which was issued at 28,751, was quoted flat at 16,036.8. The 4.25% convertible bond due 2008 was at 31.5 bid, 33.5 asked.

Nortel shares closed up 4c to 63c.

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