Cummins, Navistar rev up; RF Micro falls on Nokia warning; Allied Waste airs deal plans

By Ronda Fears

Nashville, April 6 - Convertibles were still described as trading thinly, but the primary market continued to trot along as Allied Waste Industries Inc. made known plans to sell $200 million of notes. Pricing terms of the Allied Waste notes are not expected until before Wednesday's opening bell.

Meanwhile, Financial Federal Corp. sold an upsized $150 million convertible to yield 2.0%, up 32.5% - smack in the middle of guidance for a 1.75% to 2.25% coupon and a 30% to 35% initial conversion premium.

Also primary market related, the gray market appeared to be quiet for Decode Genetics Inc.'s $100 million deal, talked to yield 3.5% to 4.0% with a 30% to 35% initial conversion premium, which was at bat after the close. The Iceland genetics research firm's stock closed Wednesday down $1.29, or 11.37%, to $10.06.

In secondary dealings, traders said the Nokia warning on sales volumes shocked the market and sent peer cell phone maker Motorola Inc. down slightly in sympathy. But the big eye-popper was RF Micro Devices Inc., which according to a trader relies on Nokia for nearly half its revenue stream.

RF Micro Devices' convertible, the new 1.5% issue, fell about 7 points outright and at least 2 points on swap, the trader said. The issue closed in the 132.5 area, he said, with the stock down 7%.

In contrast, Covad Communications Group Inc. gained sharply on its announced deal to partner with AT&T Corp. to offer bundled digital subscriber line and voice services in 11 new states.

Allied Waste deal plans aired

Allied Waste Industries Inc. announced an off-the-shelf offering of $200 million of convertible notes, but underwriter sources on the deal said market participants would have to wait until Wednesday before the market open for price talk.

The convertible is part of a $1 billion refinancing package to partially redeem Allied Waste's $1.4 billion of 10% guaranteed senior subordinated global notes due 2009.

The convertible is scheduled to price after Wednesday's close. The company also is selling $250 million of seven-year senior notes and $400 million of 10-year senior unsecured notes. A new $150 million term loan is another part of the refinancing package.

Moody's rated the proposed convertible at B3 with a stable outlook. Moody's also lowered the Allied Waste mandatory to Caa1 from B3 as refinancings in 2003 and earlier this year with new senior secured debt has pushed the convertible issues farther down the food chain in the capital structure.

Fitch rated the new Allied Waste converts at B with a stable outlook. Given the company's consistent free cash flow generation, progress in debt reduction and potential EBITDA improvement upon an upturn in the economy, Fitch said the marginal increase in senior secured debt does not raise concerns.

Allied Waste's 6.25% mandatory closed on the New York Stock Exchange off 0.362 point to 73.43. A dealer had it down 0.625 point to 73 bid, 73.125 offered. The stock dropped 15 cents, or 1.12%, to $13.30.

Cummins, Navistar shift up

Cummins Inc. shot up sharply after upping its earnings estimates, and Navistar International Corp., parent to heavy-duty engine and truck maker International Truck and Engine Corp., tagged along for the ride.

Before the open, Cummins increased its outlook for first quarter and 2004, citing broad recovery in many of its key markets like China and India that more than offset higher prices for commodities like steel and copper.

Columbus, Ind.-based Cummins said it now expects first quarter earnings of 65 to 75 cents per share, up from its previous target of 40 to 50 cents per share. For 2004, the company is now anticipating earnings of $4.00 to $4.20 a share from $3.20 to $3.40 forecast earlier.

The boosted guidance also surpasses most analysts' expectations for Cummins.

A year ago, the road for Cummins was metaphorically more pothole-ridden.

In April 2003, the diesel engine maker had to pay convertible holders an extra 50 basis points because it delayed filing its 10-K annual report for 2002, which caused the company to delay filing the prospectus for resale of the convertibles. Both delays were prompted by a re-audit of 2000 and 2001 financial statements.

Cummins' 7% convertible trust preferred on Tuesday, though, shot up 5.25 points on the day to 75.5, a trader said, while the stock soared $4.16, or 6.93%, to $64.16.

Navistar rode along, with its 2.5% and 4.75% convertible bonds gaining sharply as the underlying stock added $2.13, or 4.47%, to $49.80.

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