New deals rekindle market as stocks soar

By Ronda Fears

Nashville, Tenn., April 16 - As stocks soared and $1 billion of new deals emerged, the convertibles market came to life Tuesday. Greater Bay Bancorp was pitching an overnighter while Capital One was marketing a deal for after the close Wednesday and Temple-Inland launched a deal for next week's slate.

"We really needed these new deals. It was a fabulous shot in the arm for the market," said a convertible trader at a hedge fund in New York.

"They ought to do well because two are mandatories and they offer nice yields and the zero will be viewed as good defensive paper."

Aside from the new deals, traders were noting a marked boost in flow as bargain hunters emerged, chasing price gains spurred by a spike in stocks. The Dow Jones Industrial Average rose 2% and the Nasdaq gained 3.5%. Telecom and telecom equipment makers continued to be off-limits, however, while financial services and energy found favor among buyers.

"The chase began today. How long it lasts is another thing. We'll probably know by tomorrow if this market has any legs," said a convertible trader at one of the major investment banks.

"People were getting back in today, but I wouldn't say they were jumping in with abandon. There's still a lot of caution, a lot of homework that's been done. We saw some buying in the energy group, like Williams and Calpine, but those issues have been ticking up steadily for a while. There aren't many buyers for telecom, though."

The new issues that got launched Tuesday all came on the heels of earnings reports that were positive.

At bat after the close with an overnighter was Greater Bay Bancorp with a $200 million (proceeds) zero-coupon contingent convert that is expected to yield 1.75% to 2.25% and price with an initial conversion premium of 24% to 28%. Lehman Brothers is lead manager of the Rule 144A deal.

Greater Bay shares ended unchanged at $35.55 but were seen in after-hours trading down by as much as $2.55 to $33.

After the close Wednesday, Capital One will be selling $500 million of mandatory convertibles expected to yield 6.25% to 6.75% with an initial conversion premium of 18% to 23%.

Capital One shares ended up $1.79 to $63.76 but were lower by as much as 81c to $62.95 in after-hours trading.

Both financial companies posted good earnings, and traders said financial paper was higher for the most part in the secondary market.

Financial Federal's 4.5% due 2005 gained 1.5 points to 116 bid, 116.5 offered with the stock up 69c to $33.39. Merrill Lynch's floater due 2032 added 0.5 point to 99.5 bid, 99.625 offered as the stock gained 84c to $48.35. And, the Lehman Brothers floater due 2022 rose 0.75 point to 101.5 bid, 101.75 offered while the stock closed up $2.22 to $63.03.

Temple-Inland also put its hat in the ring, with a $300 million mandatory convertible slated for next week's business. The deal is seen pricing to yield 7.5% to 8.0% with an 18% to 22% initial conversion premium. It prices after a full road show next Thursday, via Salomon Smith Barney.

Temple-Inland shares slid 33c to $56.42.

Manufacturing issues also were sharply higher, traders said, as buyer sought quality paper in the down-trodden market. GenCorp's new 5.75% due 2007 climbed 3.25 points to 109.875 bid, 110.125 offered as the stock added 67c to $15.36.

Chips soared, traders said, as buyers picked issues with stock stories they believe in but that have been hit hard in the market lull.

Amkor Technology and International Rectifier were two of the names mentioned.

Amkor Technology's 5% due 2007 gained 1.5 points to 78.375 bid, 79 offered and the 5.75% due 2006 rose 5 points to 98.5 bid, 99 offered as the stock added $2.06 to $23.66. International Rectifier's 4.25% due 2007 was up 1.125 points to 95.5 bid, 96 offered with the stock up $1.30 to $48.34.

Energy names were also higher, with Calpine Corp. and Williams Cos. Inc. high on the list.

THe Williams 9% convertible trust preferred added 0.75 point to 25 as the stock gained 96c to $22.28.

Calpine's 4% due 2006 gained 4 points to 91.5 bid, 91.625 offered with the stock up 89c to $11.24.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.