Ford picks up 1 point on sales gain while General Motors flat; Flextronics bucks higher marker

By Ronda Fears

Nashville, Oct. 1 - It was a gangbuster start to the fourth quarter and traders reported in general that players seemed to be jolly. But while stocks rose sharply traders remarked that bonds were flattish and convertibles are still more sensitive to the credit markets.

"I think the mood is more positive, although people are still guarded about what to expect with the earnings coming up and fourth quarter," said one dealer.

"We were pretty busy today, but it was in fits and starts."

Auto sales figures were out and Ford Motor Co. gave an upside surprise with a 5% rise in September total sales. That brought out some buyers for the convertible preferreds, traders said, after there was a "fair amount" of selling on Tuesday ahead of the figures.

The Ford 6.5% convert gained 1 point on heavy volume, one trader said, to 44 bid, 44.5 offered while the stock rose 33c, or 3%, to 11.10. He also said investors were heartened that Ford would be making more cost adjustments with job cuts and plant closures.

General Motors Corp., however, was flat with little interest stirred by its 13% increase in September total sales, trader said, noting the giant among the Big Three automakers also announced more incentives to lure buyers into showrooms.

There was little to no activity in the three GM converts, traders said, while the stock slipped 37c, or 0.9%, to $40.56.

Traders said overall activity was decent, with the market generally described as firmer, but there really were no huge moves. Many players are just trying to hold out for some of the new paper that is expected to hit the market later this month.

"Most of our clients are finding it harder to find good, new names," said Derrick Wenger, director of convertible research at Jefferies & Co.

"They just want to protect the gains they've seen so far this year and not give anything back."

Getting a boost from fixed-income features as the market delta is lagging at 0.4 or lower, Merrill Lynch reported Wednesday that U.S. convertibles advanced 1.2% in September as the underlying stocks declined 0.8%.

The effects of lighter new issuance also are coming to light.

Merrill research shows the market's average theoretical discount dropped dramatically to just 0.27% at the end of September from 0.93% at the end of August, as convertibles drifted higher despite the drop in underlying stocks.

In the trading trenches, dealers also mentioned Wednesday that Yahoo! Inc. was up sharply ahead of its earnings report next week, while Flextronics lost ground even before reports of settlement talks with Beckman Coulter Inc. and a Moody's outlook cut hit the tape.

Flextronics' 1% convertible due 2010 dropped 1 point to 114.5 bid, 115 offered, traders said, as sellers expressed some anxiety over the nearly $1 billion jury award last week stemming from the $2 million contract dispute with Beckman Coulter. Flextronics shares closed off 26c, or 1.83%, to $13.96.

News reports late Wednesday cited attorneys for both sides saying that settlement talks were underway, even as Flextronics has a request to set aside the judgment pending in the California court.

After the market close, Moody's affirmed Flextronics ratings but cut the outlook to negative. Standard & Poor's did the same last week.

"Unless they settle this among themselves, it could be several months before it gets resolved in the courts," one dealer said.

"This is making some people pretty nervous."

A civil lawsuit filed by the Commodity Futures Trading Commission against American Electric Power Co. Inc. on Wednesday alleging price fixing also sparked some modest selling in that mandatory, traders said.

The American Electric Power 9.25% convert dropped 0.5 point to 45 bid, 45.25 offered while the stock closed down 40c, or 1.33%, to $29.60 on the news.

The CFTC alleges that from at least November 2000 through October 2002, American Electric Power reported false natural gas trading information, including price and volume information, to index firms like Platt's; that data is used to set prices at various hubs throughout the U.S. to settle commodity contracts.

American Electric Power said it believes the claims are related to gas traders no longer employed by the company.

After learning in September 2002 of false reporting of gas price information at an unrelated company, American Electric Power said it immediately began its own internal investigation and determined that five employees had submitted inaccurate gas trading information to trade publications. The five employees were immediately terminated, the company said, and American Electric Power reported the incident to the Federal Energy Regulatory Commission and the CFTC.

"We have been cooperating with the CFTC in an attempt to seek resolution to this matter," said Jeffrey D. Cross, American Electric Power's general counsel.

"While the possibility of civil action always existed, we are surprised the CFTC chose to file at this time. We still believe that a settlement is possible and we are open to that possibility. We discovered and self-reported these activities. We have no indication that any current employees were involved in the activities."

Traders also noted activity in a couple of other mandatories - Household's 8.875% and Hartford's 7% due 2006, both of which were bid up.

The Household convert added 0.75 point to 38.75 bid, 39.25 offered with parent HSBC Holding plc shares up $1.99, or 3%, to $67.99 in the U.S. markets.

The Hartford convert gained 0.5 point to 54.5 bid, 55 offered while the stock rose 77c, or 1.46%, to 53.40.

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