Deluge of earnings headlines curbs trading; Amazon up on good volume for second day

By Ronda Fears

Nashville, July 23 - It was a very slow trading day in convertibles as earnings flooded the market and sent players to the sidelines to study, traders said. Amazon.com Inc. marked a second day of gains on its earnings and Nextel Communications Inc. saw some action in its shorter-dated converts on the heels of its $1 billion straight bond deal.

"It was a really tough day, the slowest I have seen," said one market source.

"I only heard the Nextels were active on back of the straight deal. Buyside accounts are looking for ideas and they are still tough to come by, as they have been for awhile. It is a fight every day to find value."

On Tuesday, Nextel sold $1 billion of 12-year 7.375% senior serial redeemable notes due 2015 at 99.803 to yield 7.4%. Also Tuesday, Moody's raised Nextel's senior rating to B2 from B3, which followed an upgrade by Standard & Poor's on Monday.

"There was some interest in the Nextel 4.75s," said a dealer.

"These have a shorter maturity than the other Nextel issues and we've been seeing more emphasis on shorter-dated paper lately."

The Nextel 4.75% due 2007 gained about 0.5 point to 102 bid, 102.5 offered, the trader said. The 5.25% due 2010 and 6% due 2011 lost about 0.5 point, he added. Nextel shares closed off 22c, or 1.13%, to $19.21.

Amazon saw "a lot" of activity, another trader said. The converts spiked up Tuesday ahead of the earnings, he said, and again on Wednesday. Amazon reported results after the close Tuesday.

The Amazon 4.75s climbed 2.5 points to 94 bid, 95 offered. The stock closed up $5.24, or 15%, to $40.11. The internet retail giant posted a narrower second-quarter net loss, and boosted its guidance for the remainder of 2003.

Maxtor Corp. and Micron Technology Inc. also were mentioned by traders as notable gainers, both in part due to a broad-based gain in semiconductor stocks. More specifically, though, one trader said Maxtor was higher on earnings and Micron was up on positive moves in its top two customers - Dell Inc. and Hewlett-Packard Co.

Flir Systems Inc. marked one of the biggest declines in the session, one dealer said, after "missing analysts' expectations by a long shot."

Flir reported a second-quarter profit of $9.7 million, or 27c per share, almost flat with $9.6 million, or 27c per share, a year earlier. But analysts had anticipated a gain in EPS to 30c.

Flir's 3% convertible due 2023 dropped 3 points to 98 bid, 99 offered while the stock fell $2.163, or 7%, to $28.787.

Looking ahead, one market source said AirTran Holdings Inc. may be in store for a pull back as its flight attendants have rejected a new contract - news that hit the tape after the close. The 7% convertibles due 2023 were higher Wednesday, pegged at 141.25 bid, 142.25 offered. AirTran shares ended up 73c, or 6.58%, to $11.83.

As expected, no new deals emerged during the session although well after the close America West Airlines Inc. announced plans for a $75 million offering. In addition there were valuations on the two pending deals circulating.

Pricing after the close Thursday is Constellation Brands Inc.'s $150 million three-year mandatory, talked to price with a dividend of 5.75% to 6.25% and a 18% to 22% initial conversion premium.

At the middle of price talk, Deutsche Bank Securities Inc. analysts put it 4.15% cheap, using a credit spread of 750 basis points over Libor and a volatility skew of 30% to 27%.

Merrill Lynch & Co. analysts puts it 5.66% cheap, using a credit spread of 500 bps over Treasuries and a 25% stock volatility.

Lehman Brothers puts it 4.5% cheap, using a credit spread of 550 bps over Treasuries and a volatility skew of 28% to 25%.

Constellation Brands stock closed Wednesday off 16c, or 0.56%, to $28.39.

Wabash National Corp.'s $100 million of five-year noncallable senior unsecured convertible notes is set to price after the close Monday and is expected to carry a 2.75% to 3.25% coupon with a 27.5% to 32.5% initial conversion premium.

At the middle of price talk, Deutsche puts it 4.58% cheap, using a credit spread of 850 bps over Libor and a 50% stock volatility.

Lehman puts it 5.185% cheap, using a credit spread of 800 bps over Treasuries and a 48% stock volatility.

Wabash shares closed Wednesday down 60c, or 3.86%, to $14.94.

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