Intel slips before cuts; Viacom down on CEO reshuffle; Ford shrugs off reports; Washington launches deal

By Kenneth Lim

Boston, Sept. 5 - The convertible bond market was sluggish coming out of the Labor Day holiday on Tuesday, with Intel Corp. sliding outright in line with a correction in the stock.

The Liberty Media Corp. exchangeable into Viacom Inc. was slightly lower after the stock slipped on a surprise removal of Tom Freston as Viacom chief executive.

Ford Motor Co. was unmoved by speculation about restructuring measures at the auto maker as reports over the weekend suggested that the company will pursue aggressive steps to turn around its operations.

Meanwhile, Washington Real Estate Investment Trust launched an overnight $100 million offering of 20-year convertibles.

The market in general was quieter than expected with the passing of summer.

"One of the catalysts for the market will be if people start seeing a pickup in the calendar [of new deals]," a sellside convertible bond trader said.

"People are taking about an active calendar now that September is here," the trader added. "If people think that there's going to be new deals, for the existing bonds, people typically will sell them off to buy the new issues. I'm not seeing so much of that right now."

The trader noted that talk about a pick up in issuance tends to emerge this time of year.

"I've heard it, but...people say that every year," the trader said. "Of course, I'm also hearing that this year it's different."

Intel slips with stock

Intel's 2.95% convertible due 2035 was about 2 points lower outright Tuesday, dragged down by profit-taking in the stock ahead of expected lay-offs at the company.

The convertible traded at 88.25 against a stock price of $19.80 on Tuesday. Intel stock (Nasdaq: INTC) was under water for most of the day before a late-afternoon rally to close at $19.99, a gain of 0.55% or 11 cents.

"The stock was probably down on profit taking," a sellsider said. "Nothing's changed much after they said they were cutting jobs."

Intel stock gained about 1% on Friday after reports said that the company would be laying off 10,000 to 20,000 workers on Tuesday after the market closed.

Santa Clara, Calif.-based Intel said Tuesday it is cutting 10,500 jobs, or about 10% of its workforce, through layoffs, attrition and the sale of some business units. The chip maker said the cuts could save the company $3 billion a year by 2008, while it will have to pay $200 million to workers it is retrenching.

"It seems they have taken the gloves off in the fight against AMD [Advanced Micro Devices Inc.]," a convertible bond trader said.

A sellside convertible bond analyst said the job cuts were unlikely to significantly affect Intel's credit profile.

"It was a pretty good credit to begin with," the analyst said. "I think you're not looking for much of a change there. Intel's been suffering a little bit in terms of profitability and profit growth, but I don't think it's going to move the needle on credit quality."

The cuts will have an impact on earnings expectations, because "if you're taking a billion in costs out, you'd expect them to see some incremental earnings benefit." But beyond taking out costs, investors are also concerned about Intel's ability to improve its revenue.

The analyst added that expectations for Tuesday's job cuts have already been building for some time, and are unlikely to lead to major changes in the value of the convertible.

"This was announced piecemeal over the past few days and weeks," the analyst said.

The outlook for the company continues to vary widely on the Street, the analyst noted.

"There's a lot of uncertainty in there as to how they're going to perform," the analyst said. "It's kind of up in the air right now."

Viacom declines on CEO change

The Liberty Media 3.25% exchangeable into Viacom class B stock due 2031 was slightly lower on Tuesday after the surprise ouster of Tom Freston as Viacom's chief executive.

The exchangeable changed hands at 79 against a stock price of $35.625 on Tuesday. Viacom's Class B stock (NYSE: VIA-B) fell 5.63% or $2.08 to close at $34.89.

Viacom chairman Sumner Redstone on Tuesday replaced Freston with media veteran Philippe Dauman as chief executive of the entertainment production company. Thomas Dooley, who is also a veteran of the industry, was appointed as chief administrative officer.

A convertible bond trader said the move had only a marginal impact on the exchangeable.

"They have a new CEO, but the credit's still the same," the trader said. "Maybe people are hoping for some kind of deal with the new CEO, but that's just speculation."

Credit Suisse equity analyst Jessica Reif Cohen downgraded Viacom stock to neutral from buy, saying that the change creates "significant uncertainty."

Ford shrugs off reports

Ford's 6.5% convertible preferred was mostly flat on Tuesday after weekend reports fueled speculation that the company will be taking aggressive steps to restructure its operations.

The preferred traded at 33.8 against a stock price of $8.27 on Tuesday. Ford stock (NYSE: F) rose 1.45% or 12 cents to close at $8.39.

"The stock was up slightly," a sellside trader said. "People are expecting them some restructuring steps, but I think people have been expecting that for some time."

A memo by Ford chairman Bill Ford to employees that was published last week outlined the company's need to find a new business model that seeks to improve the profitability of cars and crossover vehicles and maintain Ford's position in the pickup segment. The chairman also stressed the importance of the company's North American operations.

The chairman also said in a magazine article that he is open to letting someone else lead the company.

The company on Tuesday said after the market closed that it had hired former Boeing executive Alan Mullaly as chief executive, replacing Bill Ford at that position. Ford remains as chairman.

Washington REIT launches deal

Washington plans to price Wednesday before the market opens $100 million of 20-year convertible senior notes, with the reoffer range at 99 to 99.5 and terms set at a coupon of 3.875% and an initial conversion premium of 22%.

The overnight deal has an over-allotment option of a further $10 million.

Credit Suisse is the bookrunner of the registered off-the-shelf deal.

Washington, a Rockville, Md.-based investment trust with properties in the greater Washington/Baltimore metro region, said it will use the proceeds to repay its $105 million outstanding of 5.9065% debt due between July 2007 and July 2008.

Washington stock (NYSE: WRE) closed at $40.80 on Tuesday before the deal was announced, a gain of 1.22% or 49 cents.

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