Awaiting Ford terms, convertibles flat as market watched Greenspan, Enron hearings

By Ronda Fears

Nashville, Tenn., Jan. 24 - Convertible players were focused on Federal Reserve Chairman Alan Greenspan and the Enron Corp. hearings in Washington on Thursday as they waited for the final terms on Ford Motor Co.'s record-setting deal. The market was slightly higher but a mixed bag, traders said, as many gleaned a bit of optimism from Greenspan. Many tech and telecom names were on the rise still, traders said, but some retailers, energy companies and several drugmakers lost ground. Defense names were sharply higher on President Bush calling for a higher defense budget.

"The market settled down quite a bit today in terms of volume. People were listening for some clues from Greenspan, and everyone was curious about the Enron scandal, and still setting up for the Ford deal," said a convertible trader a hedge fund in New Jersey.

It was interpreted positively when Greenspan told the Senate Budget Committee that he intentionally tried to make his speech sound more optimistic than his comments a couple of weeks ago, and the Nasdaq added up 20.20, or 1.05%, to 1942.58 while the Dow Jones Industrial Average gained 65.11, or 0.67%, to 9796.07.

While players were disappointed that Ford's guidance was tightened, they were glad to see final terms come in at the midpoint of the revised talk. Ford sold the $4.5 billion deal, which smashes the record $3.45 billion set by the Tyco zero-coupon convert in November 2000, with a 6.5% dividend. Other details were sketchy late Thursday, however.

"At 7s, up 22%, we loved it. At 6.25, up 25%, we like it. We hoping it will come as 6.5s, up 22%," said a convertible trader at a hedge fund in New Jersey. "They basically squeezed everything out of it."

The Ford deal will free to trade Friday, but had bounced back in the gray market Thursday. Traders said the new paper was at 1.125 to 1.4375 points over par in the when-issued market, up by about 0.625 point from Wednesday when it sank on the new price talk.

Overnighters from Advanced Micro Devices and Emulex continued to show mixed reactions in the aftermarket as players saw the AMD deal as very rich while the Emulex deal got a warm reception to a very low premium by recent standards.

Emulex's $300 million of 1.75% notes, with a 22% initial conversion premium gained 4 points from par to 104 bid, 104.5 offered. The stock dropped $1.23 to $42.90.

Advanced Micro Devices' $500 million of 4.75% notes, with a 40% initial conversion premium, sold at the cheapest end of what players described as very aggressive guidance, and in the immediate aftermarket it was down 1 point from par to 99 bid, 99.5 offered. The stock dropped 47c to $16.13.

Meanwhile, next week's calendar began to take shape with a couple of new deals - and more overnighters are anticipated as well. Players expect a heavy roster, but some said it has not been as busy as salespeople had been suggesting. "It's not as busy as I thought it would be from what I'd been hearing from the sales guys," said a hedge fund trader in New York. "And a lot of these deals are not pricing very attractively."

OSI Pharmaceuticals Inc. launched $150 million of seven-year convertible subordinated notes with pricing guidance of a 4.0% to 4.5% yield and a 17.5% to 22.5% initial conversion premium. Merrill Lynch & Co. is lead manager of the Rule 144A deal, which is scheduled to price after the close Tuesday. A sell-side analyst, who is not working on the OSI Pharmaceutical deal directly, said the deal was about 8.25% cheap, using a credit spread of 1,000 basis points over Treasuries and 45% volatility in the stock.

Also for next week's business, the market is expecting $125 million of mandatory convertibles that convert into LaBranche stock. Price talk is anticipated Friday, with pricing on Monday, market sources said.

In the secondary market Thursday, traders said volume was curtailed sharply from earlier in the week.

Northrop Grumman, L-3 Communications and Raytheon got a major boost Thursday after President Bush called for a $48 billion boost in defense spending, saying America needed more precision weapons, missile defenses and unmanned vehicles. Bush is expected to submit his proposed budget to Congress on Feb. 4. Northrop Grumman's 7.25% convertible preferred due 2004 (Ba2) gained 3.5 points on the day to 112 bid as the stock rose $5.19 to $102.07. Raytheon's 8.25% convertible preferred (Ba2/BB) added 2.75 to 58.75 bid with the stock up $2.14 to $34.24. L-3's 4% convertible notes due 2011 (B1/B+) added 2.35 points to 107.75 bid, 108.25 offered and the 5.25% convertible notes due 2009 (B2/B+) gained 3.75 to 135.5 bid, 136.5 offered with L-3 shares up $3.84 to $96.30.

Fleming Cos. Inc. regained some ground Thursday after it resumed shipments to bankrupt discount chain Kmart Corp. following a court-approved payment of $76 million to the food distributor. Fleming on Monday ceased shipping goods to Kmart because the retailer missed a weekly payment on Friday. The Fleming 5.25% convertible noted due 2009 (B2/B+) rose 3.25 points on the day to 85 bid, 86 offered with the stock up 94c to $19.31.

Several retailers were down sharply, with J.C. Penney in one of the biggest declines as its 5% convertible note due 2008 (Ba3/BB+) fell 5.5 points on the day to 104.5 bid, 105 offered and the stock dropped $2.12 to $23.73.

As the Enron hearings renewed concerns about energy names, Calpine Corp.'s new 4% convertible due 2006 dropped 1.875 points to 98.625 bid, 99 offered and the stock dropped 50c to $12.50.

Genzyme was hit pretty hard, too, after it lowered its 2002 earnings to between $1.40 to $1.46 per share, which is also below the First Call analyst consensus estimate for the Cambridge, Mass.-based biotechnology firm of $1.47 per share. The Genzyme 3% convertible note due 2021 (BB+) lost 1.75 points on the day to 99.375 bid, 100 offered while the stock lost $3.10 to $47.95.

Corning Inc., the world's largest maker of fiber-optic cable, said on Thursday in a conference call that while it is uncertain whether the fall-off in industry demand has bottomed out, it hopes a rebound could begin in the second half of this year.

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