Market better bid on new deals, strong stocks, tighter spreads

By Ronda Fears

Nashville, Nov. 22 - With some $1 billion of new paper this week, traders said flow was very strong for a Friday and the market in general was better bid.

"It's been a busy week," said a convertible dealer. "We needed it."

Bunge Ltd. Finance Corp. rounded off the week with an upsized $200 million deal that gained 1 point in the immediate aftermarket, adding to five other deals priced during the week.

There was still some residual buzz about the prospects of new deal for up to $4 billion from Tyco International Ltd. and more convertible market participants seem to expect it will come sooner rather than later.

"Marginally, the new issues we saw this week helped," said Jeff Seidel, head of U.S. convertible research at Credit Suisse First Boston.

"Globally, it's been interesting, with the Vivendi deal and Lukoil. Overall, things are looking better. Trading's picked up and the market's better bid."

A strong stock market helped, along with the rally in corporate credits.

"There are simply buyers out there," Seidel said.

"There's a lot of fear of missing a rally and that's pushing things forward a bit faster."

Corporates are tracking the implied volatility of options on the major stock indices, said David Goldman, head of research for the Banc of America Securities global markets group. While he has been bullish on all markets since around mid-October, he said "a little selectivity is in order."

"The pendulum has swung from fear to greed," Goldman said, but added that credit spread tightening is being justified by shifting fundamentals in the form of balance sheet repair, not just ravenous risk appetite.

"Yieldier credits continue to outperform in all markets," Goldman said.

"The despised dog of October is November's comeback kid. That goes for Ford Motor, [and] Charter Communications."

Ford and Charter were both weaker Friday, however, according to convertible traders. One trader speculated there may have been some profit taking.

Meanwhile, new paper in circulation continued to head north for the most part.

"It's been a great shot in the arm for convertibles," said John Levin, head of convertible research at JPMorgan, referring to the new issues.

"I think it's just what the market's been looking for."

Advanced Micro Devices Inc. and Xcel Energy Inc. continued to take the spotlight, although Fitch cut AMD's senior debt to CCC+ from B- on Friday. The AMD deal priced, though, on a day when S&P cut the credit.

AMD's new 4.5% convertible was quoted up 8.125 points to 117.5 bid, 188.5 asked. The stock closed up 72c to $6.86.

Xcel's climb leveled off considerably, but the new 7.5% convertible was quoted up 0.875 point to 116.3125 bid, 116.8125 asked as the stock gained 14c to $10.74.

Bunge sold an upsized $200 million at the cheap end of yield talk and the aggressive end of premium talk, with a 3.75% coupon and 38% initial conversion premium.

Still, analysts said it priced about 0.5% rich.

In the immediate aftermarket, the Bunge convert added 1 point from par to 101 bid, 102 asked. The stock closed down 2c to $23.27.

Convertible market players and onlookers continued to talk about the Tyco situation, and traders noted that Tyco "slipped a little because stockholders won't like a mandatory."

Overall, more convertible players believe the deal is real and it will come to market sooner rather than later, and many characterized the buzz as a "fishing expedition" to test what the market's reaction would be to a Tyco deal.

Tyco has remained quiet about the CNBC report Thursday that sparked the buzz that it was prepping a new deal.

"It was a trial balloon," said a convertible market source. "This was something that was purposely leaked to the media to get a measure of how the market would react."

In general, it seems the market would be very receptive, even though some might prefer a bond over a mandatory.

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