Fannie Mae regains footing, but Ford eases; Euronet closes higher; TriZetto to price

By Rebecca Melvin

Princeton, N.J., Sept. 29 - Fannie Mae rebounded on Thursday, with its convertible preferreds regaining half of about a 1 point loss a day earlier on a newswire story that caused "a knee jerk reaction" among investors worried about accounting problems at the mortgage giant, sources said.

The convertible preferreds of Ford Motor Co. were lower in heavy trading, however. The automaker said it is paring down its number of suppliers and forging new long-term pacts with the remaining ones in a move aimed at cutting costs and improving profitability.

Also, E*Trade Financial Corp.'s convertibles were unfazed by news that the online brokerage company has agreed to buy BrownCo. from JPMorgan Chase & Co. for $1.6 billion in cash, financing about half of the deal with convertibles and senior notes.

And a new issue from Euronet Worldwide Inc. traded up slightly in the session to close at 100.5 bid, 101.5 offered, according to a syndicate source. And pricing was expected after the session for TriZetto Group Inc.'s new convertible, which was referred to a "marginal" by one buyside source. He said his opinion referred to both the proposed bond pricing as well as the company itself.

TriZetto to price

TriZetto Group's $100 million offering of 20-year convertibles was seen roughly at fair value at the cheap end of price talk by one New York-based sellside analyst.

Using a credit spread of 475 to 500 basis points over Libor and 30% volatility, the issue looked, at the cheap end of talk, to be about par to 100.5, he said.

He used Per-Se Technologies Inc., another medical information systems company, as a benchmark for picking the assumptions for TriZetto.

Per-Se's 3.25% paper is a senior subordinated convertible, trading at about Libor plus 507 bps, he said. It also has a five-year call and a put like TriZetto's.

TriZetto's convertible senior unsecured notes were expected to price after the close Thursday. The notes were talked at 2.25% to 2.75% for the coupon and 30% to 35% for the initial conversion premium.

The Rule 144A deal via bookrunners UBS and Banc of America Securities LLC is callable after five years and has puts at years five, 10 and 15.

TriZetto's shares sank $2.23, or 13.3%, to $14.50 on Thursday after announcing the convertible deal after the close Wednesday.

TriZetto, a Newport Beach, Calif.-based health care information services company, expects to use proceeds to purchase up to 1 million shares of TriZetto's outstanding common stock - including shares to be sold by purchasers of the notes in short sales. Remaining proceeds are earmarked for future acquisitions, working capital and general corporate purposes.

Fannie Mae finds its footing

The 5.375% convertible preferreds of Fannie Mae strengthened somewhat but remained slightly below recent levels as its stock recouped between two-thirds to three-quarters of its losses.

"It was a nice ride," a Connecticut-based convertibles research analyst said. "The article in Dow Jones was talking more about its accounting issues, but it didn't quantify or add anything specific. I think it was a knee jerk reaction."

The analyst said that subsequent to the article, two equity reports were published which delved into the issues a little more.

"The JP Morgan report was saying that it didn't see it impacted more than $1 billion, which is nothing," the research analyst said.

Fannie Mae slumped on Wednesday after a Dow Jones Newswires report, citing anonymous sources, said the company overvalued its assets, underreported its credit losses and misused tax credits.

The company, which buys and holds mortgages and issues and sells guaranteed mortgage-based securities to facilitate housing ownership for the low- to middle-income bracket, is restating earnings from 2001 to mid-2004.

Fannie Mae is the subject of legislation moving through Congress that would limit the size of the investment portfolios they hold. The companies would also get a new regulator with enhanced power to approve new products. Together with its sister company, Freddie Mac, the companies' combined portfolios total $1.5 trillion.

The 5.375% preferreds closed at 91 bid, 92 offered on Thursday, according to a New York-based sellside trader, compared to a recent level of 92 bid, 92.25 offered.

Ford eases, GM mixed

Ford's 6.5% convertible preferreds dropped early in the session and closed down 0.23, or 0.6%, at 36.67, while its shares lost nearly 1% to close at $9.86.

Trading was active with more than two times the number of shares traded compared to the average three-month running volume.

Ford will introduce the program in stages to its 2,500 suppliers. For example, Ford currently gets its seats, wiring and instrument panels - an expense of about $35 billion a year - from about 200 suppliers, but it intends to cut that to 100 or less by early next year.

Ford said seven stalwart suppliers will remain key to its operations including Delphi Corp., Visteon Corp., Magna International Inc., Johnson Controls Inc., Lear Corp., Yazaki Corp. and Autoliv Inc.

Last week, GM said it plans to work with fewer suppliers and will set cost-cutting targets for individual parts rather than asking suppliers to meet corporate cost-cutting goals. Chrysler said last month it has begun rewarding its highest-performing suppliers with longer-term contracts and the first opportunity to bid for new business.

Ford's program is unique in that it gives suppliers money for design and engineering costs.

GM's convertible bonds traded mixed, with active trading leaving the 5.25% convertible higher at 17.45, up 0.10, or 0.6%, while the 6.25% bond and the 4.50% bonds were lower in less active trade. The 5.25s were down 0.23 point, or 1.2%, at 19.70, while the 4.50s ended little changed, or down 0.03 point, at 23.82.

E*Trade remains unchanged

The 6% convertibles of E*Trade were little changed after the online brokerage company said that it has a definitive agreement to buy BrownCo., the online brokerage service of JP Morgan Chase & Co., for $1.5 billion in cash.

E*Trade said it will finance the acquisition with about 65% to 75% in common equity, mandatory convertible securities and senior notes.

The fact that the convertibles part of the financing is expected to be in the form of mandatories left convertibles players unfazed as well.

"It's a non-event," said a New York-based sellside convertibles research director.

The company's existing 6% convertibles, which have been partially called with only $185 million outstanding from an issue of $650 million, traded Thursday at 101.125.

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