Market very quiet as stocks stall; anticipating new deals

By Ronda Fears

Nashville, Jan. 3 - It was very quiet in the convertibles market Friday as stocks stalled following the strong open to 2003. With trading slim, players were trying to anticipate new deals coming to market.

"We've not heard any specific names but we have heard that we could be looking for a tech name to come next week," said a convertible dealer at a boutique in Connecticut.

"That's pretty generic, though. So it's hard to do much with it."

Indeed, not much was being done in the way of trading.

Traders said bids are still dominating, however, which suggests demand is still strong.

"I have not heard anything about any new deals," said Michael Revy, manager of the Froley Revy convertible hedge fund.

"They should come, as I am seeing plenty of bids and few offers."

Stocks faltered after opening the year with strong 3%-plus gains, as Home Depot Inc. offered a weak earnings forecast on Friday.

That also put pressure on several retail convertibles, with Lowe's Cos. Inc. among the hardest hit as it also sells home improvement products.

Lowe's 0% convertible due February 2021 (A/A3) lost 2 points on the day to 73.625 bid, 74.625 asked and the 0% due October 2021 dropped 2.5 points to 93.875 bid, 94.7875 asked. Lowe's shares fell $2.43 to end at $36.92.

Generally, however, traders said there were just bits and pieces trading during a very slow session.

There also were some high yield buyers in the market, according to one dealer. Specifically, the trader said, there was a high yield account with a bid for Charter Communications Inc.'s 5.75% convertible due 2005, which is callable in October at 102.3.

Charter's 5.75% due 2005 (CCC+/Caa2) was quoted at 23 bid, 25 asked at one shop but at 24.125 bid, 24.625 asked at another. The 4.75% convertible due 2006 was quoted at 19.125 bid, 21.125 asked. Charter shares closed off 11c to $1.14.

Charter's 8.625% junk bonds due 2009 were seen up 1 point to 45, the convertible trader said.

Several telecoms got a little action, too.

Nextel Communications Corp.'s 6% convertible due 2011 added 2.75 points to 90 bid, 91 asked. The 5.25% convertible due 2010 gained 1.25 points to 72.5 bid, 73.5 asked. The 4.75% convertible due 2007 rose 2.625 points to 87.125 bid, 88.625 asked. Nextel shares closed up 24c to $12.70.

Corning Inc.'s 3.5% convertible due 2008, however, slipped by 1.5 points to 74 bid, 75.5 asked while the stock ended up 6c to $3.81.

Auto sales figures baffled some holders of Ford Motor Co. and General Motors Corp. converts, but were not an impetus to move the issues much.

GM reported U.S. vehicle sales jumped 36% in December and GM Canada vehicle sales rose 24%. Ford reported an 8.2% gain in U.S. sales in December, including its foreign brands, but saw a steep decline in sales in Canada, down 13.9%.

"I am completely befuddled with the auto sales numbers," said a buyside convertible trader.

"It just does not fit in" to the bleak or at least slow-growing economic outlook, the trader continued.

"Fortunately, I was a tad long as December made me a buyer."

While many onlookers are skeptical, some are hopeful that President Bush's new economic stimulus package to be unveiled next week will be a bright spot on the economic horizon. The plan is expected to show $300 billion in new economic stimulus measures over the next decade.

"I am looking for Bush and the State of the Union address to light a fire under things - economic stimulus, new tax laws, tort reform and maybe Medicare reform," said Revy.

"Or Bush might only talk about the evil axis and really blow it."

Several energy names continued to tick higher, but with only moderate activity.

Traders said Mirant Inc., AES Corp., Duke Energy Corp. and El Paso Corp. were all higher.

Standard & Poor's noted on Friday a couple of positive events for Duke but made no change to its A senior ratings and negative outlook.

Last week, a U.S. District Court dismissed shareholder lawsuits that claimed Duke Energy illegally used wash trades to bolster revenues.

Also in late December, an arbitration panel ruled in Duke Energy's favor regarding its dispute with Exxon Mobil Corp. concerning Duke Energy Trading and Marketing - a venture 40% owned by Exxon Mobil with Duke Energy having the right to buy out Exxon Mobil in the event of material business disputes.

The panel also upheld Duke Energy's definition of the type of trading activity to be conducted by the joint entity, S&P noted, adding that "these developments remove some uncertainty and absolve Duke Energy of improper trading activities in this particular forum."

Duke shares ended up 23c to $23.14. The 8.25 % mandatory added 0.17 point to 16.35 and the 8% mandatory rose 0.16 point to 16.36.

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