AMG, Franklin sellers emerge amid Janus probe; holders of Lucent, Nortel also take profits

By Ronda Fears

Nashville, Sept. 12 - Trading was still slow Friday, but with the 9/11 memorials past many convertible market players expect the primary market to begin to gather steam.

Meanwhile, amidst a very thin market, traders noted that recent gains in the tech and telecom sectors has sparked some profit taking, particularly for Lucent Technologies Inc. and Nortel Networks Corp. paper. Bidders were still looking at the Nortel mandatory, however.

Affilated Managers Group Inc. and Franklin Resources Inc. also saw some selling, as Janus Capital Group Inc. came under fire by stock analysts following its inclusion in New York Attorney General Eliot Spitzer's probe into questionable mutual fund activities.

"There wasn't widespread selling [in AMG or Franklin] but I've definitely noticed people who are holding this paper are putting out feelers, trying to get a handle on where they could get out at," said the head convertible trader at one of the bulge bracket firms.

AMG's converts were slightly lower, with modest activity, the trader said. The mandatory was quoted at 22.75 bid, 23 offered and the 0% at 95.5 bid, 96 offered. AMG shares ended up 20c, or 0.3%, to $66.75.

Franklin's 0% convertible lost 0.5 point to 60.25 bid, 60.75 offered, the trader said, with the stock closing down 39c, or 0.88%, to $44.04.

Morningstar Inc. withdrew all recommendations regarding Janus on Friday and Merrill Lynch & Co. equity analysts cut their recommendation to neutral from buy.

Banc of America Securities also was at the forefront of Spitzer's crusade, but traders said the convertible paper issued by peers like Lehman Brothers and Merrill Lynch had not really shown any reaction to the headline splash. Those converts, two of which are floaters, are not very liquid issues anyway.

With the mini-boom in telecom and telecom equipment names in recent weeks, some skeptics were looking to lock in profits while believers in the sector turnaround are buying in order to participate with the stock rally.

Lucent and Nortel were both higher, but traders noted some selling into the strength.

Lucent's 2.75% due 2025 gained 1.5 points to 97.5 bid, 98 offered and the 2.75% due 2023 added 1.25 points to 95 bid, 95.5 offered. The stock ended up 3c, or 1.36%, to $2.23.

Nortel's 4.25% due 2008 rose 0.5 point to 89 bid, 90 offered and the mandatory gained 1.25 points to 72.5 bid, 73 offered. The underlying shares closed up 11c, or 2.77%, to $4.08.

Also of note, dealers were marking Walt Disney Co.'s convert down as the stock was hit by actor John Ritter's sudden death on the filming set of "8 Simple Rules For Dating My Teenage Daughter."

Disney shares dropped 44c, or 2.13%, to $20.24. The 2.125% convertible due 2023 was marked off 0.25 point to 101.25 bid, 101.75 offered.

In general, however, participants say the convertible market is still feeling better.

Some even hope that the primary market will remain on break for a while, although capital market sources advise that the calendar will begin to pick up in the next couple of weeks and rather sharply once the fourth quarter gets under way.

"It looks like from what we're seeing that the market is still looking better. It's just been a little bit spotty since Labor Day weekend," said a market source.

"Volatility, from the stock side, has picked up a little bit, though not on a wholesale basis, and the bond market seems to be settling down.

"I don't want new issues to come back yet. The longer we don't have new issues, the longer the market has time to get rationalized, valuations to get worked out."

The 9/11 anniversary following Labor Day has really caused a delay in the onset of the fall capital-raising effort, a capital markets source said.

"It always a matter of timing with these things," the source said.

"We're looking for a fairly busy fourth quarter, though. Everything, the whole calendar, got pushed beyond the 9/11 and there was already the dead week of Labor Day.

"This week was just an emotional wreck for a lot of people in the financial markets. It affects overall moods and really no one could get pumped up to pitch a deal."

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