Convertible market marked down in quiet session as stocks plunge

By Ronda Fears

Nashville, Tenn., Oct.29 - Convertibles were marked sharply lower as stocks retreated, traders said, but activity was scarce amid a nervous tone among investors. The primary market began quietly, as well, with no new deals emerging outside of the two already scheduled to price this week. Anthem Inc. was at bat after the closing bell, and upped its initial public offering of stock yet again although the convertible still stands at $200 million.

Dealers said the secondary market fell alongside stocks that appeared to be suffering from a delayed reaction to recent poor earnings, and anticipation that economic news due later this week will bode ill yet again for corporate profits. The Dow Jones Industrial Average fell 275.67, or 2.89%, to 9269.50 and the Nasdaq fell 69.44, or 3.93%, to 1699.52.

"It was sort of quiet today. People are getting a bit more nervous," said a convertible trader at one of the major investment banks in New York. "We think there's a lot of opportunity for a surge tomorrow as a result of some of the price declines. So, we're ready for that."

Activity in the secondary market was considerably quieter than the past couple of weeks, however. Traders said there was some profit-taking but prices had not spiked enough for investors to stage a huge sell-off aimed at reaping a huge amount of profits.

"We didn't really see a lot of activity at all today. There was some selling but it seemed pretty routine, nothing out of the ordinary," said one dealer. "If the new deals start coming in again like we think they will, then activity will pick up."

Market sources expect at least a couple of overnight or short-notice new deals will pop-up this week, barring any unforeseen horrible news. Lack of demand is certainly not the problem, syndicate officials said, although $2.68 billion of new paper was put into circulation last week. Rather, it's just a matter of timing.

"If we pull out of this slump today, we could see a couple of drive-by deals," said a syndicate source at one of the major investment banks. "There's just a lot of ducks you have to get in a row to pull it off sometimes. But as for finding buyers, there's no problem there, if the pricing is right. And even though it's tightened up a bit, terms are still very cheap right now in convertibles."

After the bell, Anthem was scheduled to sell $200 million of mandatory convertibles and some market sources said the deal could be upsized but officials working closely with the deal said there was no official upsizing discussed.

Anthem is selling the mandatory convertibles alongside its IPO, which has been boosted for the third time. Originally, the insurance company - best known as one of the Blue Cross & Blue Shield companies - planned to sell 28.6 million shares of common stock. That was boosted to 40 million shares last week and now has been raised to 48 million shares. The stock offering originally aimed to raise $1 billion, which now could fetch as much as $1.78 billion.

Later this week, the market looks for a deal from King Pharmaceuticals Inc. King Pharmaceuticals reported earnings Monday third quarter net income of $64 million, or 28c per diluted share, up from $47 million, or 21c per diluted share, in third quarter 2000. For the nine months ending Sept. 30, the company posted net income of $166.4 million, or 73c per diluted share, up from $109.5 million, or 50c per diluted share, in the first nine months of 2000. Revenues totaled $230.1 million for quarter, a 39% increase and $617.9 million for the nine months, a 39% increase.

King Pharmaceuticals is selling $300 million of 20-year convertible senior notes that are talked to yield 2.75% to 3.25% with a 28% to 32% initial conversion premium alongside a stock offering. King Pharmaceuticals shares closed down $2.37 to $37.

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