Convertible market gains on positive retail sales, chip forecasts

By Ronda Fears

Nashville, Tenn., Nov. 26 - Convertibles resumed the march north Monday after getting a positive sign that consumers are buying strong this holiday season and upward forecasts for computer chips, traders said. There was some profit taking in the retail sector, traders said, and some heavy buying in chips. Market players also were on the lookout for new deals, and were not disappointed. Hasbro Inc. priced a drive-by $200 million deal as retail sales for the holiday season turned rather bullish. Also, pricing guidance surfaced for the upcoming Prudential Financial Inc. mandatory convertible and Boise Cascade Corp. announced plans for a $130 million mandatory convertible.

Hasbro's new $200 million deal, with a 2.75% coupon and 25% initial conversion premium, was trading 0.5 point above issue price in the gray market as the closing bell rang.

"With the (Hasbro) stock down, we were happy that the terms stayed where we had been told they would be," said a convertible trader at a hedge fund based in Connecticut. "We thought it was likely that the premium might be bumped up, but it doesn't look like it so far. The convert traded well in the gray market and looks like it will be higher out of the gate tomorrow."

After the market's closing signal, the deal priced at par via sole lead manager Salomon Smith Barney. Hasbro shares closed down 50c to $17.28, because of pressure from the new deal but traders also noted that the retail sector was widely mixed.

Many retailers benefited from the TeleCheck Services Inc. news that retail sales were up 2.4% from year-ago levels during the after-Thanksgiving weekend, a time that is considered a strong harbinger of the holiday shopping trend. But the gains were moderated by reports that a recession is in force in America and some lingering pessimism about the sector or specific names, traders said.

"A lot of the gains in retail were reduced by profit-takers who began selling in the afternoon, especially in Amazon. There is still some worry there, so some people took advantage of a window to sell Amazon converts today. In some areas of retail, there's still some doubt that there will be a strong recovery imminently, like the upscale clothing lines," said a convertible trader at a major investment bank in New York. "Techs were moving up steadily, although it was a mixed bag, too. The new issues in that sector were particularly being chased. Some of them have just sky-rocketed, like the Quest Diagnostics."

Amazon.com Inc.'s 4.75% convertible noted due 2009 (Caa3/CCC+) gained 6.875 points on the day to 48.625 bid, 29.625 offered as the underlying stock rose $3.13 to $12.21. The group of retail convertibles, and there are several, were widely mixed and ended up at a wash as a group, one trader said. Genesco's 5.5% convertibles due 2005 added 2.25 points on the day to 119.875 bid, 120.875 offered with the stock up 68c to $23.40. Barnes & Noble Inc. 5.25% convertibles due 2009 lost 2 points on the day to 109.5 bid, 110.375 offered as the stock dropped 81c to $27.07.

Convertibles also rode the wave of semiconductor stocks that gained after Taiwan Semiconductor Manufacturing, the world's largest contract chipmaker, raised its 2001 financial forecasts. Gains in chips and the tech sector as a whole were credited with giving the Nasdaq its boost. The tech-laden Nasdaq eclipsed the Dow's closing gain, although the industrial average flirted with the 10,000 mark, after both had slumped in advance of the Thanksgiving holiday. The Nasdaq gained 38.03, or 2.00%, to 1941.23 while the Dow industrials edged up 23.04, or 0.23%, to 9982.75.

"We think the message is not as clear as some of the optimists, with regard to retail and especially with regard to chips," said a convertible trader at a hedge fund in New Jersey. "Our bet is long-term there will be some more players ejected from the field, but we aren't ignoring the price gains right now."

Fairchild Semiconductor's new 5% convertibles due 2008 gained 3.25 points on the day to 107 bid, 107.5 offered as the stock rose $1.33 to $23.03. FEI Co., which makes products for the chip industry, saw its 5.5% convertibles due 2008 climb 17.5 points on the day to 110 bid, 111 offered with the stock up $1.53 to $21.73. Agilent Technologies Inc.'s new 3% convertible notes added 2.75 point on the day to 107.5 bid, 107.625 offered as the underlying shares rose $1.15 to $26.25.

Quest Diagnostics, however, came off its sharp climb. The medical testing firm's new 1.75% convertible notes due 2021 were off 0.25 point on the day to 150.75 bid, 151.25 offered as the stock slipped 38c to $65.30.

Market players still are expecting a strong new issues slate for the last week of the month, and into December. But only one deal, Boise Cascade's, had been formally added to the calendar. No surprise, however, since many of the new deals are anticipated as Rule 144A deals if not overnight transactions as well. Yet, Boise Cascade's deal will be a registered offering that joins a recent surge of new deals in the mandatory convertible structure.

End

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.