NII plummets; Symantec tumbles; Cadence slumps; Henry Schein falls; EMC soars

By Evan Weinberger

New York, Oct. 25 - NII Holdings Inc. convertibles were befitting the Halloween season as its convertibles were smashed like a rotten pumpkin Thursday. Symantec Corp., Cadence Design Systems Inc. and Henry Schein Inc. suffered similar fates.

Earnings season means that a lot of convertibles that don't normally trade very much get their moment in the sun. "It's a good thing. It's healthy," one trader said. "It's a sign that our market is working."

Given the way the day went for many of the issues that reported earnings, they may have wanted to stay in the shade. Lots of issues were "hit hard today" from earnings reports, an analyst said.

There may be more to come. Countrywide Financial Corp. convertibles took a relatively small hit in preparation for its earnings announcement, which is set for Friday.

But in the darkness, a little light sometimes falls. EMC Corp. earnings pleased the market, and its convertibles basked in the approval.

Earnings and housing numbers sent the Dow Jones Industrial Average zig-zagging Thursday. The day began with a report that sales of new homes were up and inventory was down in September, much to everyone's surprise. Sure, unemployment numbers were up and sales of big-ticket items were down 1.7%, but the Dow was up early.

After the initial euphoria over the housing rise, investors realized that home sales were up because of a downward revision in the decline from August. Oil prices then spiked and credit concerns reappeared, with American Insurance Group Inc. the latest to fall victim to speculation on mortgage-related losses.

In the end, the Dow finished the day down 3.33 points, or 0.02%, to close at 13,671.92.

The Nasdaq continued to get hammered on earnings reports for technology firms and lost 23.90 points, or 0.86%, for a 2,750.86 close. It was down early and pretty much stayed down all day.

The Standard & Poor's 500 had a ride similar to the Dow's and in the end closed at 1,514.40, a drop of 1.48 points, or 0.10%.

In new offerings, Lincare Holdings Inc. was set to bring $500 million in convertible senior debentures due 2037 to be issued in two tranches to market Thursday after the close. The deal was announced Wednesday night and generated a wide difference of opinion.

McMoRan Exploration Co. launched $150 million in mandatory convertible preferred stock due Nov. 15, 2010 Thursday morning. The mandatories are talked to yield 6.75% to 7.25% with an initial conversion premium talked at 18% to 22%.

JPMorgan and Merrill Lynch are the joint bookrunners of the registered transaction, which will be issued under McMoRan's existing shelf registration. There is a $22.5 million over-allotment option. The deal is expected to price Nov. 1.

The mandatories will be issued at the same time as 11 million shares of McMoRan common stock. There is a 1.65 million greenshoe on the common stock offering.

The mandatories have full dividend and change-of-control protections.

McMoRan is a New Orleans-based oil and gas driller with operations in the Gulf of Mexico and on shore along the Gulf Coast. McMoRan intends to use the proceeds from the offerings to repay a portion of a bridge facility used in connection with the acquisition of the Gulf of Mexico shelf oil and gas properties of Newfield Exploration Co.

Lincare breathes life into market

Clearwater, Fla.-based Lincare, a provider of oxygen and other respiratory therapy services to the home health care market, was set to bring $500 million of convertible senior debentures due 2037 to the convertibles party after the close Thursday. The deal evoked strong reactions, both for and against.

The first tranche of $250 million in series A convertible senior debentures due Nov. 1, 2037 is talked at a coupon of 2.75% to 3.25% with an initial conversion premium of 50% to 55%.

The second tranche of $250 million in series B convertible senior debentures due Nov. 1, 2037 is talked at a coupon of 2.75% to 3.25% with an initial conversion premium of 50% to 55%.

Each tranche of the Rule 144A transaction has a $25 million over-allotment option. The debentures are set to price Thursday after the market close.

"They look like a nice investment," one analyst said. "They set up well, and they look like they could be a winner in any kind of shakeout in terms of Medicare and Medicaid. They model so cheap at the mids. If they came any way they'd model cheap."

A trader contacted by Prospect News agreed with the assessment that the Lincare debentures model cheap. The trader had them at 2% cheap.

Other than that, though, the trader was not impressed. "I think [it's a] ridiculous premium and you gotta be nuts to go near them," he said.

The series A debentures have hard call protection for the first five years and puts in years five, 10, 15, 20 and 25.

The series B debentures have hard call protection for the first seven years and puts in years seven, 10, 15, 20 and 25.

Both tranches have contingent conversions subject to a 130% hurdle until Oct. 1, 2037 and a contingent payment trigger of 120%. Both tranches have net share settlement agreements and dividend and change-of-control protections.

Lincare plans to use $150 million to repurchase shares of its common stock. An undisclosed further amount may be used for further stock buybacks. The balance will be used to fund some acquisitions and for general corporate purposes.

NII plummets

NII Holdings' 3.125% convertible senior notes due June 15, 2012 closed Thursday at 91.73 versus a closing stock price of $56.05. They closed Wednesday at 96.26 versus a stock price of $69.44.

And that was the better performing of the Reston, Va.-based wireless communications firm's two convertibles.

NII operates as Nextel in Latin America, particularly Mexico, Brazil, Argentina, Peru and Chile. Hurricanes and other natural disasters raised costs, and stiff competition from Mexican and Spanish firms drove down new subscribers for NII. Despite those problems, NII posted a 24% gain in earnings in the third quarter.

That didn't matter in most investors' eyes after the announcement Thursday morning.

The better performing convertible was already mentioned. NII's 2.75% convertible notes due Aug. 15, 2025 closed Thursday at 132.489 versus a stock price of $56.05. They closed Wednesday at 152.956 versus a stock price of $69.44.

Stock in NII (Nasdaq: NIHD) dove $13.39, or 19.28%, on Thursday.

Symantec tumbles

Cupertino, Calif.-based security software producer Symantec announced earnings that beat Wall Street estimates for the third quarter Wednesday night, but a dimmer outlook for the fourth quarter sent its stock and convertibles tumbling.

Symantec announced earnings of 29 cents per share, or $263 million, which beat the forecasts of analysts polled by Thomson Financial. Profits were down for the quarter compared to 2006, and Symantec gave a less encouraging outlook for the next quarter.

It was downhill from there.

Symantec's 1% convertible senior notes due June 15, 2013 closed Thursday at 112.206 versus a closing stock price of $18.50. They closed Wednesday at 121.90 versus a stock price of $21.02.

Symantec stock (Nasdaq: SYMC) sank $2.52, or 11.99%, on the day.

Similar story for Cadence

San Jose, Calif.-based semiconductor producer Cadence Design Systems followed a similar pattern to the previously mentioned companies Thursday. Cadence posted a 73% jump in third-quarter profits, the company announced Wednesday evening.

Looking closely at the numbers, investors and analysts found that the jump may be attributable to a licensing change that brought orders forward. Demand for Cadence semiconductors may fall in the fourth quarter, they fear.

When the market opened, the race to get out of Cadence began.

Cadence's 1.375% convertible senior notes due Dec. 15, 2011 closed Thursday at 107.063 versus a stock price of $19.32. They closed Wednesday at 114.207 versus a stock price of $21.69.

Cadence's 1.5% convertible senior notes due Dec. 15, 2013 closed Thursday at 107.935 versus a stock price of $19.32. Those convertibles closed Wednesday at 116 versus a stock price of $21.69.

Cadence stock (Nasdaq: CDNS) handed over $2.37, or 10.93%, on Thursday.

Henry Schein down before earnings

Melville, N.Y., medical supplier Henry Schein doesn't announce its earnings until Nov. 1. Given the way the company's stock and convertibles performed Thursday, it's clear someone knows something, and that something may not be good.

Henry Schein's 3% convertible senior notes due Aug. 15, 2034 closed Thursday at 138.32 versus a closing stock price of $59.26. They closed Wednesday at 143.57 versus a stock price of $61.85.

Henry Schein stock (Nasdaq: HSIC) fell $2.59, or 4.19%, on Thursday.

Countrywide on deck

Calabasas, Calif.-based Countrywide, America's largest home lender, is set to announce its earnings Friday. With Countrywide at the center of the subprime storm, Wall Street isn't expecting much good news.

Investors got a head start on dumping Countrywide stock Thursday, and the convertibles were down a bit as well.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Thursday at 85.076 versus a closing stock price of $13.07. They closed Wednesday at 85.496 versus a stock price of $13.83.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Thursday at 82.4434 versus a stock price of $13.07. They closed Wednesday at 83.4217 versus a stock price of $13.83.

Countrywide stock (NYSE: CFC) fell 76 cents, or 5.50%, on Thursday.

EMC a rare bright spot

Who wants to end the day on a bad note? EMC profit rose 74% in the third quarter, and stock in the Hopkinton, Mass.-based data storage seller hit a six-year high Thursday. The profit jumped on increased sales and EMC's sale of its stake in VMware.

The convertibles hopped as well.

EMC's 1.75% convertible senior notes due Dec. 1, 2011 closed Thursday at 162.866 versus a stock price of $24.45. They closed Wednesday at 151.41 versus a stock price of $22.53.

EMC's 1.75% convertible senior notes due Dec. 1, 2013 closed Thursday at 165.491 versus a stock price of $24.45 after finishing Wednesday at 153.871 versus a stock price of $22.53.

Stock in EMC (NYSE: EMC) leaped $1.92, or 8.52%, on Thursday.

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