Newmont rides metals frenzy; SonoSite up, but Kendle down; Stanley Works active

By Evan Weinberger

New York, July 13 - It may have been investors taking a breath from a fairly active week of new issues, it could have been the onset of a summer weekend or fear of doing anything too drastic on Friday the 13th but whatever the cause, trading in the convertibles market ground to a virtual halt Friday.

That said, Newmont Mining Co.'s warmly-welcomed $1 billion new issue was still active issue and other new issues, including one from SonoSite, Inc. that priced midweek, continued to attract attention.

"People are thinking about their weekend, or doing it, if you know what I mean," one sellside analyst said.

A trader remarked: "People are just working on their strategies for Monday."

With no new issues coming to market Friday, the action was in the secondary.

And while for the most part investors continued to ride mining convertibles, including the ever-popular preferreds from Companhia Vale do Rio Doce (CVRD) to go along with Newmont, one tech convertible and a toolmaker also saw action as the day slogged on.

Nortel Networks Corp.'s 4.25% senior unsecured notes due Sept. 1, 2008 were last seen lower by 2.25 points from their perch Thursday. The convertibles went home Friday at 97 versus a closing stock price of $23.50, off from 99.25 the day before. The Toronto-based networking solutions provider's stock (NYSE: NT) finished down $0.17, or 0.72%.

Metals the new plastics?

In the movie "The Graduate," a party guest gives Dustin Hoffman's character Benjamin Braddock one word of career advice: Plastics. As a parallel, convertibles traders and analysts have recently been saying their own one word of advice to investors: Metals.

"Resources are never going down again," a sellside trader said. "If you want to be someplace with tremendous growth over the next 10 or 20 years, at least until we start using alternative fuels or bringing in asteroids for our minerals" then metals are the place to be.

That explains the attraction of Newmont's new issue.

"Newmont Mining was the big one, which did very well, especially as gold rallied and the dollar tanked," said one buyside portfolio manager.

The two tranches, one due 2014 with a 1.25% coupon and a 15% conversion premium and the other due 2017 with a 1.625% coupon and a 15% conversion premium, were both last seen at 104.25 versus a closing stock price of $41.41. That was an advance of 0.75 point for the 2014 tranche and a gain of 0.625 point for the 2017 tranche.

The Denver-based gold miner's stock (NYSE: NEM) closed up $0.30, or 0.73%.

Also active Friday were convertibles issued by CVRD. The 5.5% mandatory due 2010 (NYSE: RIO-P) traded up $0.03, or 0.07%, to $44.26. The CVRD 5.5% mandatory exchangeables traded at $54.25, market sources said. Stock in the Rio de Janeiro-based mining concern (NYSE: RIO) finished Friday down $0.35, or 0.67%, closing at $51.94.

Stanley Works up, Coors flat

Another convertible that saw a fair amount of action seems to fit in with what market observers describe as a move towards higher credit quality and companies with quantifiable production was an issue from Stanley Works.

The New Britain, Conn.-based toolmaker saw its floating-rate equity units (Pink Sheets: SWKA) close at $1,145.18, up $7.68, or 0.67%. Stanley Works stock (NYSE: SWK) finished at $62.74, down $0.61, or 0.96%.

The attraction of Stanley Works appears to mirror that of Molson Coors Brewing Co. Both are large companies with recognizable names in the underrepresented, at least in the convertibles universe, consumer products sector. And both also produce goods that may be useful in the event of a feared credit crunch linked to the troubles in subprime mortgages.

Molson Coors' 2.5% convertible senior notes due July 30, 2013 also traded Friday and reversed their upward trend. After dropping more than a point Friday, they rebounded somewhat and were last seen at 104.375 versus a closing stock price of $92.86. They finished Thursday at 104.85 versus a closing stock price of $92.63. The Montreal-based brewer's stock closed up $0.23, or 0.25%, Friday.

Wall Street was up Friday following Thursday's swift ascent. The Dow Jones Industrial Average finished at 13,907.25, a new record, up 45.52 points, or 0.33%. The Nasdaq finished at 2,707, up 5.27 points, or 0.20%.

SonoSite, Kendle gain steam

Among other new paper for the week, only convertibles from SonoSite and Kendle International Inc. saw action on Friday, with small gains in each case, according to traders and analysts.

SonoSite's convertible senior notes with a 3.75% coupon and a 22% initial conversion premium were last seen Friday at 102.30 versus a closing stock price of $31.12, up roughly 0.3 point. The Bothell, Wash.-based ultrasound machine maker's stock (Nasdaq: SONO) closed up $0.20, or 0.65%.

Meanwhile, Kendle's 3.375% convertible senior notes due 2012 were also active Friday, when they were last seen at 102.105 versus a closing stock price of $36.84, up roughly a quarter point. The Cincinnati-based clinical research company saw its stock (Nasdaq: KNDL) drop $0.35, or 0.94% Friday.

Live Nation, Inc.'s 2.875% convertible senior notes due 2027 remained fairly quiet. The Los Angeles-based concert promoter's stock (NYSE: LYV) finished up $0.71, or 3.21%, at $22.84.

A senior buyside portfolio manager said hedge investors may be looking at smaller, riskier convertibles like SonoSite, Kendle and Live Nation as a balance should a major credit event not shake the market in the near future as some fear.

"They probably squared off their books and are trying to figure out whether this is a major credit event or something in the news, meaning something that's finished," he said. "[They're] taking a little more risk."

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