Oil companies' convertibles spike higher in celebration of Bush re-election

By Sara Rosenberg

New York, Nov. 3 - With George Bush once again in the presidential office as John Kerry conceded defeat on Wednesday, the convertible market had an overall quiet tone with a positive feel. But one sector in particular felt the thrill of victory as oil names - such as Halliburton Co. and Diamond Offshore Drilling Inc. - were seen spiking higher during trading hours.

"Things are firm," a market source said. "The market as a whole seems to be okay less on a Republican win but more on the whole thing being over."

Halliburton's convertible was active throughout the session, regaining ground probably in response to the outcome of the election. The 3 1/8% paper was quoted at 119.84 bid, 120.09 offered, up 2.38 on the day. The stock closed at $37.08, up $1.54 on the day.

"Negative things were said about the company by the Democrats during the campaign. But with the Republicans back in office it's kind of bounced back," a source said about Halliburton.

Meanwhile, Diamond Offshore's 1½% convertible was quoted at 99.97 bid, 100.47 offered, up 0.86 on the day but its 0% was unchanged at 58.5 bid, 58.75 offered. The stock closed at $33.20, up $1.14 on the day.

Halliuburton is a Houston-based oil field services company and Diamond Offshore is a Houston-based contract driller of offshore oil and gas wells.

Airlines bounce around

AMR Corp. and Delta Air Lines Inc. were also active at during Wednesday's session, with AMR trading higher in the morning hours before coming back down.

For example, AMR's 4 ½% convertible was seen trading at 65¼ versus a stock price of $8.60, according to one source. But it dropped down to 63¼ bid, 64¼ offered versus a stock price of $8.06 by close, according to another source.

Delta's 2.875% was quoted at 50 bid, 51 offered by the close, the second source added. The stock closed at $5.71, up $0.03 on the day.

Delta has been in the spotlight recently as people have been speculating as to whether the company can complete its out-of-court restructuring plan that involves a number of complicated facets including contract changes with the pilots union, restructuring debt, securing concessions from vendors and lessors, retooling its operations and reducing non-pilot employee and operational costs and finalizing new financing arrangements.

Pilots have until Nov. 11 to vote on the contract changes through an expedited electronic ratification process.

Delta has already reached an agreement with some of its bondholders to defer approximately $135 million in debt due in 2005.

The company is also offering to exchange up to $680 million aggregate principal amount of three series of newly issued senior secured notes to the holders of $2.6 billion aggregate principal amount of outstanding unsecured debt securities and enhanced pass through certificates.

As of Tuesday, approximately $252 million aggregate principal amount of passthrough certificates series 2000-1C and passthrough certificates series 2001-1C were tendered in the pending exchange offer, enough to reach the minimum required for the short-term piece of the exchange.

But, Delta said in a news release Tuesday, "the amount of securities in the other classes tendered to date is substantially below the minimum tender conditions."

And, as for some new financing, the Atlanta air transportation company is set to approach the bank loan market next week with a proposed $500 million three-year senior secured credit facility. Plus, American Express has agreed to provide Delta with an additional $500 million in financing in the form of a prepayment of SkyMiles

New issuance still light

The forward calendar continued to remain light even in the wake of the election result, with some market participants simply falling on the hope that new issuance will pick up next week as no new deal announcements were made before the session ended - although two deals did surface including one that priced soon after the closing bell.

"No new issues were announced yet this week. Hopefully it will pick up next week. [But] we haven't had much of a calendar so it's more hoping then expecting," a source said.

"I would like to see things pick up now that the dust is settling from yesterday's election," another source chimed in. "I would also like to stop seeing rates creep up. I think the convertibles market would rather see a larger increase that will then hold steady for a while. We also need to see a pick up in volatility in the equity market.

"[At the rate we're going], there will be under $50 billion in issuance for the year and that would be the worst year in like four or five years," the source added.

AudioCodes overnight deal

One deal did surface after the close as AudioCodes Ltd. pre-priced $100 million of senior convertible notes due 2024 at par to yield 2% with a 35% initial conversion premium in an overnight deal Wednesday that is expected to start trading Thursday, according to market sources.

The may be reoffered at 98 or 99, a source said.

Merrill Lynch and Lehman are joint bookrunners on the Rule 144A deal, with CIBC as co-manager.

There is a $15 million greenshoe.

The convertible is callable after five years and there are puts in years five, 10 and 15.

Proceeds will be used by the Airport City, Lod, Israel-based voice infrastructure company for general corporate purposes, including acquisitions.

ConMed announces deal

Also announcing during the early evening was Conmed Corp., which said it will sell $125 million of convertible senior subordinated notes due 2024.

The Utica, N.Y., medical technology company will use $90 million of the proceeds to repay credit facility borrowings and $30 million to buy stock from purchasers of the convertibles.

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