New deals stimulate players; retailers find bargain hunters

By Ronda Fears

Nashville, Tenn., Aug. 20 - New deals from CenturyTel Inc. and Harris Corp. after the close, the latter with an overnighter, roused convertible players to action. Although both deals were small, or maybe because of that, they were "obscenely oversubscribed," as one salesman put it, and were bid higher in the gray market.

"The [convertible] market really needed a shot in the arm after a long dry spell and these new deals go a long way toward that, particularly since both are investment-grade issuers," the salesman, who is working on one of the deals, said.

"Response has been overwhelming. People are just starving for new paper."

There has not been a new convertible priced since Corning's new mandatory issue on July 31.

Investors were happy to see some new paper in circulation but a bit disappointed that the CenturyTel deal talk was revised to tighter terms.

"Probably the market would be clawing for just about anything that was put on the table at this point, having been three weeks since we saw a new deal," said a convertible trader at hedge fund in New York.

"The Harris terms look good, it's just really small so it will be hard to get a decent piece of it. We were not too happy about the juice getting squeezed out of the [CenturyTel] deal, but it's still a nice deal."

Otherwise trading stepped up pace a bit as buyers looked for bargains in the retail sector and some looked to unload issues like Agilent Technologies Inc. after poor earnings.

"We're still seeing a lot of action in retail names, hoping for some kind of bounce," said Adrian Miller, convertible analyst at Salomon Smith Barney.

"Consumers are not dead, we saw that from the Lowe's results. So those type of names, retailers, consumer staples, anything that has a consumer spin, are seeing activity."

Traders said activity in general seemed to accelerate on some optimism that issuance indeed will pick up before the Labor Day holiday somewhat, even though stocks sank on widespread profit taking.

"We were busier today partly due to the new deals," said a dealer. "But we were also seeing some buyers for the sellers who were booking profits."

On heavy selling, the Nasdaq lost 1.29%, the Dow Jones Industrial Average dropped 1.32% and the S&P 500 fell 1.40%.

"We had an up day and a lot of nervous nellies hit the sell button, to capture a little bit of profit," said a trader at a convertible fund in New York.

"That provided an opportunity in some situations. Not that we're a big buyer right now, but there are a few opportunities out there, in a couple of biotech issues and a couple of retail-type names. The market's still a bit rich, though."

Biotechs were recovering in a spotty pattern, traders said.

OSI Pharmaceutical, Inc.'s 4% due 2009 added back 3.5 points to 61 bid, 61.5 asked as the common regained $1.93 to $15.98.

But ImClone Systems Inc. was held back by the ongoing Martha Stewart scandal.

ImClone's 5.5% convertible due 2005 was basically unchanged at 58 bid, 59 asked and the shares ended off 5.1c to $8.21.

Agilent Technologies Inc. gave back most of its pre-earnings gains, with the 3% due 2021 losing 3.125 points to 84.625 bid, 85.125 asked as the stock dropped $1.24 to $16.20.

Telecoms and telecom equipment issues were widely mixed, traders said, due to the two new deals pending.

Some selling was taking place to make room for the new paper, and there were buyers looking to pick up telecom paper as they were not playing the new deals for a number of reasons, including restrictions from participating in Rule 144A deals, one trader said.

Nortel Networks Inc. was a notable gainer.

A couple of recent new contracts provided some upbeat reaction for Nortel, a dealer said.

On Monday, Nortel announced two deals worth a combined $169 million over three years, with wireless service provider Dobson Communications Corp. and PTK Centertel in Poland.

Nortel had been on thin ice, with its stock at a dollar, and that had made the Aug. 15 restriction on early conversion of its newest mandatory a moot point. The 7% mandatory is convertible at $1.41 to $1.69.

Nortel's 4.25% due 2008 gained 2.625 points to 38.5 bid, 39.5 asked with the stock closing up 12c to $1.02.

Nextel Communications Inc. also continued to march slowly northward.

Lucent Technologies Inc., however, declined on heavy selling, traders said.

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