Level 3 higher on job cuts; CenturyTel off; Kodak up; Advanced Micro rebounds

By Ronda Fears

Nashville, Jan.12 - As expected, there was a rebound in Advanced Micro Devices Inc. and other issues in the chip sector on Wednesday as more positive comments from Intel Corp. counteracted the warning from AMD.

"On swap, they [AMD converts] recovered a bit," said an AMD convert holder. "There were better buyers of the 4.75s and sellers if the 4.75s. Intel's numbers should help a little." He said AMD's credit spread widened Tuesday on the warning, but added: "It seems overall spreads have widened."

AMD's 4.5% convert due 2007 and the 4.75% convert due 2022 were both described by a sellside trader as adding back about 1 point. AMD shares Wednesday regained 16 cents on the day, or 1.08%, to close at $15.02.

"We nailed AMD. There were a few New York outright guys that listened and bailed on our call," another sellside market source said. "We lucked out and had quite a few puts. It's nice to be right once in awhile."

Otherwise, it was a rather slow session, dealers said, with lots of inquiries "but no real action."

Western Wireless Corp.'s 4.625% convert lost a bit more ground, about 0.5 to 1 point, with a bid of 4.25 points over parity as players continue to take positions following its $6 billion takeover by Alltel Corp. A few other telecom issues were active, mostly in the wireline sector, though, with names such as CenturyTel Inc. trading as onlookers expect some wireless companies will be looking to shed traditional telecom assets.

Moreover, market watchers are remarking about "some good sized markets in stuff not usually seen." One fund manager said it "feels like there is a little liquidation or lightening up." Also, he added that "leverage is already low, so I'm not sure how to interpret this action. It feels like there is a little fear back in the markets."

CenturyTel profits taken

On the back of the Alltel/Western Wireless deal there has been a lot of speculation about takeover targets and acquisitions in the wireless sector, but Wednesday there was some focus on the more traditional phone companies.

CenturyTel dropped on a big sell-off as players cashed in, and at least one sellside dealer cited at least one credit call in support of taking profits. The CenturyTel 4.75% convertible bond was quoted off 0.25 point to 108.75 bid, 109.75 offered and the 6.875% mandatory due 2005 dipped slightly, but on heavy volume, to 25.75.

CenturyTel shares also were heavily sold off, closing down 21 cents, or 0.62%, at $33.44.

Dave Novosel, analyst at GimmeCredit said in a report Wednesday that spreads on CenturyTel have tightened considerably in recent months and in light of that, along with a perception of increased risk, he would take profits in the name.

"As takeover rumors swirl around the telecom industry, we have heard little mention of CenturyTel. This is primarily because CenturyTel is a wireline player and the consolidation activity in the industry is mainly focused in the wireless segment," Novosel said.

"However, several prominent wireless operators such as Alltel, Sprint, and Verizon have substantial wireline properties that will no longer be part of their core strategy, and we believe CenturyTel may be a potential acquirer of some of these assets, given its wireline focus and its intention to pursue opportunistic deals."

Biotechs eyed to pick up yield

Another area of interest at least, if not activity, was the biotech sector.

"There seems to be some interest in several of the smaller biotechs lately," a sellside market source said. "People looking for yield, I think."

He specifically mentioned Regeneron Pharmaceuticals Inc., Intermune Inc., ISIS Pharmaceutical Inc. and DOV Pharmaceutical Inc.

Another sellside market source remarked that there were a few traders looking to buy Guilford Pharmaceuticals Inc. The Guilford 5% convertible due 2008 was quoted roughly at 104 bid, 104.5 offered with the stock at $4.80. Guilford shares ended off 16 cents, or 3.27%, at $4.74.

Durect Corp. was another biotech mentioned, with one market source saying, "It's been a nice ride but far from over." He said the Durect 6.25% convert due 2008 traded Wednesday at 118.375.

"That [Durect] is another that a lot of people have been asking about lately," one of the sellside market sources said. "It seems that there are a few holders out there that really like the name and would like to increase their positions in it."

The problem with many of the smaller biotechs, however, is that there is such a tight borrow on the stock, buyside sources said.

Level 3 gains on job cuts

Level 3 Communications Inc. said Wednesday it will cut more than 10% of its workforce, or up to 600 jobs, which is expected to save $60 million to $70 million annually. The move lifted the Level 3 converts slightly, but traders said interest had waned considerably over the past week.

"Last week there was a lot of buying interest in these [Level 3 converts], without really a lot of price movement," one sellside dealer said. "It's sort of died out this week."

Level 3's 5.25% convert due 2011 added about a half-point to 91.125 bid, 91.875 offered and the 2.875% convert due 2010 rose 0.75 point to 65.5 bid, 66 offered, he said. Level 3 shares ended Wednesday up by 3 cents, or 1.03%, at $2.93.

Level 3 said it expects to meet or exceed previously announced fourth-quarter guidance. (See more details in story elsewhere in this edition.) The St. Louis based internet access provider is due to report earnings on Feb. 8.

United Rentals sellers seen

Despite some bullish thoughts about construction spending, traders said there was some selling in United Rentals Inc. converts on the back of a sell-off in the stock.

The 1.875% convertible bond dropped about 1 point to 95.875 bid, 96.25 offered and the 6.5% convertible preferred lost about 0.125 point to 43.25, a dealer said.

United Rental shares closed Wednesday off by a quarter, or 1.42%, at $17.41.

"I'm not sure what's going on with them [United Rentals], if anything," the sellside trader said, and in fact noted positive comments about the outlook for construction spending.

"Some of the trade publications say that there will be an estimated 8% jump in water and sewer construction spending through 2005and that's big business for URI."

Kodak snaps up digital assets

Kodak's converts edged up a bit alongside the stock after the camera and film giant announced it would purchase the remaining 50% stake in Kodak Polychrome Graphics from Sun Chemical for an upfront cash outlay of $317 million and installment payments of $500 million through 2013.

The 3.375% issue (Baa3/BBB-) gained about 0.625 point to 123 bid, 123.5 offered while the underlying stock added a quarter, or 0.81%, to close Wednesday at $31.30.

Kodak's results for 2004, due to be reported Jan. 26, will be a catalyst for action in the Kodak issue, a trader said. Before then, he said, not much is expected to move the bonds.

On the news Wednesday, Moody's affirmed Kodak's ratings but left the outlook negative, as did Standard & Poor's. Both rating agencies also indicated that Kodak's results for 2004 will impact the credit

Moody's noted that Kodak's ambitious four-year strategy to focus on digital cameras and film, announced in November 2003 and supported by up to $3 billion in acquisitions thus far, may require additional acquisition spending and may inhibit debt reduction during a time when earnings are in decline.

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