Convertible market seen flat on heavy trading from high volatility

By Ronda Fears

Nashville, Tenn., Nov. 27 - Convertibles were described as flat, although stocks closed lower. The Nasdaq didn't plunge like the Dow Jones Industrial Average and even flirted with the 2000 mark, but a drop in consumer confidence thwarted the Nasdaq's climb and it closed slightly down. The volatility seen in the Nasdaq stocks, however, drove convertible activity to a frenetic level, traders said. Meanwhile, the primary market took a backseat, as the only activity was the overnight deal from Hasbro Inc. But, price talk emerged on Boise Cascade Corp.'s $130 million mandatory convertible, which is set for Thursday's business.

"It was a strong day for secondary trading," said a convertible market source at a major investment bank in New York. A trader at the firm said volatility provided impetus for some heavy trading, because it was fairly quiet on the primary market front.

Hasbro sold $225 million of 2.75% convertibles at par, with a 25% initial conversion premium, and the paper moved up just 0.125 point in the immediate aftermarket to 100.125 bid, 100.375 offered as the underlying shares dropped 70c to $16.58. A market source said a fair amount of the interest in the new Hasbro convert stems from the toymaker's participation in the Harry Potter product lines, which have been boosted by the success of the newly released movie.

The tech-heavy Nasdaq began strong Tuesday but the unexpected drop in the consumer confidence level reported by The Conference Board. Job worries drove confidence down to 82.2 for November from 85.3 in October and far below the 86.5 forecast by economists. The Dow industrials reacted strongest to the data, dropping 110.15, or 1.10%, to 9872.60 while the Nasdaq slipped 5.27, or 0.27%, to 1935.96.

"Telecoms were markedly higher, but the equipment makers did not participate in the party," the trader said, adding that oil and gas issues made modest gains while biotech, drugs and healthcare issues took a dive. "Chips seem to be leveling off but the tech sector on whole continued to climb."

Nextel's convertibles were flat to up slightly, although the stock closed off 26c to $10.99 as uncertainty continues to cloud the wireless phone company's future. Nextel has suggested a public-private partnership with the Federal Communications Commission to facilitate the realignment and expansion of public safety communications such as fire and police. Nextel suggests a spectrum swap and with wireless spectrum at a premium, the FCC is seeking to accommodate carriers by negotiating access to federally controlled airwaves. Nextel said in a filing with the FCC that it would give up certain airwaves that interfere with public safety communications in return for rights to some of the airwaves reserved for satellite services.

Traders said the Nextel convertibles were marked higher as the stock gained 26c to $10.99, but were not active and the bid-to-ask spreads were fairly wide. Ancillary businesses that provide services to the likes of Nextel, like Anadigics Inc., a supplier of radio frequency and microwave integrated circuit solutions for the telecom industry, weakened as a result. The new Anadigics 5% convertible due 2006 lost 2.25 points on the day to 104.125 bid, 105.125 offered with the common stock down 60c to $16.95. But, several communications towers and satellite names were marked up sharply, such as American Tower, but traders said there was not a great deal of trading in the sector.

Biotech issues took a hard hit, traders said, on negative reaction to cloning from President Bush. "It is going to severely hurt some of the biotech names if there's a huge wave of resistance to research because of the genetic cloning issue," said a convertible trader. Cell Therapeutics, Aviron and other biotech convertibles were lower. Drugs and healthcare issues also were broadly lower but there were a couple of standout exceptions. Sepracor Inc.'s three convertible issues were higher. Sepracor's 5% converts due 2007 rose 1.5 points on the day to 90.5 bid, 81 offered, the 5.75s due 2006 gained 2 points to 99.625 bid, 100.125 offered and the 7s added 2.5 to 99 bid, 99.5 offered while Sepracor shares advanced $1.92 to $49.48.

Tech issues continued to lure buyers into the market, traders said, and the sector was considerably higher against the broader market's decline. ATMI Inc.'s 5.25% convertibles due 2006 added 1.5 points on the day to 124.25 bid, 124.75 offered with the underlying stock up 37c to $22.72.

Market watchers were expecting Boise Cascade's mandatory convertible to do well with hefty yield price talk of 7.75% to 8.25% and an initial conversion premium of 18% to 22%, but several buy-side sources were lamenting the small size of the deal. The $130 million issue is set for Thursday's business. Boise Cascade common shares ended off 8c to $32.62.

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