Adelphia gains on asset sales news; Household lower on put speculation

By Ronda Fears

Nashville, Tenn., May 9 - Convertibles retreated en masse along with stocks Thursday, and traders noted a decline in volume as well. Horace Mann Educators Corp. accelerated its deal, pricing an upsized amount, but the issue went south out of the gate.

Traders said Adelphia Communications Corp. shot up in heavy trading on news released after the close Wednesday that the company will put cable systems representing almost half its subscribers on the auction block, including the coveted Los Angeles market.

WorldCom, however, did not see much action as Moody's downgraded its credit to junk.

Household International saw both buying and selling as the market anticipates the company will make some offer to bondholders in an attempt to avoid the upcoming put. The issue was quoted lower at the end of the day, closing nearer the put price.

"If you weren't trading Adelphia today, you weren't trading," said a convertible dealer, noting that Adelphia's advisors - Salomon Smith Barney, Credit Suisse First Boston and Banc of America Securities - are restricted from playing the name.

"There was just a lot of Adelphia paper changing hands today because you've got some analysts saying that in a turnaround situation Adelphia shares could go to something like $22. Otherwise, I think the market was a little lower."

Adelphia shares added just 12c to $6.56 but the converts shot up on the news. The 5% convertible preferreds gained 2.25 points to 55 while the 6% notes due 2006 gained 1.5 to 70.5 bid and the 3.25% notes due 2021 rose 2 to 84.5 bid.

Adelphia, which faces a federal probe as well as the possibility of its stock getting delisted, has warned it could default on some credit agreements and is scrambling to raise capital. The company said the cable assets to be offered for sale cover about 2.75 million subscribers in California, Florida, Virginia and a bloc of southeast states including South Carolina, North Carolina and Georgia.

Household International's put does not come up until August, but traders said there was activity in the name as people anticipate news on a sweetener of some sort fairly soon. Market sources did not know of any event to bring the issue to the market's attention now, other than recent activity related to puts.

Earlier this week Cendant Corp and Neuberger Berman Inc. were successful at offering sweeteners to bondholders, thereby avoiding puts that would have required cash outlays totaling $848.7 million or issuing stock. Last week, most of Stilwell's $697 million of converts were put back to the company, which was paid in cash rather than stock because of the dilution factor.

Household's put of $1 billion is payable in cash only.

"This situation is not so clear-cut. It could go either way and there were as many buyers today as sellers," said a convertible trader at a hedge fund in New Jersey.

The Household 0% due 2021 (A3/A) was quoted 1.375 lower at 81 bid, 83 offered as the underlying stock dropped 82c to $56.29.

Traders also noted interest, although not a great deal of activity, in a couple of biotech names - Amgen and Medtronics.

"You have to know more about the fundamentals in these biotech names, so there's usually not a big rush even on the stock movement," said a hedge fund manager in New York.

"It's not like the tech names where you can make a move on the momentum in the stock and are pretty sure about where you stand."

Players looking to take a stand with some cushion for profits should look at Lamar Advertising, said Sri Nadesan, convertible analyst at Wachovia Securities.

"With regard to Lamar, I say hold on because there's further upside," even with the call protection expiring in September, Nadesan said.

"The stock went up, obviously, with the market yesterday but I think there's still some more room - another 10 points in the stock and that translates to 23-24 points on the bonds."

The Lamar 5.25% due 2006 (B2/B) was quoted lower by 0.625 points to 111.875 bid, 112.875 offered as the stock gave back 3c to $44.98 on Thursday.

Nadesan said Lamar is not likely to call the convertible if there is any risk of a cash redemption, given its balance sheet. Parity on the bond would have to be more than 115 before the company would call the bond for conversion and the current price leaves plenty of cushion before it could become a forced conversion candidate.

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