Lehman, WaMu lead losses; Carrizo Oil adds early; Sotheby's price talk emerges

By Rebecca Melvin

New York, June 11 - Convertible bond players turned their attention again to financials, which dominated what slim trading there was on Wednesday, as that sector led the broader markets lower amid a bout of investor angst over potential financial write-downs related to bad debt, unsatisfactory economic news and soaring crude oil prices.

Lehman Brothers Holdings Inc. saw its relatively young convertible preferred shares plumb new depths as its common stock plunged another 13.64% to $23.75.

Washington Mutual Inc. also plunged lower again, in heavy volume, as investors worried about the Seattle-based thrift's exposure to bad mortgages. Its common shares hit a new 52-week low.

The skittish market responded to Energy Department data Wednesday that showed gasoline supplies grew last week, but crude oil inventories fell more than expected.

The news caused crude oil to trade as high as $138.30 a barrel on the New York Mercantile Exchange, before closing up just $5.07 at $136.38.

In addition, the Federal Reserve Beige Book was released Wednesday, showing that the U.S. economy remained weak through May as consumers continue to be "pinched" by rising food and energy prices and softened labor markets.

Financials in focus

In convertibles, most other financial names, including Legg Mason Inc., were weaker; but Countrywide Financial Corp. was mostly quiet, and relatively in line with its underlying shares, a Connecticut-based sellside trader said.

On Tuesday, convertibles players seemed to take a break from the furious financial focus, playing a few merger names instead. But on Wednesday, they were back starring at financials again, although many were seated on the sidelines.

"Lehman was the name of the day, and other than that, there wasn't much," a sellside trader said.

While "it was pretty slow today and this week," higher oil did spur some trades in the energy sector, including Carrizo Oil & Gas Inc.'s 4.375% convertibles, which were quoted up at 103.875 to 104.50 versus $69.74, according to a West Coast-based sellside trader.

In the primary arena, price talk emerged on Sotheby's $150 million of convertible senior notes seen pricing Thursday. The notes are expected to have a coupon between 2.875% to 3.375% with an initial conversion premium of 30% to 35%.

Also on Wednesday Insulet Corp.'s new 5.375% convertibles were released to the secondary market. The upsized $75 million of five-year convertible senior notes priced at the midpoint of talk for the coupon, and toward the rich end of talk for the premium.

Bristow Group Inc. was still looking cheap ahead of pricing expected after the market close Wednesday on $100 million of 30-year convertibles. That paper was talked to price 3% to 3.5% for the coupon, with an initial conversion premium of 60% to 65%.

Shortly after the market close, a new deal emerged from Camarillo, Calif.-based Power-One Inc. for $75 million of five-year convertibles.

Lehman weighs heavily

Lehman's new 8.25% convertible preferred shares closed at 9,199.52 on Wednesday, versus a share price of $23.75, compared to 9,944.4 versus a stock price of $27.50 on Tuesday. The preferred shares priced June 2 at a 1,000 par.

Meanwhile, Lehman's older 7.25% series P convertible preferred shares - which priced April 1 - were lower at 8,790.26, compared with 9,341.47 on Tuesday. On June 4, the Lehman 7.25% convertible preferred stock was at 9,865.89.

Shares of the New York investment bank (NYSE: LEH) fell 13.46% to $23.75 amid headlines that the company may be looking for foreign investors even after announcing plans to raise $6 billion through preferred and common stock.

Washington Mutual's 7.75% series R non-cumulative perpetual convertible shares closed at 637, versus $6.06, a new 52-week low, compared to 675.6, versus $6.68 on Tuesday.

On April 8, the 7.75s were seen in trade at 855 versus $11.75. They had been higher on a better credit picture after the larger-than-expected infusion of $7 billion in new capital as well as plans to cut its dividend and exit the wholesale lending business.

But worries are mounting about the potential mortgage losses that the large savings and loan may be facing. The April capital infusion included about 176 million shares of common stock and 56,570 shares of convertible, perpetual non-cumulative preferred stock with a liquidation preference of $100,000 per share.

The convertible preferred stock will automatically convert into the company's common stock at an initial conversion price of $8.75 per share.

The company is expected to hold a special shareholders meeting on June 24 to approve the conversion proposals and approve a proposal to increase the number of authorized shares of common stock to permit the conversion and exercise of these securities.

Shares of Washington Mutual (NYSE: WM) closed down 62 cents, or 9.3%, at $6.06.

Carrizo Oil

Carrizo's 4.375% convertibles due 2028 traded up to the 103.875 to 104.50 range, before settling back to the 103.3 area on the close. The 0.30 point increase compared to a 1.35% rise in its underlying shares.

"Oil names continue to whip around and this name in particular seems to move around more than most intra-day," a West Coast sellsider said.

Carrizo priced its upsized issue of convertibles on May 22.

The $5 rise in crude oil prices per barrel was spurred by the Energy Department's report that showed inventories fell for the fourth week. Supplies fell 4.56 million barrels to 302.2 million last week. Prices also rose because the euro rose against the dollar and China said oil imports climbed 25% last month.

Oil prices jumped on the news, and concurrently stock prices sank like a rock early and selling pressure remained strong through the session with the Dow Jones Industrial Average ending down 1.7%, or 206 points, at 12,083.77; the Nasdaq falling 2.2%, or 54.9 points to 2,394.01 and the S&P 500 losing 1.7%, or 23 points, or 1,335.49.

Shares of Carrizo Oil (Nasdaq: CRZO) closed up 92 cents, or 1.35%, to $69.30.

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