Charter buyers show up in wake of Adelphia sale possibility; Leucadia gains 1.125 points; chips slide

By Ronda Fears

Nashville, April 23 - Charter Communications Inc. convertible buyers emerged Friday, traders said, in the wake of headlines on the possibility that Adelphia Communications Corp.'s bankruptcy might evolve from a reorganization into a liquidation.

Otherwise, traders said it was a quiet day, and while the major stock indexes were slightly higher several traders described the convertible market as "feeling a little soft."

A threesome of new issues this week - from CNET Networks Inc., Leucadia National Corp., and Mercury Computer Systems Inc. - was somewhat a surprise, coming mostly off smaller sellside desks.

All three were seen higher Friday, with Leucadia's 3.75% convertible gaining 1.125 points to 103.625 bid, 104.125 offered as the stock added a penny to $50.75.

Nextel Communications Inc. led a decline in several telecom issues, one trader said, while Lucent Technologies Inc. and Juniper Networks were high-profile losers in the telecom equipment sector. Lucent's converts dropped 1 to 2 points while Juniper's lost about 2.5 points, he said.

Charter converts seen cheap

In relation to Adelphia, the Charter convertibles are considered cheap and that drew lots of buyers into the market Friday, a trader said.

Charter's 5.75% convertible due 2005 gained about 1.75 points to 97.75, and the 4.75% convertible due 2006 added about 0.25 point to 94.75. Charter shares closed Friday down a nickel, or 1.09%, to $4.52.

The 5.75s are more popular right now not only because of the fatter coupon but they are expected to be the first candidate for refinancing.

Adelphia's convertible bonds were quiet after a busy day Thursday, traders said, but the preferreds were seeing some buying action Friday. The possible sale of the Greenwood Village, Colo.-based cable operator, in part or in whole as part of its bankruptcy pushed the converts up sharply on Thursday.

"We were crazy busy with those [Adelphia convertible bonds] yesterday," one convertible dealer said.

The Adelphia 6% and 3.25% convertible bonds, along with their straight debt, firmed nicely on the possible asset sale news. The convertible bonds rose to as high as 56 bid before falling back to the 54 bid, 56 offered level, after bouncing up and down in the 40s for most of the week.

The Adelphia 5.5% convertible preferreds were quoted Friday at 30 bid, 30.5 offered.

In over-the-counter trading, Adelphia common stock closed Friday down a penny, or 1.75%, to 84 cents.

Nextel leads telecom slide

Most of the telecom paper was weaker Friday, traders said, as investors "lost faith in the sector," as one trader put it. He said there likely were some profit-takers among the sellers.

On Thursday, Nextel reported strong first quarter results and predicted that it would continue to post robust numbers. But, traders said investors focused on the lack of any specific plans to reduce debt, although the company has steadily been cutting debt in an effort to improve its ratios so that it debt might earn investment-grade status.

"The noise about the 6s getting redeemed did nothing" to move the issue, a buyside trader said.

The Nextel 6% convertible due 2011 was quoted off 0.5 point to 111.5 bid, 112 offered with the stock ending flat Friday at $25.50. The Reston, Va.-based wireless telecom company's issue is callable June 4 at 104.

When asked about plans for the 6% convertible notes during the company's conference call on earnings, Nextel chief financial officer Paul Saleh said that if the stock remains at about $25 and "the economics are what they are today, most people would probably convert rather than take cash - but we can't tell at this stage."

Chips mixed, but all still rich

Chip issues were a mixed bag Friday, one trader said, but are still looking pretty expensive. He specifically mentioned Vitesse Semiconductor Corp. and TriQuint Semiconductor Corp. edging a bit lower.

"With some of these issues it's just hard to believe they are trading where they're trading," the buyside trader said.

"But, the whole convertible universe is rich right now. When you ask around, the distressed market, junk bonds, all the credits are trading rich."

He was especially surprised that Vitesse and TriQuint convertibles were holding as well as they did during the broad-based slide in chip stocks this week. But, he noted that credit spreads were tightening, especially in the high-yield territory.

Vitesse and TriQuint reported earnings late Thursday.

Vitesse reported a fiscal second quarter GAAP net loss of $17.4 million, or 8 cents per share, compared with a net loss of $25.1 million, or 12 cents per share, in a year before. Revenue rose to $56.0 million from $38.1 million. Pro forma net income was $1.4 million, or 1 cent per share, compared to a pro forma net loss of $7.9 million, or 4 cents per share, in fiscal second quarter 2003.

For fiscal third quarter, Vitesse expects revenues will increase 8% but is forecasting a GAAP loss of 6 to 10 cents per share. The company projects a pro forma net income to increase to $0.02 income per share in the third quarter of fiscal 2004.

The Vitesse 4% convertible due 2005 was off about 0.25 at 99, the trader said, with the stock down 47 cents, or 8.25%, to $5.23.

TriQuint reported first quarter net income of $2,000, breakeven on a per share basis, compared with a net loss of $16.5 million, or 12 cents a share, in first quarter 2003.

For second quarter, TriQuint forecasts a per share loss of 1 cent to a profit of 1 cent with revenue between $90 million and $92 million.

TriQuint's 4% convertible due 2007 was quoted flat at 100 with the stock off 17 cents, or 2.45%, to $6.78.

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