Converts bounce after long downward spiral; CenturyTel overnighter slips in aftermarket

By Ronda Fears

Nashville, Tenn., April 30 - Convertibles got a "decent" bounce Tuesday as stocks gained ground, ending a string of declines that trace back two weeks. There were a few bargain hunters chasing healthcare and financial paper higher, traders said, and new issues were getting a lift.

CenturyTel Inc.'s overnight $500 million mandatory, a mild surprise, was lower in the immediate aftermarket, however. The 6.875% ACES, which priced at par of 25, were quoted closing at 24.375 bid, 24.625 offered.

CenturyTel shares fell $2.40 to $27.70.

That would bring the week's new issue tally to at least $2.25 billion. The deals will go on May's Prospect News league tables, though. For April, convertible issuance came to just short of $6 billion by Prospect News' accounts, which is down sharply from $14.8 billion in March and less than the $7.6 billion in April 2001. (See separate story in this issue)

But market sources are still confident it will be a strong year for new issues.

The concern in the marketplace right now centers on recovery in secondary prices.

"Everyone is focused on new issues because there's nothing to do in the secondary unless you're selling to get out of something," said a convertible trader at a major investment bank in New York.

There are still high-yield buyers for busted converts and some bargain hunters, trader said. But most of the market is very picked-over and with so much fretting about credit quality, buyers are more tepid than usual.

"With a new disaster du jour almost on a daily basis, buyers are very scarce right now," said another trader. "Most of the buying we're seeing, real buying trends, are people chasing something that has turned the corner or is really expected to be making a comeback. Like Tyco, or Calpine."

Calpine gained nicely after the company announced it had successfully bought back or retired the 0% due 2021, since the market had been skeptical at times over the last few months that the company would be able to pay the put that came due Tuesday.

The Calpine 4% convert due 2006 added 2.875 points to 94 bid, 94.25 offered as the stock rose 69c to $11.

Tyco also saw a sharp rise after a company conference on which the CFO Mark Swartz said the company was facing no immediate liquidity crisis regarding its upcoming puts and debt maturities of some $3.25 billion by next February, one trader said.

Swartz also said that while Tyco plans to buy back stock to boost its share price, it is not prudent to do so at this time, the trader said.

"The stock buyback delay is a negative to our market, but the overall attitude toward Tyco has improved in the past week with them nixing the breakup plan and all," the trader said.

"I think there are more believers that Tyco can meet its obligations. But people still want CIT to make an IPO."

Tyco's 0% convertible due 2021 added 1.125 points to 68.5 bid, 69 offered as the stock gained $1.45 to $18.45.

Traders also noted some buying in Lucent, suggesting there's still "fairly strong faith" in the story.

Lucent's newest 7.75% convertible preferred due 2017 added 2.5 points to 94.3125 bid, 94.8125 offered and the 8% convertible preferred due 2032 gained 1.5 points to 90.5 bid, 91 offered. Lucent shares rose 16c to $4.60.

For the most part, traders said the session was slow in terms of flow, however.

"There was a lot of short-covering going on, so people will wait to see if this market has any legs before jumping in too far," one trader said.

There was plenty of activity in the market, though, with up to three new deals at bat after the close. Pricing of the Lennox International deal was still up in the air, market sources said.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.