Buyers emerge for downtrodden Adelphia, Lucent, energy traders; biotechs fall amid profit taking

By Ronda Fears

Nashville, Tenn., May 20 - While much of the market went south Monday with stocks, players were looking for buying opportunities. Adelphia began moving again, this time northward as buyers emerged for the beaten down paper and even for the highly distressed preferreds.

In primary market activity, Charming Shoppes launched a small deal for midweek and it was quoted higher in the gray market although several retail names were marked lower on a downdraft in stocks.

Lucent also gained ground, despite more negative news for the fiber group as Metromedia Fiber Networks filed bankruptcy as it had warned of a month ago.

El Paso Corp. apparently was winning the media war over reports late Friday that pitted it with the likes of Enron, Dynegy, CMS Energy and Reliant Resources for the so-called round-trip trades that fluffed up revenues. Traders said there was a "pretty respectable" number of buyers for CMS as well.

Heading south, hard and fast, however were a number of biotech names as sellers took profits. News of failed or disappointing cancer drug trials from Johnson & Johnson and ImClone took down nearly the entire group.

"Volume picked up sharply today," said a convertible trader at a major investment bank.

"There are some believers in Adelphia. Rather, there are some who are willing to bet '2' - that's where we saw the preferreds today. And, there were plenty of sellers willing to give it up, too, at practically any price. The bonds were all over the place."

The Adelphia 3.25% due 2021, which are putable at par in May 2003, were at 43 bid, 45 offered. That would be up about 9 points from closing levels Friday.

Adelphia's 6s due 2006, which were quoted at 34 at Friday's close, were tougher to get a level on, however. The issue was quoted at 48 by one dealer, 46 at another and 40 at yet another.

Adelphia's shares are still at $5.70, as the Nasdaq decision about whether to delist the stock has not been made yet.

El Paso also was finding buyers, after losing sharply Friday despite refuting two reports that put it in the same circle with Enron, Dynegy and others doing shady energy trades to inflate revenues.

"I can't say I'm altogether comfortable with the El Paso story, but the yield is decent enough that I can afford to add it," said a hedge fund manager in New Jersey, referring to El Paso's convertible bond.

"The yield to put is something like 8.5%. That's pretty good money these days."

The El Paso converts are busted, along with around half of the convertible universe.

El Paso, the fund manager said, might be in a position to gain business from the demise of Enron, Dynegy, CMS and Reliant.

"That's probably not a good bet," he said. "I just feel relatively comfortable holding this right now."

The El Paso 0% due 2021 were quoted up 0.75 point at 39.75. The issue was sold at 45.29 in February 2001 and is putable in 2006 at 55.207.

There also were buyers in the El Paso 4.75% convertible preferred. The issue closed on the NYSE up 0.25 at 44.5 but was quoted by a dealer down 2 points to 42 bid, 43 offered. El Paso shares added 52c to $33.91.

CMS also had buyers for its 8.75% convertible preferred, which closed on the NYSE up 1.71 to 20.91. CMS shares rose $1.19 to $16.50.

Sellers were the majority in the biotech group, however.

Several biotech convertible names are presenting at the American Society of Clinical Oncology conference this week, but the news was ill-favored from Johnson & Johnson and ImClone.

Johnson & Johnson announced that an experimental drug was not effective in treating gastrointestinal cancers during late-stage clinical studies.

The Johnson & Johnson 0% converts, which were issued by Alza Corp., dropped on the news. The 2014 issue was off 0.625 to 156.5 and the 2020 issue lost 1 point to 83.875. Johnson & Johnson shares closed down $1.02 to $60.45.

ImClone, which has been on a roller coaster since New Year's Eve when the FDA did not approve its cancer drug Erbitux, dropped after revealing at the cancer conference that the drug failed its latest clinical study.

The ImClone 5.5% due 2005 dropped 3 points to 76 bid, 78 offered. The common shares fell $2.29 to $11.12.

A fairly widespread sell-off ensued in the biotech sector, even among some that provided good news at the conference.

Cell Therapeutics dropped sharply, although the company reported "promising" results from a drug for relapsed ovarian cancer patients.

"Promising wasn't a strong enough word to comfort investors on a day like today when the broad markets were hit hard and you have names like J&J with bad news, and then ImClone failing yet again," said a trader at a convertible fund in New York.

The Cell Therapeutics 5.75% due 2008 lost 7.5 points to 59 bid, 60 offered with the stock down $3.21 to $9.14.

Traders also noted several others lower in the biotech group, including Celphalon, Enzon and Ivax.

The Amex biotech index closed down 2.13% on Monday, as the Nasdaq lost 2.29% and the Dow dropped 1.19%.

Stocks' retreat didn't stop Charming Shoppes from launching a new deal, however. While retail names have been hot lately, traders said most of the group were marked lower on weaker stocks.

The new Charming Shoppes deal, however, was bid at 1 point over par and offered at 3 points over par. The underlying shares closed down 40c to $7.90.

The deal is set to price after the close Wednesday, following the Toys R Us deal after the close Tuesday, although market sources said they would not be surprised if the Charming Shoppes deal was accelerated to price early.

"It's small and priced cheap, so depending on how stocks go tomorrow they might advance the pricing, if stocks fall a lot more," said a convertible hedge fund manager in New York.

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