European, Asian deals outpace U.S. after vacations end, but market better bid; Nortel, Lucent stronger

By Ronda Fears

Nashville, Sept. 5 - Traders said the convertible market was steady and overall better bid Friday, while stocks took a break from the recent run and Treasury yields dropped in the face of more jobless claims than expected.

But in general traders said the convert market felt stronger and if issuance remains lackluster they expect it will firm up even more.

Telecoms, especially in the optical sector - like Nortel Networks Corp. and Lucent Technologies Inc. - were up sharply in a scramble to buy ahead of a rumored positive piece on the sector coming in the next Barron's issue.

"The jobs data was a blow and then there was some noise about a big asset allocation switch from stocks to bonds. It was splashed all over the tape," said a senior convertible trader at one of the big shops.

"There was not a lot of liquidity in our market today but overall I'd say it was a tad firmer. If there are not a lot of new issues coming then we'll start to see even more bids.

"The true convertible investors have to stay invested and they have to stay active so we'll see the secondary market begin to richen again if there isn't a healthy stream of new issues."

It was a slow week for new issues, with only two deals pricing and two put on next week's calendar.

All four total just $425 million.

Abroad, the convertible market saw more activity in the post-Labor Day week that marks the unofficial end of summer and early comers in the fall rush for capital.

There were three deals this week out of Europe - two euro-denominated offerings totaling €366.8 million and one in sterling for £300 million - and two from Asia totaling $328.8 million plus an ¥8.5 billion euroyen transaction. In addition there was a €200 million deal on Friday.

Barclays Capital Markets reported around midweek that European issuers had already reopened the market for the autumn season with over €1 billion of new convertibles.

"Asia is feeling pretty good at the moment," said a capital markets source at one of the busiest shops in that region.

"There's lots of money floating around on the investment side and it seems like issuers are gearing up for another run at the market in fourth quarter."

Deals coming out Europe and Asia also have priced more aggressively on average this week than what's been seen in the U.S.

Here in the U.S., OSI Pharmaceuticals Inc.'s 3.25%, up 32.5% convertible priced at the cheap end of price talk for 3.0% to 3.25%, up 32.5% to 35%. Openwave Systems Inc.'s 2.75%, up 20% convert priced at the aggressive end of yield talk for 2.75% to 3.25%, but at the cheap end of premium guidance for 20% to 25%.

Out of Asia this week, there was Advanced Semiconductor Engineering Inc. with $175 million of 0%, up 38.1% converts and Beijing Datang Power Generation Co. Ltd. with $153.8 million of 0.75%, up 30% converts. And Autobacs Seven Co. Ltd. sodl ¥8.5 billion of -0.6% up 40% convertibles.

In Europe, there was the lastminute.com's €103 million of 6%, up 27.5% converts, Hilton Group plc with £300 million of 3.375%, up 30.5% converts, LogicaCMG plc with €263.8 million of 2.875%, up 50% and Tiscali SpA with €200 million of 4.25%, up 32%.

Logica priced at the rich end of premium guidance of 45% to 50% and outside yield talk of 3.0% to 3.5%. Beijing Datang priced at the aggressive end of price talk that put the yield at 0.75% to 1.0% with a 25% to 30%.

Hilton and Tiscali both priced at the cheap end of price talk. Hilton had been talked at 2.875% to 3.375%, up 30% to 35%. And Tiscali talked at 3.75% to 4.25%, up 32% to 37%.

For the coming week in the U.S., there are Primus Telecommunications Group Inc. with $75 million and NII Holdings Inc. for $100 million and market sources expect there will be a couple of more deals pop up.

With little new supply, traders said there still wasn't a great deal of trading activity Friday, but some attributed it to a preoccupation with nice weather.

"It may be the last weekend of nice summer-type weather and it was sort of quiet so we are trying to dash out of here as early as possible," said one dealer.

"Next week will probably be more normal, volumewise. New issues may even pick up. This was a short week anyway, so we weren't expecting the doors to blow off or anything like that. Next week will feel more like we're really back to a full desk and back to work."

Buzz that Barron's was prepping a positive write-up on the optical sector fueled a good deal of buying in that area, he said, with Nortel seeing the most activity and Lucent gained in sympathy.

Nortel's 4.25% due 2008 added 1.25 points to 88.75 bid, 89.25 offered with the stock up 30c, or 7.89%, to $4.10.

Lucent's 2.75% due 2023 rose 2.5 points to 94.125 bid, 94.625 offered and the 2.75% due 2025 gained 2.625 points to 96.625 bid, 97.125 offered. The stock ended up 7c, or 3.26%, to $2.22.

© 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.