Only 2-3 more new deals seen pricing before year closes

By Ronda Fears

Nashville, Dec. 5 - With really only about a week left to price a new deal, the convertible market is expecting only two or three more deals for the 2002 book.

Computer Associates International Inc. managed, with little resistance, to get in another quick-sale deal, fetching $400 million to add to the $600 million it raised with a convertible in March.

In fact, the new Computer Associates deal was very well received, sources said, ending in the gray market with a bid of 2.5 points over par and ask price of 2.625 points over par.

With the new deal, traders said flow picked up slightly, but it was still a very slow day.

"We're practically in holiday mode already, and the weather [snow along the northern East Coast] sent some people home early, at least some of our big clients," said a convertible trader at a major investment bank in New York.

Computer Associates was in the market early with the deal with guidance for a yield of 1.5% to 2.0% and initial conversion premium of 30% to 35%.

Around midday, with demand "off the chart" as one salesman on the deal put it, the indicative terms were revised to 1.5% to 1.75% yield and a premium of 35% to 38%, taking about 2% points of cheapness out of it.

It priced at the midpoint of yield talk and rich end of premium guidance, with a coupon of 1.625%, up 38%.

Before the talk was revised, the new paper traded up 3 to 3.5 points before retreating slightly after terms were changed.

"The only reason they are getting away with these terms is because of it being non-callable," said Jonathan Cohen, convertible analyst at Deutsche Bank Securities Inc.

The new seven-year notes are non-callable and there are no puts.

Buyers were disregarding whatever credit concerns accompany Computer Associates, although Standard & Poor's rated they new deal BBB+ and Moody's Investors Service put it at Baa2.

"We think of Computer Associates as really a double-B credit," said a convertible trader at a hedge fund in New York.

A convertible trader at a hedge fund in New Jersey said his firm would participate in the new deal, given the gray market's prognosis of a home run. Buyers expect the new deal to gain more than 3 points out of the gate.

"I guess these days everything trades up," the trader said.

Aggressive terms make it less palatable, but the trader said, "It can't go on forever."

Computer Associates' existing 5% convertible due 2007, which was issued in March, was quoted flat Thursday at 104 bid, 105 asked. The common stock ended off 73c to $14.52.

Other computer-related names were higher as Advanced Micro Devices Inc. and Intel Corp. both said Thursday that higher PC sales will boost their sales targets.

AMD upped its sales target for fourth quarter to a 35% increase from third quarter sales. It had previously expected a 20% gain.

AMD's new 4.5% convertible due 2007 climbed 6.125 points to 136.625 bid, 137.625 asked. The stock closed up 40c to $8.25

Telecom and telecom equipment names, however, as most of that group continued to slide.

Skyworks Solutions Inc.'s new 4.75% convertible due 2007 dropped another points to 132.875 bid, 133.875 asked. The shares ended off 44c to $10.34.

Nortel Networks Corp.'s 4.25% convertible due 2008 lost about 2.5 points to 52.125 bid, 54.125 asked. The new 7% mandatory fell 9 points to 403.25 bid, 403.75 asked. The stock closed off 6c to $2.03.

Energy names also were mostly lower again, traders said.

Transportation issues also suffered from the effects of the United Airlines trouble.

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