Dominion, Lucent, mortgage insurers lower in huge sell-off

By Ronda Fears

Nashville, Tenn., Sept. 16 - In a very thin market due to the Yom Kippur holiday, traders said it was a mixed bag but overall slightly bent to the negative.

There were a few names that saw a great deal of action, however, but it was mostly in a negative trend.

"Trading was relatively quiet, given the holiday. There was nothing really of any consequences going on," said Brendan Lynch, convertible analyst at Lehman Brothers.

"There was some trading in Radian and PMI on the back of MGIC's warning. Mortgage insurers were trading in sympathy with that."

Mortgage insurers PMI Group Inc. and Radian Group saw huge sell-offs on the heels of a warning late Friday from MGIC Investment Corp., the top U.S. mortgage insurer. PMI reaffirmed its guidance, which mitigated its losses somewhat, but failed to turn the situation around altogether.

A lot of the day's focus was on events and news from late Friday.

Lucent Technologies Inc.'s warning last week was still weighing on its converts, as well, and heavily.

The ongoing uncertainty about the prospects of a U.S.-led war against Iraq boosted defense names but the situation is still mostly a negative stress point.

News was out from Dominion Resources Inc., with a cut to its 2003 guidance. The company also said it plans to issue equity and/or convertibles next year to further delever its balance sheet.

Dominion reaffirmed its 2002 outlook of $4.90-$4.95 earnings per share but warned that unforeseeable developments will cause 2003 earnings to be flat to up 4% from this year, down from the previous projected earnings growth of 10%.

The company said it plans to further strengthen its balance sheet and debt coverage ratios as a result of changes in ratings agency requirements, which is expected to reduce 2003 earnings by as much as 17c per share, increased security costs at its six nuclear units and a higher expected level of pension expense.

"I cannot recall another time when so many negative factors combined to negatively affect corporate earnings," said Dominion chief executive officer Thomas Capps in a company conference call.

Pressure from rating agencies to reduce leverage is the primary impetus to issue stock or equity-like securities, the company said, and that is the single largest impact to 2003 earnings.

No real details on the plans were provided, however.

"We are not going to release a range [for proceeds] until we have complete out discussions with the rating agencies," said Dominion chief financial officer Thomas Chewing.

He said more information should be available in a couple of months.

Dominion's newest mandatory dropped 2.9 points to 46.95 on high volume and the old mandatory fell 4.01 points to 51.54 on very high volume, traders said. Dominion shares plunged $5.67, closing at $52.33.

Cablevision Systems Corp., however, managed to eke out a gain on reports that the company was considering selling cable assets despite a downgrade by Standard & Poor's.

S&P cited a higher degree of uncertainty about Cablevision's ability to grow operating cash flows from cable services, and noted that if the company is not able to grow cash flows in 2003, additional funding may be needed in 2003 to 2004.

A report in The New York Times that Cablevision chairman Charles Dolan is ready to consider selling its cable TV systems, however, countered the rating's effect.

The AT&T/Cablevision mandatory closed up 0.4 point to 15.65, with high volume, as Cablevision shares ended up 72c to $11.70.

Rainbow Media Group, Cablevision's majority-owned cable assets in New York, closed up 15c to $9.35. The AT&T/Rainbow mandatory ended up 0.85 point to 15.40, with little flow.

Standard & Poor's said Dominion Resources's (BBB+/stable/A-2) lower earnings forecast for 2003 will not affect current ratings. S&P said the resulting weakening of forecast credit ratios, including leverage and cash flow coverages of interest and debt, is marginal.

From last week's warning by MGIC, attributed to the downturn in the economy in the form of higher expenses and more bad loans, PMI and Radian suffered sharply.

PMI Group's 2.5% convertible due 2021 lost 2.75 points to 103.5 bid, 104.5 asked as the stock closed down $2.72 to $29, getting some relief by affirming its outlook.

Radian, however, fell even more drastically.

The 2.25% convertible due 2022 plummeted 4.375 points to 97.125 bid, 97.625 asked. Radian shares lost $4.99 to $34.95.

Lucent also continued to fall from its warning on Friday.

The 8% convertible due 2031 fell 7.375 points to 30.625 bid, 31.375 asked and the 7.75% due 2017 dropped 5.625 points to 32.5 bid, 33.25 asked. Lucent shares lost another 19c to $1.07.

Defense names were sharply higher, but traders said there was very little action in the Northrop Grumman Corp. and Raytheon Co. mandatories.

Northrop shares gained $2 to $128 and the convertible added 2.22 points to 133.61.

Raytheon shares added $1.50 to $36.88 and the convertible gained 1.8 points to 61.90.

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