Very slow trading day, with players hanging in shadows

By Ronda Fears

Nashville, Feb. 24 - It was slow going on the convertible trading desks Monday as many players opted to sit in the shadows as stocks retreated.

"You see the stories about equity managers sitting on their hands right now. It's likewise with convertible managers," said Adrian Miller, convertible analyst at Salomon Smith Barney.

Trading volume was very thin with just a few names moving, including some mandatories, traders said.

Meanwhile, after the close, Axcan Pharma Inc., a Canadian drug firm, announced a new deal. It was presumed to be the nameless deal that had been mildly referred to during the session.

"We've heard there could be something pop up tonight but no one is excited about it," said a buyside trader around midday.

"I don't know if it's just a small deal, or a name no one cares about, or what. No one is excited about anything today."

The old standards in convertibles, like Tyco International and Nextel Communications, were active but little of anything else.

"We didn't see much of anything trade today," said a convertible dealer.

Even a huge merger by Devon Energy Inc. failed to stir up much activity in that name.

Devon Energy is buying Ocean Energy for $3.5 billion in an all-stock deal, plus the assumption of some debt. Equity and credit analysts were positive on Devon as a result of the news, but Devon securities did not move a whole lot.

The Devon 0% convertible due 2020 edged up 0.125 point to 53.375 bid, 53.625 asked. The Kerr-McGee 5.5% mandatory exchangeable, which converts into Devon shares, added 1 point to 44.5 bid, 44.75 asked.

Devon shares closed up 7c to $48.30.

Moody's Investors Service confirmed Devon's ratings, but noted the outlook remains negative until the combined entity delivers on reducing debt leverage.

Standard & Poor's equity analyst John Kartsonas said in a release that the deal was "excellent" for Devon and he expects the stock to be upgraded to accumulate from avoid.

"Without paying a significant premium, Devon Energy will get a much-needed diversified portfolio of domestic and international assets with strong production growth over the next 3-4 years," Kartsonas said.

"At the same time, the deal will bring long-term debt down to around 52% of capitalization. Despite the risk of integration difficulties with the deal coming on top of the recent Anderson and Mitchell acquisitions, Devon Energy is attractive on the potential for its shares to trade at higher multiples."

American Tower Corp. didn't see much action, either, as it reported earnings and said it had received the bank waivers that will allow it to pay the upcoming put on its 2.25% converts.

"This is the final key to our thesis that these bonds are money good and reflect an attractive risk-reward," said Jeanine Oburchay, convertible analyst at Wachovia Securities, Inc. who has a buy recommendation on the 2.25s.

The American Tower 2.25% convertible due 2009 was quoted off 0.375 point to 76.75 bid, 77.25 asked. The stock closed down 29c to $4.65. American Tower's 6.25% and 5% converts were similarly lower.

Results by the tower company beat analysts estimates, however.

Oburchay stressed in a research note Monday, though, that Wachovia was "not making a fundamental call on the company," just recommending the 2.25% converts because of the upcoming put.

American Tower, the top U.S. operator of wireless communications towers, reported a thinner quarterly loss but said revenues dropped due to the lower spending habits of wireless phone companies.

For fourth quarter, the net loss was $52.4 million, or 27c a share, compared with a net loss of $149.7 million, or 77c, a year earlier. Revenue fell to $208.1 million from $224.0 million.

For 2003, the company forecast a net loss per share of 96c to $1.13 per share with revenues between $780 million to $840 million.

For first quarter, American Tower projected a net loss of 30-33c a share.

Elsewhere, there were a few drug and biotech names marked sharply lower on headline risk created from VaxGen Inc.'s disappointing trial of its AIDS vaccine.

Amgen Inc. was among the more active convertible names in the sector, ahead of its update with analysts on Tuesday.

In a meeting Tuesday, the No. 1 biotech firm is expected to review sales of its key drugs and give analysts an update on its research efforts. Amgen's senior management is also expected to provide a strategic and financial overview.

Amgen shares fell $1.45 to $53.15. Amgen's 0% convertible due 2032 dropped 0.5 point to 75.5 bid, 75.625 asked.

Last week, Amgen announced that it has submitted data with the Food and Drug Administration on its Enbrel rheumatoid arthritis drug.

© 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.