Titan slips out of the gate in sympathy with Ford's crash, GM, too; Ocwen emerges

By Ronda Fears

Nashville, July 20 - Transportation paper again was in the spotlight in the convertible market, but on Tuesday it was Ford Motor Co. causing the noise. With profits coming more from its financing arm than in vehicle sales, Ford's credit spreads blew out amid a massive sell-off in the troubled automaker.

General Motor's Corp.'s straight debt responded to the Ford headlines, widening by 4 to 5 basis points, traders said, but the GM converts were holding up in advance of GM's earnings before the market opens Wednesday.

In another transportation area, Delta Air Lines Inc.'s convertibles took a hit Tuesday as the stock plunged 9% in the wake of the beleaguered air carrier's earnings a day before.

Titan International Inc.'s new deal, which priced at the cheap end of yield talk but aggressively outside premium guidance, also suffered from the automaker news, a buyside trader said. He noted the Quincy, Ill.-based company makes wheels for heavy machinery.

Titan's 5.25%, up 36.78% convert slipped to 99.625 bid right out of the gate early Tuesday, after having been bid up by at least 1 point over par in the gray market Monday.

Federal Reserve chairman Alan Greenspan's comments about interest rates, inflation, consumer spending and corporate, while spurring a rise in stocks, did not help moods in the convertible universe, buyside sources said.

Greenspan remarks kills bids

In fact, a hedge fund manager in New Jersey said that before the Greenspan headlines emerged the

convertible market was seeing some healthy bids, but those dried up soon after his remarks hit the tape.

"There was a lot of fishing, with bids, going on. The [convertible] market, particularly some issues I am interested in, was bid up this morning pretty nicely," the fund manager said. "But after the Greenspan comments, and Treasuries selling off, the bids just dried up and in some cases there were better sellers."

Greenspan remarked that the U.S. economy has entered a sustainable expansion, said that inflation is likely to remain low, and seemed unconcerned about the recent slowdown in consumer spending as well as great pauses in corporate spending. He also said the Fed is prepared to raise interest rates faster than the current "measured" pace if necessary.

As a result, Treasuries sold off, causing a sharp back-up in rates. The 10-year note fell 22/32, sending its yield up to 4.45% from 4.36% at Monday's close.

"Personally, I think he [Greenspan] is smoking dope," the manager said. "I don't know what kind of indicators Greenspan is looking at but raw materials are up like crazy and just today oil spiked up over $42."

Crude oil ended Tuesday, however, down 48 cents to close the August contract out at $40.86 on the New York Mercantile Exchange after climbing as high as $42.30. The September contract settled at $40.44, down $1.

Ocwen may be CoCo icebreaker

Ocwen Financial Inc. launched $125 million of 20-year contingent convertible notes talked to yield 3.0% to 3.5% with a 30% to 35% initial conversion premium, perhaps breaking the ice for any would-be issuers nervous about possible new accounting rules for CoCo converts.

"This could be very interesting," said a convert trader at a hedge fund in New York. "I haven't seen anything on it yet in the gray market but if they get a good response maybe this will open up the market, bring out some of this stuff we hear about sitting in the wings."

The senior unsecured notes will have a 125% contingent conversion trigger, but offering materials stated that the issue may include language giving the company the option to waive the CoCo feature pending a final ruling by the Financial Accounting Standards Board on the treatment of potential dilution from CoCo converts in reporting earnings.

A task force of the FASB has tentatively recommended a change in accounting rules for CoCo convertibles that would require issuers of those securities to report diluted EPS even if the CoCo trigger has not been hit, plus present historical EPS figures on an as if diluted basis.

The task force is scheduled to meet again Sept. 29 and 30 to discuss the matter.

The West Palm Beach, Fla.-based savings and loan, which services non-conforming, sub-performing and non-performing mortgage loans, is also considering terminating its status as a federal savings bank, the buyside trader said, which may additionally make it a more interesting investment.

Titan deal sideswiped by Ford

Titan's new deal took a blow on the Ford headlines, dealers said, but otherwise was well received. The company, which makes of off-highway wheels and tires for agricultural, earthmoving and construction vehicles, sold the $100 million of five-year non-callable convertible senior notes at par to yield 5.25% with a 36.78% initial conversion premium.

Titan's deal was the first to the convertible market in nearly three weeks.

The issue, which unlike Ocwen's proposed issue has no CoCo features, priced at the cheap end of yield talk for a coupon of 4.75% to 5.25% but aggressively outside premium guidance for 25% to 30%.

"We liked the deal and we still do. In fact we were glad to pick up a little more when it came in a bit out of the chute," said a buyside convert trader.

"This has a nice coupon and we think the credit is improving. Ford just waylaid it.

Ford credit spreads widen

Ford posted second quarter earnings of 61 cents a share, well above the 50 cent consensus First Call estimate but profits were centered on Ford Motor Credit Co., and chatter among equity analysts that even the finance division's performance likely borrowed from future quarterly growth spurred a huge sell off.

Ford also said Tuesday that it expects third-quarter earnings ranging from break-even to 5 cents a share and boosted its full-year outlook by 15 cents to a range of $1.80 to $1.90 a share.

But Ford's straight debt plunged, causing a severe widening in the spreads, and the convertibles followed suit, also getting pressure from the stock, which fell 2.5%.

Ford's 7% note due October 2013 was trading at a spread to Treasuries of 229 bps and its 7.45% bond due in July 2031 at a 270 bps spread, a convert dealer said, noting the 7s widened by 9 bps from Monday and the 7.45s widened by 3 bps.

The Ford 6.5% convertible preferred fell 1 point to 52.75, he said, while the underlying stock lost 38 cents, or 2.54%, to $14.60.

The sellside trader said one of the key concerns with Ford's quarterly results was its North America, market share, which slipped from 19.3% to 18.1%.

Cendant holders wait, watch

While Cendant Corp. announced Tuesday a whopping 29% increase to its common stock dividend, a holder of its 3.875% convertible said the converts were steady as the market awaits further news on a possible asset sale that could help with the redemption of the converts.

"The bids on the 3.875s got whacked on the dividend news," he said. "But most everyone was going to hold on anyway for the sale news."

The 3.875s, a $1.2 billion issue, become callable in November at par, he said. The issue traded recently at about 105, he said, so if there is still quite a bit of call risk overhanging the issue.

Cendant said Tuesday that it is in discussions with a potential purchaser regarding the sale of its mortgage business, just a couple of weeks after announcing that it was looking to sell the unit. Cendant said the potential transaction, if completed, would result in net proceeds of between $750 million and $1 billion, after repayment of some $5 billion to $6 billion of associated debt.

A New York Post report on Monday suggested Countrywide Financial Corp. as a suitor, the buyside source said, but that has not been confirmed by either party. He said other speculated suitors include convertible issuers Washington Mutual and Wells Fargo.

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