Week begins slowly with a thin market; Omnicare prices, three more small deals emerge

By Ronda Fears

Nashville, June 9 - It was sort of a slow start Monday following a record week for convertible issuance. Traders said flow was thin as stocks retreated, with tech shares taking a particularly tough blow, and just a handful of smaller deals emerged.

"Our market was weaker overall, but it was a light day," said dealer at a major investment bank.

High-yield and distressed traders that shuffle convertible paper also were reporting a slow session.

"The secondary market that is busted was slow from my view point," said a market source in those areas.

"I didn't see much activity out there, [it was] a tough day as far as I'm concerned."

Primary market activity didn't offer much in the way of something new to chew on either. But market sources anticipate a busy week when all is said and done.

Following a road show, which is an unusual event in convertibles these days, Omnicare Capital Trust sold $250 million of convertible trust preferred linkeds to Omnicare Inc. stock but final terms were not available by press time.

The 30-year trust preferreds were talked to yield 4.0% to 4.5% with a 30% to 35% initial conversion premium.

Omnicare shares closed Monday up 45c, or 1.57%, to $29.16.

Only three other deals emerged, all small.

FEI Co. launched $150 million of 20-year convertible notes, to be sold on a call spread, talked to yield 0% with a 33% to 37% initial conversion premium. The deal is slated to price before Tuesday's open.

FEI shares ended Monday off 52c, or 2.48%, to $20.49.

After Tuesday's close, Guitar Center Inc. plans to sell $90 million of 10-year convertible notes talked to yield 3.5%to 4.0% with a 40% to 45% initial conversion premium.

Guitar Center shares closed down 57c, or 2.29%, to $24.33.

Early Monday, Corixa Corp. launched $75 million of five-year convertible subordinated notes talked to yield 4.25% to 4.75% with a 20% to 25% initial conversion premium, for pricing after the close. Final terms were not available by press time, however.

Corixa shares ended down $1.02, or 12.2%, to $7.34.

While market buzz last week circulated the possibility of a convertible offering by American Airlines Inc. or parent AMR Corp., not all onlookers think that is a viable possibility.

In a rating action Monday, Moody's said it "believes American's access to the capital markets will primarily be on a secured basis.

"Although we have recently seen a number of airlines in the U.S. issue unsecured convertible bonds, Moody's does not believe that American could issue sufficient debt on an unsecured basis to meet all its cash needs over the next 12 months."

Continental Airlines Inc. returned to the convertible market last week with an upsized $150 million deal, following recent deals from Delta Air Lines Inc. and Northwest Airlines Corp. Alaska Air Lines Inc. also has tapped the convert market.

Still, convertible market sources say the buzz about American Airlines is still in play.

"By the looks of a lot of the deals we're seeing, I don't see any reason why American couldn't come to the convert market with a deal," said a fund manager in New Jersey.

"If they tacked on a nice coupon, say in the 6% to 8% range, the market would go wild."

Moody's confirmed American's senior unsecured Caa2 rating, with a negative outlook.

American Airlines stock closed off 31c, or 3.4%, to $8.80.

Continental and Delta shares were both off, as well, but converts of both airlines were said to be "slightly firmer" by one dealer.

Calpine Corp. converts were soft along with the underlying stock, dealers said, as a result of a deal the independent power producer has in the works in the corporate bond market.

Last week, an $800 million deal emerged in which Calpine would monetize several power supply contracts. That sent Calpine securities on a roller coaster ride. First, there was a sharp rise as the news seemed to ease concerns about liquidity, one trader said, then there was a sharp drop on concerns about subordination.

The seven-year power notes, to be sold by Calpine Energy Services's Power Contract Financing LLC, will be secured by the cash flow from two contracts - one to sell power to the California Department of Water Resources and the other to buy power from an affiliate of Morgan Stanley, according to market sources. S&P rated the notes BBB.

"Senior unsecured Calpine holders should not be happy that another piece of reasonably secure cash flow will go to support someone else's debt," said Dot Matthews and Andy DeVries, analysts at CreditSights in a report Monday.

"Calpine has sold, pledged, sold and leased back, etc., just about every asset that any lender really wants for security ... trading cash today for the hope of making money on its plants under construction tomorrow."

But, the new notes could have value if they are priced right, the analysts added.

Calpine's 4% convertible notes due 2006 were quoted off about 0.5 point to 83.5 bid, 84.5 offer. The stock ended off 15c, or 2.7%, to $5.41.

Elan Corp. plc also was lower. One market source said he saw it offered at 58.75 after being as high as 59.375 last week.

A trader said there was no news on Elan specifically, but noted the field of biotech issues were weaker on a precipitous slide in those stocks.

Elan shares closed down 54c, or 7.08%, to $7.09.

Celgene Corp.'s new convert was lower on the negative sentiment in the biotech sector, as well. The 1.75% due 2008 lost about 2.5 points to 103.75 bid, 104.25 offer with the stock dropping $1.72, to 4.95%, to $33.04.

The widespread downturn in the Nasdaq also struck telecom and related names, like Lucent Technologies Inc.

Lucent's new 2.75% converts plunged about 2 points on the day with the 2023 issue at 97.25 bid, 97.75 offer and the 2025 issue at 99.5 bid, 100 offer. Lucent shares closed off 10c, or 4.37%, to $2.19.

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