Continental soars past 107; five new deals totaling $1.23 billion at bat after closing bell

By Ronda Fears

Nashville, June 5 - Energy issues were in flux with Calpine Corp. lower and AES. Corp., El Paso Corp. and The Williams Cos. Inc. firmer Thursday, but traders said the market's focus was still fixed on new issues.

Continental Airlines Inc.'s issues, the new 5s and old 4.5s, continued an upward flight path with the new issue soaring to 107.25 bid, but other airline paper - namely Delta Air Lines Inc. and Alaska Air Lines Inc. - leveled off.

Schlumberger Ltd.'s new paper also gained some ground, with tranche A up almost 2 points and tranche B up about 1.5 points. Market sources were not sure all the bonds, or both tranches, were offered to buyers at the same price, but tranche A was see at 99.75 bid and tranche B at 98.5 bid.

Other new paper was described as flat to slightly lower, though, as attention turned to the five new deals totaling $1.23 billion that were at bat after the close.

"The secondary market has been very quiet outside of the new issues, because everything is so picked over," said John Siebel, head of trading at Silverado Capital Management.

"It was very quiet in front of tomorrow," he added, referring to Friday's employment report.

Dealers also noted activity was chiefly limited to the new converts in play, with some of the paper sold earlier in the week getting shed for upcoming new deals.

Buyside sources said a lot of the deals were getting flipped in rapid fashion and many still marvel at the aggressive terms, as well as underwriters' willingness to forfeit banking fees by reoffering bought deals below par.

"In my 31 years on the Street, this is the first time I have seen a hot market where much of the heat was coming from the underwriters rather than from the buyers - a hot market where new deals not only frequently go down, but sometimes can't even rise off the runway," said F. Barry Nelson, portfolio manager at Advent Capital Management.

"The convertible market certainly is hot in terms of numbers of deals, but it's conspicuously chilly in terms of the failure of the deals to be generally strong out of the gate."

New deals from Getty Images Inc., Nabors Industries Ltd. and Omnicom Inc. were all under par right after freeing to trade Wednesday, along with the jumbo Schlumberger paper that was said to have been reoffered 2-3 points under par by the underwriters.

But, the same mania was predicted for the new Cephalon deal as Continental's, buyside sources said.

"We've not seen these type of premiums in, seems like forever," said a fund manager in Connecticut.

"There's no yield but with a conversion premium in the neighborhood of 20% it sort of feels like a convertible market again. Everyone's going to be all over this."

Cephalon Inc. returned to tap the convertible market with a $600 million overnight two-part deal to take out its 5.25% converts due 2006.

Both $300 million parts will have a 0% yield. Tranche A is talked with a 21% to 26% initial conversion premium and tranche B is talked with a 15% to 20% initial conversion premium.

Deutsche Bank Securities analysts put tranche A at 1.88% cheap, at the middle of guidance, using a credit spread of 290 basis points over Libor and a 36% stock volatility. Deutsche put tranche B at 2.56% cheap, at the middle of guidance, using a credit spread of 310 bps over Libor and a 38% stock volatility.

Merrill Lynch put tranche A at 0.43% rich and tranche B at 0.39% cheap, at the midpoint, using a credit spread of 620 bps over Treasuries and a 42% stock volatility.

Cephalon shares closed Thursday up $1.34, or 2.86%, to $48.14.

The 5.25% converts were quoted down 1 point to 103.8125 bid, 101.3125 offer, and Cephalon's 2.5% convert due 2006 was quoted up 1 point to 97.75 bid, 98.25 offer.

Lincare Holdings Inc. and Flir Systems Inc. also joined Western Wireless Corp. and Southern Union Co. to market deals after the close.

Lincare is pitching $250 million of 30-year convertibles talked to yield 2.5% to 3.0% with a 70% to 75% initial conversion premium.

Lehman Brothers analysts put the deal 2.57% rich, at the midpoint of guidance, using a credit spread of 275 bps over Treasuries and a 27% stock volatility.

Merrill put it 0.7% cheap, at the midpoint of guidance, using a credit spread of 230 bps over Treasuries and a 30% stock volatility.

Lincare shares closed Thursday up 59c, or 1.92%, to $31.37.

Flir Systems is marketing $150 million of 20-year convertibles talked to yield 2.75% to 3.25% with a 48% to 52% initial conversion premium.

Deutsche puts the Flir deal, at the midpoint of guidance, 1.75% rich, using a credit spread of 350 bps over Libor and a 28% stock volatility.

Merrill Lynch put it 1.86% cheap, also at the midpoint, using a credit spread of 500 bps over Treasuries and a 36% stock volatility.

Flir shares closed Thursday up $1.00, or 3.55%, to $29.20.

Western Wireless had launched late Wednesday $100 million of 20-year convertibles talked to yield 4.375% to 4.875% with a 38% to 42% initial conversion premium.

Lehman puts the Western Wireless deal 1.78% rich, at the midpoint, using a credit spread of 1,000 bps over Treasuries and a 55% stock volatility.

Merrill puts it 1.6% cheap, at the midpoint, using a credit spread of 1,130 bps over Treasuries and a 50% stock volatility.

Western Wireless shares closed down 40c, or 3.45%, to $11.20.

Southern Union is selling $125 million three-year mandatory convertibles, talked to yield 5.75% to 6.25% with an 18% to 22% initial conversion premium.

Southern Union shares closed down 62c, or 3.7%, to $16.15.

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