Convertibles bounce but new paper lags

By Ronda Fears

Nashville, Tenn., March 1 - Convertibles got a nice markup with the bounce in stocks Friday, traders said, but there wasn't really a buying frenzy going on. General Motors got its deal out, as did AmerUs with a new structure, but those deals mirrored the lag out of the gate seen by new issues all week. Omnicom also returned to the convertible market with a $750 million zero-coupon, zero-accreting convertible that priced intraday.

Traders said secondary activity remained very sloppy but nearly every sector was firming up as stocks went on a tear with the Nasdaq soaring up 4.1% and the Dow Jones Industrial Average up 2.6%. New paper, however, was not flying like many had anticipated, even with the stock movements.

"It was a hectic day but weird, in that there really wasn't a great deal of secondary activity today," said a convertible trader at a major investment bank in New York.

"New issues have been the focus this week, and they have not been as active in the first week as we are used to seeing. Some of them really cratered right out of the gate and that sort of put some people on edge. But the calendar is strong, we hear, and a good deal more paper will probably be brought to the table next week. In the long run, that's what keep us going."

General Motors sold its two-tranche deal for $3.3 billion, upped from the original size of $2.5 billion, at the aggressive end of price talk but tranche B sold the most as expected since it gave more yield and equity sensitivity. Series A amounted to $1 billion of 30-year convertible notes at par of 25 to yield 4.5% with a 32.5% initial conversion premium, with five years of call protection. Series B was for $2.3 billion of 30-year convertible notes at par of 25 to yield 5.25% with a 22.5% initial conversion premium, with seven years of call protection.

"No, I didn't get all I wanted from the GM deal. I am not happy with my allocation. I got 5%. I though it would be around 10%, but they sold a lot of it to outrights and retail accounts," said a convertible trader at a hedge fund in New Jersey, who was buying the B tranche.

Allocations are an indication of demand, and the deal obviously was a success, sources said.

The GM converts didn't soar in the immediate aftermarket, however. Tranche A was quoted up 0.375 point to 25.375 bid, 25.875 offered and Tranche B up 0.6875 point to 25.06875 bid, 25.9375 offered. GM shares closed up $1.99 to $54.97.

Gap Inc.'s new 5.75% convertible similarly gained ground, closing up 0.625 point to 100.625 bid with the stock up 10c to $12.07.

Adaptec, however, rose quite a bit, with the new 3% convertible subordinated notes due 2007 up 3 points to 103.5 bid, 104 offered. Adaptec's old 4.75% convertible due 2004 added 1 point to 92.75 bid, 93.75 offered. Adaptec shares closed up 60c to $12.

Abgenix's new 3.5% convertible subordinated notes due 2007, even firmed up a bit, although the biotech sector was very weak for the most part. The deal had suffered on company news that Abgenix would have to write down its investments in CuraGen Corp. and ImmunoGen Inc. The convert added 2.375 points to 94.625 bid with the stock up 74c to $18.79.

Many other biotech names were lower, though, including CuraGen, whose 6% convertible due 2007 was off 0.375 to 70.875 bid as the stock closed down 27c to $16.36. InterMune's 5.75% convertible due 2006 lost 7 points on the day to 112 bid, 113 offered as the stock dropped $3.06 to $33.25. But, ImClone Systems still continued to gain on news earlier in the week that it may not have to entirely redo clinical tests for its new cancer drug Erbitux in order to request FDA approval. The ImClone 5.5% convertible due 2005 was up 6.625 ponts on the day to 85.5 bid, 87.5 offered. ImClone shares added $4.87 to $27.28.

Techs were screaming higher, with semiconductors way out in front. On particular note, Emulex Corp.'s new 1.75% convertible due 2007, which had sank considerably since debuting a month ago, added 5.5 points on the day to 95 bid, 95.75 offered. Emulex shares rose $3.73 to $36.19.

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