Stock slide, earnings misses, summer blahs sideline players

By Ronda Fears

Nashville, Tenn., Aug. 5 - Much of the convertible market was marked down again Monday amid a thin trading pattern. The unrelenting slide in stocks, compounded by earnings misses, contributed to a general malaise described as the summertime blahs.

"This is what's called the summer blahs," said the head convertible trader at a major investment bank.

"We were very, very light today and probably will be all week. We're into the last few weeks for people to take vacations before the kids go back to school, things like that. Add on a generally lousy market and we're dead."

New issues retreated along with the broader convertible universe as few made any headway to higher ground. Of the handful of names mentioned higher, none were moving up by any great leap.

"Trading was certainly muted. Volume was very light," said Rao Aisola, head of convertible research at Bear Stearns & Co.

"Investors are cautious. Everything is a 'show me' story. There's definitely been a paradigm shift, especially among investors, in terms of what is value. A year and a half ago, EBITDA was all the rage. Now, it's cash earnings.

As has been the case for several months, any hint of trouble has sent entire sectors lower with specific names suggesting trouble within a group.

Advertising names were hit Monday after Interpublic Group of Cos. Inc. said it would delay its second quarter results by a week to give more review time to its audit committee. Interpublic, which had been scheduled to release its results on Tuesday said it will now report on Aug. 13.

That sent Interpublic lower. But falling in sympathy were WPP Group and Omnicom, which has its own battles with regard to alleged accounting questions.

Interpublic shares fell $4.69 to $14.99. The 1.8% due 2004 was quoted at 83.5 bid, 84.5 asked, the 1.87% due 2006 at 75 bid, 75.5 asked and the 0% due 2021 at 75.75 bid, 76 asked.

Omnicom shares lost $3.58 to $47.21. The 0% due 2031 was quoted at 95 bid, 95.5 asked and the 0% due 2032 at 89.125 bid, 89.375 asked.

Omnicom has few middle-ground followers. Either people believe management that there is no accounting problems, or they believe the ongoing investigations will result in bad news.

Jeff Siedel, head of U.S. convertible research at Credit Suisse First Boston, is in the camp of believers. In any event, he said, you can't ignore the more than 10% yield on the converts when the balance sheet shows interest coverage of more than 17 times.

In the other camp, however, is Jeremy Howard, head of U.S. convertible research at Deutsche Bank Securities Inc., who is just not comfortable with the lingering accounting probes, noting that Omnicom has a reputation for being very, very aggressive as an acquirer and in accounting practices.

Shaw Group was getting punished as a result of NRG Energy's woes.

The company said it has been notified by NRG that due to liquidity issues NRG will not make the next scheduled payment on a joint project. The two agreed for Shaw to pay NRG $43 million to forgive the payment and essentially buy out NRG's interests in the project, but Shaw said the development will materially impair its ability to make fourth quarter and 2003 numbers.

Shaw Group shares plunged $5.70 to $16.06 and the 0% due 2021 fell 3.25 points to 50.25 bid, 51 asked.

Mirant reverted to a sharply declining pattern as it announced an informal inquiry made by the Atlanta district office of the SEC regarding accounting issues.

"The notification letter we received did not surprise us. When companies report accounting issues, informal inquiries from the SEC usually follow, especially in this day and age," Mirant said in a statement, but traders did not dismiss it or minimize it.

Mirant's shares dropped 56c to $2.93. The new 5.75% due 2007 lost 5.75 points to 60.5 bid, 61.5 asked. The old 2.5% due 2021 were quoted as low as 43.25 bid and as high as 50 bid.

Before the open, Anthem Inc. reported better-than-expected earnings, but was pummeled anyway.

Anthem beat the analyst consensus by about 2c and said revenues were up 13.4%. The insurance firm also upped its outlook full year EPS to a range of $3.90 to $4.00 from $3.85 to $3.95.

Anthem shares plummeted $6.20 to $60.50 and the convertible preferred lost 6.73 to 75.65.

Also lower was MetLife ahead of earnings. MetLife shares lost $1.07 to $25.63 and the convertible preferred dropped 2.40 to 79.35.

After the close, MetLife also reported better-than-expected earnings, by about 5c.

"The insurance issues were lower on valuation," said a dealer. "Everything, essentially, is considered over-valued right now."

Corning's new deal retreated on that general view, as well.

The new 7% mandatory fell 4.5 points to 101.5 bid, 102 asked as the stock dropped 9c to $1.62. Corning's existing converts were quoted off about 0.25 point with the 0% due 2015 at 45 bid, 45.5 asked and the 3.5% due 2008 at 55.125 bid, 55.625 asked.

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