Volume falls off as credits weaken; Omnicom slides, EDS finds buyers

By Ronda Fears

Nashville, Tenn., Sept. 27 - Convertible trading volume dropped off sharply Friday as credits weakened significantly and stocks posted a hefty decline.

Telecoms and equipment makers continued to feel the repercussions of Nortel Networks Corp.'s earnings warning, which was compounded by a budget cut and layoffs at SBC Communications Inc.

"There were only a few names trading today," said a dealer.

"It was mostly better selling but there were a few bottom-feeders picking up some things."

Electronic Data Systems Corp. continued to edge higher, however, as believers pick up perceived bargains.

"People are responding positively to the news that Proctor & Gamble and JPMorgan Chase are putting together major outsourcing deals with EDS," said Stuart Novick, a convertible analyst at Salomon Smith Barney.

"The thinking is that if they weren't going to be in business for a long while then these people wouldn't be talking about this."

The EDS 0% convertible due 2021 gained 0.625 point to 71.75 bid, 72.25 asked. EDS shares gained $1.10 to $14.

Omnicom Group Inc. posted a big stock drop on new that Gillette Co. had decided to give its business to rival WPP Group plc, but other advertising names were lower and WPP saw only a slight uptick.

With so many warnings and corporate budget cutbacks, the ad group is generally out of favor among investors.

Omnicom stock suffered from a sell-off as the news compounded ongoing pressures from questions about its accounting practices but the convertible held up fairly well. The 0% convertible due 2031 lost 0.625 point to 97.5 bid and the 0% convertible due 2032 dropped 0.875 to 94.375 bid, while the stock fell $4.79 to $55.86.

WPP's 2% convertible due 2007 edged up just 0.125 point to 87.875 bid as the stock slipped 33.2c to $33.57.

But other ad names, like The Interpublic Group of Cos. Inc., were lower on the general negative sentiment prevailing about the economy.

Interpublic's 1.8% convertible due 2004 lost 0.25 point to 83.5 bid, the 1.87% convertible due 2006 lost 0.25 to 69.875 bid and the 0% convertible due 2021 fell 1 point to 76.125 bid. The stock closed down $1.09 to $16.32.

Bad went to worse for the telecom group as SBC said Thursday it would slash capital spending next year by 25% to 38% and cut another 11,000 job cuts.

Nortel and Lucent Technologies Inc. were among the biggest losers from the fall-out of that extra bit of ill-boding news.

Nortel's 4.25% convertible due 2008 dropped 1 point to 29 bid and the 7% mandatory (issued in June at par of 28,751) dropped 2,350 to 12,200 bid. The stock fell another 12c to close at 45c.

Lucent's 8% convertible due 2031 lost 2.625 points to 22.875 bid and the 7.75% convertible due 2017 fell 3.125 points to 24.25 bid. The stock closed down 14c to 77c.

Buyers were seen in healthcare names, although most biotech names were lower, and a few battered energy names were getting some buying interest.

Buyers are taking "some big gambles on these [energy] guys involved with the California situation," said a convertible trader at a hedge fund in New Jersey.

"These low bids will start to look good if things don't go well there and there's a good chance it won't."

Mirant Corp., Duke Energy Corp., AES Corp. and Williams Cos. Inc. are all accused of market manipulation in the California energy crisis, along with Dynegy Inc. A recent California regulatory report adds to a federal agency's recommended finding to that end.

"Duke Energy vigorously rejects the conclusions of the CPUC report: that some generators' failure to generate or bid power during California's energy crisis directly contributed to the blackouts or service interruptions," Duke said in a letter to California regulators, released Thursday.

Duke was finding buyers, however, mostly on some confidence restored to its balance by a $1 billion stock offering Thursday, traders said.

The Duke 8% mandatory was unchanged at 15.9 and the 9.25% mandatory was slightly higher at 16.11 with buyers for both issues, traders said. Duke shares closed down 3c to $19.10.

In a letter to California Sen. Joseph Dunn, Mirant also rigorously refuted the accusations.

"We operated our facilities beyond the call of duty to keep the lights on in California and never shut down a plant or kept a unit out of service to drive up prices in the state," said Mirant senior vice president Gary Morsches in a company statement Friday.

But there were mostly sellers of Mirant paper, dealers said.

The Mirant 5.75% due 2007 lost 2.875 points to 44.875 bid. The stock closed down 17c to $2.01.

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