Investors get good look at Sallie Mae; Intel drags down chips; near record gold drives Newmont surge

By Evan Weinberger

New York, Jan. 2 - Investors shaking off New Year's celebrations finally got a good look at the SLM Corp. preferreds that hit the street last week. They traded lower, tracking the student loan giant's stock.

Intel Corp. convertibles and stock fell victim to an analyst's downgrade, which brought down several other semiconductor convertibles. Advanced Micro Devices Inc. and ON Semiconductor Corp. both closed lower.

An analyst's upgrade helped Yahoo! Inc. convertibles close higher.

Surging gold and silver prices, helped by recession fears, drove up Newmont Mining Corp. convertibles.

Overall, traders and analysts reported a soft day in the markets.

"Some stuff traded," one of the analysts said. "All in all, it seemed kind of slow relative to the sell-off in the equities market."

A trader reported that most of the trading he saw was in "odds and ends," with little movement.

That was backed up by another desk. A trader there said that "periphery credits" that people wanted to get off the books were among the only convertibles moving. And there weren't many of those. "A lot of these periphery-type credits seem to be for sale," he said. "Things felt soft. It seems every inquiry I had was a sale."

Market watchers all said that convertibles held up better than stocks on the day. Equity markets woke up with a 2007 hangover Wednesday.

Oil prices crossing the $100-per-barrel threshold and unexpectedly soft December manufacturing numbers sent investors scrambling when they came back from their revelry. Those factors did nothing to allay the recession fears that closed out 2007.

The Dow Jones Industrial Average tumbled 220.86 points, or 1.67%, to close at 13,043.96.

The Nasdaq fell 42.65 points, or 1.61%, for a 2,609.63 close.

And the Standard & Poor's 500 dropped 21.20 points, or 1.44%, for a 1,447.16 close.

One new deal launched Wednesday after the market close. OSI Pharmaceuticals, Inc. launched $150 million in convertible senior subordinated notes due 2038 Wednesday after the market close.

The convertibles are talked at a 3% to 3.5% coupon and a 57.5% to 62.5% initial conversion premium.

There is a $22.5 million over-allotment option on the Rule 144A transaction.

The convertibles are set to price Thursday after the market close.

The convertibles will carry investor puts in years five, 10, 15, 20 and 25.

There is a contingent conversion subject to a 130% hurdle and contingent payment subject to a 120% hurdle.

There are embedded warrants providing 55% coverage.

OSI is a Melville, N.Y.-based drug maker. The company plans to use around 30% of the proceeds to repurchase shares of its common stock; to buy back any outstanding issues of its 3.25% convertible senior subordinated notes due 2023 and for general corporate purposes.

SLM gets good look

SLM Corp., the Reston, Va.-based government-supported student loan backer better known as Sallie Mae, unleashed $1 billion of convertible preferred stock due Dec. 15, 2010 on an unsuspecting public Dec. 27.

The deal attracted a lot of interest in the usually slow week between Christmas and New Year's, and a larger audience was able to get a closer look at the issue Wednesday.

"They were in the 101-102 range all day," one analyst said. "A lot of people who didn't get a chance to get a look at them before" did.

A trader reported that the preferreds were a hit early. "SLM got quiet here after first couple days-trading with the stock," he said.

They continued to trade with the stock Wednesday but did not dip quite as low as the underlying stock.

Sallie Mae's 7.25% series C mandatory convertible preferred stock closed Wednesday at 1,014.42 versus a closing stock price of $19.36. They closed Monday at 1,033.13 versus a stock price of $20.14.

Sallie Mae stock (NYSE: SLM) tumbled 78 cents, or 3.87%, on the day.

Intel down on downgrade

A Bank of America analyst downgraded semiconductor producer Intel to "neutral" from "buy." The analyst said the Santa Clara, Calif.-based company is well-positioned in the market and has a lineup of strong new products ready to launch.

But the analyst said that still may not be enough. The seasonal downturn and potentially slowing sales due to economic woes may lower the chip giant's margins, Bank of America analyst Sumit Dhanda wrote in a note to clients Wednesday.

That note led to a beating. "I think people are just kind of uncomfortable right now, and it's not going to take much," an analyst said.

Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Wednesday at 104.3 versus a closing stock price of $25.35. They closed Monday at 108.187 versus a stock price of $26.66.

Intel stock (Nasdaq: INTC) dropped $1.31, or 4.91%, on the day.

AMD, ON dragged down

When the big fish in a sector gets hurt, the smaller fish feel it just as badly.

That's what happened to AMD and ON Semiconductor Wednesday on the Intel thumping.

Sunnyvale, Calif.-based AMD watched its 5.75% convertible senior notes due Aug. 15, 2012 close Wednesday at 79.229 versus a closing stock price of $7.14. They closed Monday at 80.998 versus a stock price of $7.50.

AMD's 6% convertible senior notes due May 1, 2015 closed Wednesday at 69.9527 versus a stock price of $7.14. They closed Monday at 70.5444 versus a stock price of $70.50.

AMD stock (NYSE: AMD) fell 36 cents, or 4.80%, on Wednesday.

Phoenix-based ON's 2.625% convertible senior subordinated notes due Dec. 15, 2026 closed Wednesday at 106.18 versus a closing stock price of $8.58. They closed Monday at 108.725 versus a stock price of $8.88.

ON's 1.875% convertible senior subordinated notes due Dec. 15, 2025 closed Wednesday at 138.352 versus a stock price of $8.58 after closing Monday at 142.725 versus a stock price of $8.88.

Stock in ON (Nasdaq: ONNN) declined 30 cents, or 3.38%, on the day.

Yahoo! gets thumbs up

Sunnyvale, Calif.-based internet services provider Yahoo! received a positive outlook from an analyst at ThinkEquity Partners Wednesday, which helped the company's stock and convertibles.

ThinkEquity's William Morrison upgraded Yahoo! to "buy" from "accumulate." Morrison said that Yahoo!'s fundamentals were improving and he forecast a better-than-expected fourth-quarter earnings report later this month.

Investors looking for any good news on the day jumped at Yahoo!

The company's zero-coupon convertible senior notes due April 1, 2008 closed Wednesday at 119.1 versus a closing stock price of $23.72. They closed Monday at 117.458 versus a stock price of $23.26.

Yahoo! stock (Nasdaq: YHOO) gained 46 cents, or 1.98%, on the day.

Newmont up on gold's rise

Denver-based Newmont Mining was bolstered by near-record gold and silver prices, the falling dollar and record oil prices Wednesday.

Newmont's 1.25% convertible senior notes due July 15, 2014 closed Wednesday at 132.208 versus a stock price of $52.39. They closed Monday at 125.435 versus a stock price of $48.83.

Newmont's 1.625% convertible senior notes due July 15, 2017 closed Wednesday at 132.151 versus a stock price of $52.39 after finishing Monday at 124.672 versus a stock price of $48.83.

Newmont stock (NYSE: NEM) surged $3.56, or 7.29%, on the day.

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