Sallie slammed, drags down financials; Intel panned; drags down chips; OSI opens strong

By Evan Weinberger

New York, Jan. 4 - SLM Corp., the student loan giant better known as Sallie Mae, got hit on all fronts Friday as financials took a beating. Announcing a cutback in core business will do that.

Countrywide Financial Corp. and Washington Mutual Inc. also got tagged.

Intel Corp. convertibles continued to slump on yet another analyst downgrade. That dragged Advanced Micro Devices Inc. down farther.

LifePoint Hospitals Inc. convertibles were up while Newmont Mining Corp. convertibles were down. But one analyst said that health care and mining convertibles were good places to go in a storm.

And the first three trading days have been stormy.

Weak job growth numbers and a rise in the unemployment rate stoked recession fears. Stock markets reacted accordingly.

The Dow Jones Industrial Average dumped 256.54 points, or 1.96%, to close at 12,800.18.

That was nothing compared to the 98.03 point, or 3.77%, drop in the Nasdaq, which closed at 2,504.65.

The Standard & Poor's 500 tumbled 35.53 points, or 2.46%, for a 1,411.63 close.

It was the second big stock market fall in three trading days. "We don't like 2008 so far," another analyst said.

Unlike Wednesday's rough day, convertibles felt the pinch. "It looks like they're starting to feel the pain," he added.

The first analyst stressed that the pain was being felt most acutely in the financial and tech sectors, while others were holding up better. "The worst sectors to be in continue to kind of bleed," he said.

On the new deal front, OSI Pharmaceuticals, Inc. brought its new convertible senior subordinated notes due Jan. 15, 2038 to market upsized and aggressively priced.

It was the first new deal of 2008, and there should be more to come soon as business starts getting back its footing. "I think people are expecting more deals to come next week," he said.

Sallie Mae leads financial spiral

Reston, Va.-based government-supported student loan giant Sallie Mae announced Friday that it would "be more selective" in the loans it hands out. In other words, the company is cutting back on the number of student loans it will originate.

A lot of the problem stems from the failed $25 billion privatization bid by J.C. Flowers. Rising lending costs don't help either.

Sallie Mae's 7.25% series C mandatory convertible preferred stock due Dec. 15, 2010, which hit the market last week as part of a bid to inject capital into the company, got slammed. They closed Friday at $918.20 versus a closing stock price of $16.67. They closed Thursday at $1,011.23 versus a stock price of $19.16.

Sallie Mae stock (NYSE: SLM) got throttled, losing $2.49, or 13%, on the day.

Sallie Mae was the leader of the pack in falling financials, but it wasn't the only one.

"Every single financial stock," an analyst said, working his way through the ugly numbers. "They're all down."

Countrywide, WaMu tumble

Calabasas, Calif.-based Countrywide, America's largest mortgage lender, watched both of its convertibles fall.

The company's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Friday at 74.7681 versus a closing stock price of $8.42. They closed Thursday at 76.8478 versus a stock price of $8.77.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Friday at 70.0272 versus a stock price of $8.42. They closed Thursday at 71.939 versus a stock price of $8.77.

Countrywide stock (NYSE: CFC) fell 35 cents, or 3.99%, on the day.

Seattle-based Washington Mutual, America's largest savings and loan, saw its 7.75% series R non-cumulative perpetual convertible preferred stock close Friday at $840 versus a closing stock price of $13.07. They closed Thursday at $880 versus a stock price of $13.73.

Washington Mutual stock (NYSE: WM) sagged 66 cents, or 4.81%, Friday.

Intel slides on second downgrade

Santa Clara, Calif.-based Intel crumbled again in the face of a second downgrade in three days. JPMorgan analyst Christopher Danely dropped the stock to "Neutral" from "Overweight" Friday. Danely said that a slowdown in orders for new microchips and a backlog of inventory would hurt Intel's profits.

Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Friday at 98.0878 versus a closing stock price of $22.67. They closed Thursday at 102.765 versus a stock price of $24.67.

Intel stock (Nasdaq: INTC) plummeted $2, or 8.11%, on the day. The stock lost 14% for the week.

Intel news drops AMD

The troubles in Intel stock appear to have roiled the entire semiconductor sector. When asked whether two downgrades on Intel had that sort of power, one analyst said "I guess so."

It's been an especially bad week for Intel's biggest rival, Sunnyvale, Calif.-based AMD.

AMD's 5.75% convertible senior notes due Aug. 15, 2012 closed Friday at 73.732 versus a closing stock price of $6.25. They closed Thursday at 77.174 versus a stock price of $6.77.

AMD's 6% convertible senior notes due May 1, 2015 closed Friday at 66.16 versus a stock price of $6.25 after closing Thursday at 68.4133 versus a stock price of $6.77.

AMD stock (NYSE: AMD) fell 52 cents, or 7.68%, on the day.

LifePoint up

One analyst said health care convertibles were among the safe havens out there in the stormy markets.

Taking that to heart, Brentwood, Tenn.-based hospital operator LifePoint moved up on the day.

The company's 3.5% convertible senior subordinated notes due May 15, 2014 closed Friday at 89.3986 versus a closing stock price of $29.76. They closed Thursday at 88.534 versus a stock price of $29.19.

LifePoint (Nasdaq: LPNT) stock picked up 57 cents, or 1.95%, on the day.

Newmont a good play?

With gold prices at record highs, investors are looking hungrily at stocks and bonds issued by miners.

Even though Denver-based Newmont Mining was down on the day, an analyst said that the miner was a good place to look. "Gold's kind of a hideout," he said. "Newmont in the converts market is one of the best ways to play gold."

Newmont's 1.25% convertible senior notes due July 15, 2014 closed Friday at 134.107 versus a closing stock price of $52.42. They closed Thursday at 135.672 versus a stock price of $53.81.

Newmont's 1.625% convertible senior notes due July 15, 2017 closed Friday at 133.714 versus a stock price of $52.42 after closing at 135.865 versus a stock price of $53.81.

Newmont stock (NYSE: NEM) was down $1.39, or 2.58%, on the day.

OSI upsizes deal

OSI Pharmaceuticals saw a demand for a new deal and took advantage of it. The Melville, N.Y.-based drug maker upsized its offering of convertible senior subordinated notes due Jan. 15, 2038 to $175 million from the originally announced $150 million.

The deal came in with a 3% coupon and a 65% initial conversion premium, beyond the rich end of talk, which had the coupon at 3% to 3.5% and the initial conversion premium at 57.5% to 62.5%.

The conversion price is set at $73.82, and the conversion ratio is set at 13.5463.

The convertibles are callable beginning Jan. 15, 2013, and there are puts on Jan. 15 in each of 2013, 2018, 2023, 2028 and 2033.

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

There are also embedded warrants providing 55% coverage.

The deal was a hot item early, one trader said. As of around noon, they were trading at 102 3/8 versus a stock price of $44.74.

The activity didn't last. As with everything else on a Friday afternoon with stocks tanking, the trader said activity in the new convertible slowed.

An analyst said there was one area of discontent with the deal. "I think people were a little unhappy with allocations," he said. Otherwise, they traded higher, he added.

In the end, OSI's new 3.25% convertible senior subordinated notes due 2038 ended their first day of trading at 103 versus a closing stock price of $44.80.

OSI plans to use $65 million of the proceeds to buy back 1.5 million shares of its common stock. The rest of the proceeds will go toward repurchasing existing issues of its 3.25% convertible senior subordinated notes due 2023 and for general corporate purposes.

OSI's 3.25% convertible senior subordinated notes due 2023 closed Friday at 107.027 versus a stock price of $44.80. They closed Thursday at 106.902 versus a stock price of $44.74.

OSI inched up 6 cents, or 0.13%, on the day.

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