With $10 billion of new paper in play for May, flow picks up; Credence slips in overnighter

By Ronda Fears

Nashville, May 22 - Secondary action continued to move along at a nice clip, with over $10 billion of new paper put into circulation so far this month, but traders said it was expected to slow considerably Friday in advance of the long Memorial Day weekend.

"It's nice to see these things, new issues, trading up, but I'm glad to see Friday come and a long weekend," said a dealer.

"A lot of the new deals went real well this week," she added. "It's good to have some happy clients."

Prospect News calculates new issues so far in May at $10.35 billion - including Massey Energy Co.'s $100 million deal, which was at bat after the close, and Credence Systems Corp.'s $150 million overnighter. That also includes investment bank deals exchangeable for another company's stock.

The strong pick-up for May brings the year-to-date total through Thursday to $35.80 billion, which is more than half the $60.4 billion total for all of 2002.

And there's another week, albeit holiday-shortened to four days, left in the month and another five weeks left to the halfway mark of the year.

Market sources expect something to pop up next week - at least American Financial Corp.'s deal for $150 million in proceeds, which was postponed from this week's week slate - but say it will likely be a lighter calendar given the holiday and it being the last week of the month.

Since April 21, a month ago, there has been more than 40 convertibles come to market, noted Jeffrey Seidel, head of U.S. convertible research at Credit Suisse First Boston.

"There's so much paper out there flying around, it's hard to get a feel for the market," Seidel said.

"But it was pretty active today, more than I thought it would be."

He noted that with spreads widening, players seem skewed toward the higher credits and are still searching for delta.

Bear Stearns' high yield desk said spreads have widened on average 50 basis points in May, in part due to the rally in Treasuries. Junk bond returns were off by 0.36% for the week, through Wednesday, but were up 0.25% for the month.

While several new deals of late have come with high premiums, traders noted that most of the big movers were those with the smaller premiums and thus more delta.

Providian Financial Corp.'s recent deal was still a stand-out, but new issues from Sirius Satellite Radio Inc., Wilson Greatbatch Technologies Inc., Connetics Inc. and Williams Cos. Inc. also spiked sharply on Thursday.

Providian's new 4% converts, issued with a 60% premium, were quoted at the close by one of the lead banks on the deal at 107.125 bid, 107.625 offered. The stock gained 40c, or 4.85%, to $8.65.

Sirius Satellite's new 3.5% issue was the shining star of the day, though, shooting up almost 10 points, according to one trader. It was quoted at 109.125 bid, 109.875 offered. Sirius shares ended up 17c, or 15.89%, to $1.24. The issue is convertible at $1.38.

Wilson Greatbatch Technologies Inc.'s upsized $135 million issue - sold at 2.25%, up 30% - was closed by lead manager Morgan Stanley at 105.625 bid, 106.125 offered. The stock closed up 81c, or 2.61%, to $31.80.

Connectics' deal was small, even after getting upsized, but it gained ground right out of the gate due to the appealing premium, a dealer said. Connetics sold the $80 million of five-year convertible notes at par to yield 2.25% with a 35% initial conversion premium. Lead bank Goldman Sachs & Co. closed it at 103.125 bid, 103.625 offered. The stock ended up 57c, or 3.59%, to $16.43.

Williams' 5.5% issue, sold at par of 50 with a 46% premium, added 2.125 points on the day. Lead manager Lehman Brothers closed it at 53 bid, 53.25 offered as the stock rose 32c, or 4.34%, to $7.70.

Sinclair Broadcast Group Inc.'s new issue also continues to firm, with Bear Stearns closing it at 103.5 bid, 104 offered. The stock ended up 21c, or 1.79%, to $11.95.

New issues from ChipPAC Inc., Regal Entertainment Group and AmerUs Group Co. were just treading water for the most part, traders said.

ChipPAC's $125 million overnighter - sold at 2.5%, up 45% - was closed by lead manager Lehman Brothers at 100.5 bid, 101 offered. The stock ended off 27c, or 4.86%, to $5.29.

Regal upsized its deal to $200 million from $125 million, pricing it at the tight end of talk for a yield of 3.75% and 30% premium, but buyside traders said nagging concerns about the use of proceeds held it back in the immediate aftermarket. Regal plans to use the majority of proceeds to pay a portion of an extraordinary $600-$625 million dividend on its Class A and Class B common stock.

Buyside traders said the Regal convert traded below par for much of the day, but lead manager Credit Suisse First Boston closed it at 100 bid, 100.5 offered. Regal shares dropped 48c, or 2.33%, to $20.13.

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