Halliburton, EDS shoot up after pricing; yield-seekers on the hunt in wake of Fed ease

By Ronda Fears

Nashville, June 25 - Traders said the reach for yield resumed with a vengeance Wednesday after the Federal Reserve moved to cut interest rates by 25 basis points to a 45-year low.

"The market had been softening for a few days and even with the premium bleed the yields on some issues, like a Maxtor, are pretty compelling, especially relative to the new paper we've seen recently," said a buyside trader.

Dealers said trading activity picked up considerably Wednesday afternoon. Several described the market as better bid, but a couple of traders also noted severe weakness in some financial concerns like Providian Financial Corp.

Conversely, deal flow slowed in the primary market, but sources said it was as much a function of demand-and-supply forces as the Fed's move. RF Micro Devices Inc. returned to the convert market with a $200 million quick-sale deal and that sent its existing 3.75% converts up more than 4 points. The only other new deal in marketing was a small $75 million overnighter from MeriStar Hospitality Corp.

CMS Energy Corp. even shelved its deal temporarily but market sources said it had nothing to do with how the deal was going.

CMS said in a press release, which hit the tape after the market close Wednesday, that it would delay its $150 million convertible offering until it had filed, as planned, a restated 10K for 2001 with the Securities and Exchange Commission. (See full story elsewhere in this issue.)

The deal, talked to yield of 2.375% to 2.875% with a 48% to 52% initial conversion premium, had been slated to price after the close. CMS shares ended off 11c, or 1.38%, to $7.85.

Meanwhile, as many expected, the new Electronic Data Systems Corp. priced at the wide end of yield guidance, as had happened with Halliburton Co.'s new issue, which some interpreted as the buyside of the market exerting some pricing power as demand begins to tighten.

The new convertibles of both EDS and Halliburton shot up, too, by 2 points or more.

EDS sold $600 million of 20-year convertibles at par to yield 3.875% with a 51% initial conversion premium - at the cheap end of yield talk for 3.375% to 3.875% but aggressively outside premium guidance for 41% to 46%.

Also Wednesday, EDS sold $1.1 billion of 10-year straight senior notes, upsized from $500 million, with a 6% coupon, subject to adjustment based on changes in the ratings assigned to the notes.

A buyside trader said the new EDS convert ended at 102.875 bid, 102.125 offered. The stock closed off $1.59, or 7%, to $21.02.

Halliburton's new convert closed at 102 bid, 102.5 offered with the stock up 62c, or 2.72%, to $23.44.

Nektar Therapeutics indeed priced its deal at the wide end of sweetened yield guidance and also, as some buyside sources expected, it went south out of the gate.

The biotech firm, formerly Inhale Therapeutics, sold $100 million of seven-year convertibles at par to yield 3.0% with a 29.7% initial conversion premium - at the wide end of revised yield guidance for 2.5% to 3.0% and the cheap end of premium talk for 25% to 30%. Original price talk put the coupon at 1.75% to 2.25%.

A buyside trader said the new Nektar convert closed at 98.75 bid, 99.75 offered. The stock ended off 4c, or 0.46%, to $8.71.

Nektar's existing converts were higher by around 2 points on the possibility of buybacks with the proceeds, traders said.

RF Micro Devices converts shot up more than 4 points, though, when its new deal plans hit the tape. (See full story elsewhere in this issue.)

Officially, the company, which makes circuits for wireless communications products, said proceeds would be used for working capital and general corporate purposes, including to possibly retire long-term debt. But the market quickly put 2-and-2 together and RF Micro Devices' 3.75% converts rallied sharply.

The 3.75s - callable Aug. 20 at 100.9375 - gained more than 4 points to 99.5 bid, 100 offered, traders said, for a yield-to-call of 13.68%.

RF Micro Devices shares closed down 48c, or 7.67%, to $5.78.

Terms on the new deal were being finalized after the close Wednesday but were not available by press time.

The new $200 million of seven-year convertibles were talked to yield 1.0% to 1.5% with a 42.5% to 47.5% initial conversion premium.

The only other new deal in play was the small MeriStar deal - talked to yield 9.0% to 9.5% with a 100% initial conversion premium. The seven-year subordinated notes, expected to be rated Caa1/CCC, will be non-callable.

MeriStar shares closed up 7c, or 1.39%, to $5.09.

Buyers indeed were in hot pursuit of yield, traders said. In addition to Maxtor, other issues mentioned were Northwest Airlines, Mentor Graphics and Genesco.

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