Convertibles higher on rise in confidence, Nortel, Calpine gains

By Ronda Fears

Nashville, Tenn., Dec. 21 - Convertible traders said the market climbed Friday, heartened by the unexpected rise in consumer confidence and the Dow Jones Industrial Average closing above the 10,000 threshold. An improved forecast from Nortel, and the wireless phone company's new smaller credit line, helped the telecom, telecom equipment and networking sectors, traders said. New issues went north, as well, headed by the new Calpine and Solectron's new mandatory convertible. While Solectron gained, most of the electronics manufacturing services group did not participate in the party.

"The day started kind of hectic but it trailed off quickly and by mid-afternoon was pretty deal. A lot of people took off early, to do some last-minute holiday shopping, I suppose," said a convertible trader at a major investment bank.

The final reading for the December University of Michigan consumer sentiment index came in at 88.8, considerably stronger than the preliminary reading of 85.8 and much better than the November level at 83.9. Investors were pleased that it was a firm sign that sentiment is turning, and declining jobless claims numbers were seen as further support of a turnaround.

Stocks were moderately higher, with the Nasdaq rebounding by 27.29, or 1.42%, to 1945.83 and the Dow industrials regained 50.16, or 0.50%, to 10,035.34.

"It was great that the Dow closed over 10,000 and the Nasdaq was pretty close to 2,000 but for a large part of the convertible universe this is not expected to be a sign of a sudden, sharp turnaround," said another convertible trader at a major investment bank.

"There were a lot of the tech and telecom issues marked higher, but we weren't seeing any buying really. There just isn't any faith, yet. We are now seeing more selling in those areas. We are seeing people retreating back to safety, in names like Johnson & Johnson."

The Johnson & Johnson zero due 2020 gained 1.75 points on the day to 83.75 bid, 84 offered and the zero due 2014 rose 3.5 points to 151.75 bid, 152 offered with the stock up $1.40 to $59.71.

Xerox also continued to see buyers, traders said. The new 7.5% convertible trust preferred due 2021, which sold at par of 50 a month ago, climbed 3.5 points on the day to 66 bid, 66.375 offered. The stock was up 77c to $9.80.

Nortel gained sharply on an improved fourth quarter outlook and a new credit line. Nortel said it forecasts a fourth-quarter loss smaller than third quarter and lower than analysts expect. Restructuring activities also continue, the company said, with expectations of an overall workforce reduction of about 52,000 at yearend and an extended credit line with banks that reduced the size of the committed facility to $1.575 billion from $2 billion.

Networking names like Juniper Networks and Riverstone rebounded slightly, traders said, but many names in ancillary business to telecom gained the biggest. Anadigics' 5% convert due 2006 rose 3 points on the day to 96.625 bid, 97.625 offered with the stock up 80c to $14.95. Agilent was also higher, with its 3% convert due 2021 up 0.5 point to 110.5 bid, 110.75 offered as the stock gained 25c to $27.95.

Brocade Communications' new 2% convert due 2007 gained 1.75 points on the day to 98.75 bid, 99 offered with the stock up $1.05 to $32.65.

Software names were helped by Manugistics' forecast that it will achieve operating profitability on an adjusted basis during fiscal first quarter ending May 2002. Analysts had not expected the company to break even until the fourth quarter of 2003. The company expects to earn 7c to 10c, compared with previous estimates of a 10c loss for the next fiscal year. The Manugistics 5% convert due 2007 climbed 5.75 points on the day to 80.5 bid, 81.25 offered with the stock up $3.63 to $19.47.

In the primary market, the year was seen wrapping up with the $1 billion Solectron mandatory convertible, which sold at the cheap end of guidance and gained in the immediate aftermarket. The 7.25% issue, which sold at par of 25 with an 18% initial conversion premium, added 15 points from issue price to 26.5 bid, 26.6 offered and the stock was up 44c to $10.25. Solectron's zero due 2019 was unchanged at 50.625 bid, the zero of May 2020 was flat at 52.5 bid and the zero of November 2020 added 0.25 to 41.375 bid.

Solectron's peers like Jabil Cicuirts and Sanmina did not see much of a bounce, however.

Other new paper was higher, though.

Electro Scientific Industries Inc.'s 4.25% convert due 2006 added 2.5 points to 99.75 bid, 100.75 offered as the stock rose $1.45 to $29.66 and SanDisk's new convert gained 1 point to 97.5 bid, 98.5 offered with the stock up 51c to $13.41.

Calpine's new 4% convert added 1.375 points to 107.375 bid, 107.625 offered as the underlying shares added 16c to $15.01. The zero due 2021 slipped 0.125 to 97 bid, 97.25 offered but the 5.75% convertible preferred adde 0.5 to 55.375 bid and the 5.5% convertible preferred was flat at 40 bid, 40.625 offered.

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