Continental dives on plane crash, chips fall; BJ Services taps into market with overnighter

By Ronda Fears

Nashville, Tenn., April 18 - Overall the convertibles market was flat and trading was somewhat slow Thursday, but traders said key sectors fell sharply on disappointing earnings, profit warnings or downgrades. Continental Airlines was lower on the plane crash in Milan, Italy, which shook up the markets for over an hour until it was determined to be an accident.

Meanwhile, BJ Services Co. launched an overnight discount convertible and Greater Bay Bancorp was at bat with a zero.

"The market was pretty quiet again today. It's been the slowest three weeks in a long, long time. That's what some of the veterans in the business are saying," said a convertible trader at a hedge fund in New Jersey.

"Everyone's just trying not to step on any landmines and ride it out. There's a lot of cash out there looking for somewhere to sit, but the new deals aren't coming in like we'd hoped. They're just trickling in and seem to be getting richer and richer. But, when - not if, but when - interest rates start creeping up we won't mind being flush with cash to put to work, either."

In the market with a drive-by deal was BJ Services, pitching $355 million in proceeds of convertible discount senior unsecured notes that will pay a 0.5% cash coupon on the issue price.

Guidance puts the deal pricing to yield 1.375% to 1.875% with an initial conversion premium of 42.5% to 47.5%.

Houston-based BJ Services said it would use proceeds to fund its proposed $420 million acquisition of OSCA Inc., another oilfield services company, and for general corporate purposes. BJ Services shares closed up 58c to $36.45.

Also pricing was the Greater Bay zero-coupon deal with price talk putting the yield at 1.75% to 2.25% and initial conversion premium at 24% to 28%.

Greater Bay shares closed down $1.29 to $34.26.

BJ Services deal didn't launch until after the close, so for most of the day the market was preoccupied with a rash of disappointing earnings, particularly in the chip sector, and the plane crash in Italy.

Airlines took a dive following the news from Milan, including Continental's 4.5% convertible due 2007, which ended down 2.5 points to 98.25 bid, 99.25 offered with the stock closing off $1.41 to $28.20.

"The plane crash really shook a lot of people up, the whole market," said a dealer.

"It was like 'Oh, God, this can't be happening again.' Then there was a collective sigh of relief when the news hit the tape that an SOS signal went out before the crash, and it turned out to be an accident. That's awful for those people involved, but everyone was just glad it wasn't another terrorist attack, you know."

All transportation issues were lower, too, traders said, on the back of earnings news.

Ford Motor Co.'s 6.5% convertible preferred lost 1 point to 54.875 bid, 55.125 offered with the stock off 31c to $15.87. General Motors Co.'s convertibles were down 0.5 point with the 4.5% issue at 27 bid, 27.5 offered and the 5.25% issue at 28.25 bid, 28.75 offered. GM shares declined 87c to $64.08.

Chips fell back again, on a new rash of disappointing earnings and lower guidance, led by Atmel Corp., Advanced Micro Devices Inc. and Teradyne Inc.

Atmel missed Wall Street's expectations, reporting a first quarter loss of $44.3 million, or 9c a share, versus net profits of $56 million, or 12c a share, in first quarter 2001. Revenues fell roughly 50% to $275.8 million from $525.9 million.

"First quarter revenues were lower than expected, primarily due to an unfavorable mix of turns business," stated George Perlegos, Atmel chief executive officer, in a company statement.

"However, we believe the company has reached the bottom of the cycle as we ended the quarter with positive sales momentum."

Revenues are projected to grow by 8% to 12% in second quarter, he said, driven by growth in proprietary products. Further cost reductions are under way, he added, and the company is focused on returning to profitability as soon as possible.

Still, Atmel's 0% convertible due 2018 dropped 2.75 points to 60 bid, 60.75 as the stock lost 65c to $9.85.

However, one trader noted that the Atmel 0% due 2021 gained slightly to 34 bid, 35 offered on some buying as fixed-income investors like the paper due to the high yield. The 2021 issue is yielding about 8% to the 2018 issue's 3%, the trader said.

AMD, however, guided Wall Street lower, and Teradyne fell sharply on a downgrade to the stock.

After Wednesday's close AMD reported a narrower loss than analysts had forecast but warned in a conference call that second quarter revenues would be down 5% to 10%. The stock dropped $2.22 to $12.60 and that sent the 4.75% convertible due 2022 down 6.75 points on the day to 86.75 bid, 87.25 offered.

Teradyne fell dramatically on the heels of its earnings news and upset over its projected revenue growth.

Teradyne exceeded expectations with its net loss, but the market was reacting to the company's projected sequential revenue growth of 13% to 25% in second quarter coming from the current backlog rather than new orders.

Teradyne's 3.75% convertible due 2006 dropped 8.25 points to 158.75 bid, 159 offered. The stock lost 59c to $38.90.

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