LifePoint, Community Health rise; Schlumberger, Halliburton slide; Delta seesaws as deal buzz swirls

By Ronda Fears

Nashville, March 29 - As month end approaches, in addition to the end of first quarter, traders remarked that the convertible market was rife with high anxiety. Although players are holding their cards close to the vest about liquidations, or redemptions at their funds, many are quick to observe that others seem to be selling in a weighty fashion.

A sellside source on the West Coast suggested that Tuesday's session was momentous, somewhat tongue-in-cheek remarking, "It's the end of the world as we know it," quoting the R.E.M. song, which officially is "It's the end of the world as we know it (and I feel fine)."

The chief convertible trader at one of the bulge bracket firms in New York said there has been a good deal of selling this week already, but he's not alarmed. He added, however, that while he sees no stampede, nerves are frayed enough that "probably just an inkling that one big name was selling out could trigger a mass exodus."

"Bottom line is that returns have stunk for the hedge fund guys and that inevitably leads to taking money off the table," he said. "I am not overly concerned, because convertibles aren't going away. There will be someone else step up, or they come back. It's just another phase in the cycle."

Meanwhile, in the trading trenches there were several hospital issues trading higher on the HCA Inc. headlines, while the anticipation of higher oil inventories sparked some profit taking in that area.

Delta Air Lines Inc.'s convertibles were in flux on speculation about the Atlanta-based airline planning a third convertible offering. At bat after Tuesday's close was the C$250 million from ACE Aviation Holdings Inc., parent of Air Canada and Jazz, which was expected to come with a coupon of 4.25% to 4.75% and an initial conversion premium of 22.5% to 27.5%.

Hospital issues up on HCA

LifePoint Hospitals Inc., Community Health Systems Inc. and Health Management Associates Inc. got a shot in the arm Tuesday as a better-than-anticipated first-quarter outlook from HCA Inc. - a bellwether in the hospital sector - lifted the entire group.

"The bearish sentiment has died out, finally," said a convertible trader at a hedge fund in New Jersey. "Everything went along for the HCA ride today."

Key was HCA's view of easing concerns over uncollected accounts, while Nashville, Tenn.-based HCA provided a strong first-quarter outlook and unveiled plans to sell 10 properties. Slowing in the number of uninsured patients, in addition to more aggressive collection policies by hospitals, is putting a lid on bad accounts - a matter that has been spiraling out of control for the past couple of years.

Coincidentally, the Smith Barney Citigroup healthcare conference kicked off in Washington, D.C., on Tuesday, running through Thursday. HCA had been scheduled to make a presentation Tuesday morning, but cancelled. LifePoint and Community Health made presentations Tuesday, however, and HMA is on the roster for Wednesday.

Biotechnology issues continued to take a pounding Tuesday, but the hospital names were several points higher on a more than 6% rise in HCA shares.

LifePoint's 4.5% convertible due 2009 gained 2 points to 103.75, the buyside trader said. The stock shot up $2.06, or 4.92%, to $43.92.

A sellside trader put the Community Health 4.25% convertible due 2008 at 108.5 bid, 109.5 offered, or up about 1.5 points from Monday, as the stock rose 78 cents, or 2.29%, to $34.83. She put HMA's 1.5% convert up 3 points to 110 bid with the stock gaining $1.52, or 6.12%, to $26.37.

Profit taking seen in oil issues

Conversely, selling prevailed in the oil sector, particularly oilfield services issues, as traders sensed holders in these issues wanted to take profits as a matter of caution ahead of supply figures, although oil futures rose Tuesday. Schlumberger Ltd. and Halliburton Co. were mentioned in that vein.

The May contract for crude oil added 18 cents Tuesday to $54.23 a barrel on the New York Mercantile Exchange as the president of OPEC announced that the oil cartel would not further raise its formal output ceiling beyond a commitment earlier this month to boost output quotas among its members by 500,000 barrels a day.

"They [OPEC] have upped the quotas but that's not enough even if they stuck to them, which they don't. The figures, according to OPEC, show that demand would need another 1 million barrels a day to prevent oil prices from climbing further," said a buyside analyst.

Additionally, he said the U.S. government's weekly petroleum supply report, scheduled to be released Wednesday, is expected to show higher crude oil inventories.

"So, it's sort of a wash on the supply and demand side. In the bigger picture, it just seems that over the shorter term here before the summer vacation season begins oil prices will at least coast for a while, if not really move lower."

Schlumberger's 1.5% convertible dropped 2.5 points to 107.25 bid, 107.50 offered and its 2.125% convertible lost 2 points to 105.75 bid, 106 offered. The stock fell $2.30 on the day, or 3.25%, to $68.50.

Halliburton's 3.125% convertible slid by 2 points to 125.25 bid, 125.50 offered as the stock lost $1.04, or 2.45%, to close Tuesday at $41.48.

Delta noise heard, nothing firm

There still wasn't anything really new on the prospects of a new and third convertible offering from Delta Air Lines, but the existing issues traded up early Tuesday on the $500 million shelf filing by the Atlanta-based airline late Monday.

But, what goes up must come down, and as the day wore on with still no news, the convertibles retreated to lower ground.

"They went up on the deal noise but then came right back down," said a sellside trader, who pegged the 8% issue at 40 bid, 41 offered and the 2.875% issue at 40.25 bid, 41.25 offered.

Another sellside trader put the Delta 8s closing lower by about 3 points and the 2.875s lower by 2.5 points. "The longer there was no news the more this started feeling like what we've been hearing since December, nothing more than Delta's thinking about a capital markets transaction," she said.

Other credit markets mirrored the reactions in the convertibles market, as Delta's junk bonds firmed and then also retreated. Still, short-dated Delta paper landed the session on higher ground, as those are seen to benefit from any move the airline takes to boost liquidity. The 7.7s due 2005 were seen at the close 5 to 6 points higher in the 80s neighborhood.

As for a new convertible, origination officials remain mum about the competitive bid process, which is standard operating procedure for Delta. But one convertible underwriter that is among the leading banks in the market asserted it is not going to be involved in the deal, if one does come to pass.

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