Navistar, Baxter launch deals; volume better on new issues, after Fed leaves rates alone

By Ronda Fears

Nashville, Dec. 10 - Volume improved as new deals were launched by Navistar International Inc. and Baxter International Inc.

The Federal Reserve leaving interest rates unchanged also unleashed some buyers who had been nervous, although the decision was widely expected.

"The Fed was no surprise, but the support in the feeling that the economy is getting better helped ease some people's minds," one dealer said.

"A couple of new deals really pushed some people off the sidelines."

Navistar was pitching an overnight Rule 144A deal, following a two-notch downgrade by Moody's Investors Service earlier in the day. The Moody's action came on the heels of downgrades by Standard & Poor's and Fitch Ratings on Monday.

The truck and diesel engine maker was pitching $190 million of non-callable five-year convertible senior bonds talked to price at a yield of 2.0% to 2.5% with a 30% to 35% initial conversion premium.

While traders said the deal was nothing spectacular, being so small, it was bid 2 points over par with offers at 2.5 points over par in the gray market. Although the issue is non-callable, analysts said it still modeled out at about fair value to a little less than 5% cheap.

Navistar Financial Corp.'s $200 million of 4.75% exchangeables due 2009, which convert into Navistar International stock, closed Tuesday up 0.25 point to 82.75 bid, 83.25 asked.

Navistar shares ended up 20c to $26.70.

"Essentially, the convertible market will bite at anything right now," said a convertible trader at a hedge fund in New York.

"We are playing, but not very heavy. We've not seen anything really exciting in a while, not since Skyworks."

Skyworks Solutions Inc.'s 4.75% convertible due 2007 gained 2.875 points on the day to 137.25 bid, 138.25 asked as the stock ended up 34c to $10.15.

Other recent new issues were also on the rebound.

Computer Associates International Inc.'s new 1.625% convertible due 2007 regained 2.375 points to 97.375 bid, 97.875 asked. The older 5% convertible due 2007 added 1.5 points to 101.625 bid, 102.125 asked. The common closed up 65c to $13.41

Advanced Micro Devices Inc.'s new 4.5% convertible due 2007 recouped 7.875 points to 132.75 bid, 133.25 asked. The older 4.75% convertible due 2022 rose 2.375 points to 68.125 bid, 68.625 asked. The stock ended up 64c to $7.95.

Baxter also tossed a new deal out, an $850 million mandatory for Wednesday.

The deal is talked to price with a dividend of 7.0% to 7.5% and initial conversion premium of 20% to 24%.

The medical equipment and healthcare products provider also is pricing concurrently 13 million shares of common stock expected to fetch $425 million.

Baxter tapped the convertible market last year, selling $800 million of 1.25% contingent convertibles due 2021, which are putable at par in June 2003.

The Baxter 1.25s ended unchanged to slightly lower, a dealer said, at 99.25 bid, 99.625 asked.

Baxter common shares closed off 76c to $31.30 but were seen in after-hours trading at $30.27.

The Fed vote for a neutral directive was not a surprise, but market watchers said it was perceived as an agreement with the markets' general view that the economy has bottomed out.

"There were no surprises. But the line in the FOMC statement to the effect that economic indicators since November are consistent with the economy working through a soft spot, along with leaving rates, was a plus," said a dealer.

"This suggests the Fed is not leaning toward further rate cuts. Of course, that can change quickly if the economy falters, and that would be a travesty, such a setback."

While EchoStar Communications Corp.'s merger with Hughes Electronics Corp. faced the setback of stiff regulatory opposition, when the companies said on Tuesday they were abandoning the idea, investors cheered.

EchoStar shares rose $2.04 to close at $21.09 and the convertibles added even more.

EchoStar's 4.875% convertible due 2007 added 4.375 points to 86 bid, 87.125 asked and the 5.75% convertible due 2008 gained 4.25 points to 87.75 bid, 88.25 asked.

"Most of the buyers have already stepped in, but there's still some interest in the DISH converts," said a buyside trader.

"The Hughes deal falling through is probably going to be viewed as divine intervention somewhere down the line. It was too much, we think."

With the $19 billion merger called off, EchoStar paid a $600 million break-up fee, but the market has already priced that into the bonds.

It all leaves General Motor Corp. free to find a better buyer, and that is expected to be a viable prospect as News Corp. was a bidder for Hughes before EchoStar made its offer.

GM's securities responded in a mildly positive manner.

The shares closed up 78c to $36.95. The 4.5% convertible notes due 2032 edged up 0.03 point to 23.85 but the 5.25% convertible notes due 2032 added 0.32 point to 22.54. The convertible notes, issued at par of 25, are listed on the NYSE.

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