Roller-coaster session ends on a flat note ahead of new deals

By Ronda Fears

Nashville, Tenn., July 30 - Convertibles were tugged back-and-forth by earnings, lower consumer confidence and lingering credit concerns. When the closing bell rang, however, traders called it pretty much a wash with the overall market ending flat to slightly lower.

"We really started out on a down beat with the disappointing data [consumer confidence] on the back of a couple of nice gains, so we were prepared for a lot of selling," said a dealer.

"But there were some positive forces at play, people finding some entry points in the beaten-down sectors like wireless and power. So, all in all, the market probably ended flattish to a little lower."

Weighing on stocks, which pressured converts, early Tuesday was a lower than expected July Consumer Confidence report. Stocks began to turn north on President Bush signing into law a bill aimed at punishing corporate crooks.

Earnings still are a major factor in the convertible market, however, and credit implications.

"It was a roller coaster market today," said Jonathan Cohen, convertible analyst at Deutsche Bank Securities Inc.

There were some disappointments and pleasant surprises with regard to earnings, he said, adding: "Energy space is continuing to chew up a lot of time."

Energy and power names - Mirant, Calpine, Williams, El Paso, CMS Energy - were all higher, some sharply.

Nextel also was higher, although Motorola was slightly weaker on concerns as the company lost its chief operating officer suddenly last week to Tyco.

After the close, Scios Inc. was set to price $125 million of seven-year convertible subordinated notes, non-callable for three years, with guidance for 5.0% to 5.5% yield and a 21% to 25% initial conversion premium. JPMorgan is lead manager of the Rule 144A deal.

The issue was quoted 1.25 to 1.75 points over par in the gray market, up from 1 point over par Monday.

Scios shares ended up 95c to $31.95.

Corning Inc.'s proposed mandatory was quoted up 0.125 to 0.375 point over par in the when-issued market.

According to a report Tuesday by convertible analysts Jeanine Oburchay and Brian Park at Wachovia Securities, Inc., they expect Corning to use proceeds from the new issue to buy back its 0% convertibles due 2015. The issue has a November 2005 put and currently is priced at a 17.65% yield to put.

Assuming the common remains at $3, the company would have to issue 273 shares per note, the analysts note, so using the approximately $380 million in proceeds would allow the company to repurchase roughly $790 million in accreted value of the 0s and save it from having to issue a net of roughly 80 million shares in 2005, if all the notes were put back to the company.

Corning shares ended down 68c to $2.47.

The 0% converts were quoted down 1.5 points to 46 bid, 47 asked and the 3.5% converts due 2008 were down 4 points to 57.5 bid, 58 asked.

The Wachovia analysts put the new Corning mandatory about 3.43% cheap.

St. Paul Cos. Inc.'s mandatory continued to march north, gaining 0.29 point to 58.9 as the stock closed up 29c to $30.48. The St. Paul 0% convertible due 2009 was quoted 1.75 points higher at 72.5 bid, 73.5 asked.

Cable and media names rose sharply again, with Charter Communications heading the pack. EchoStar was also firming up nicely, traders said.

Xerox Corp. gained on news that the company will ask shareholders to increase the number of authorized shares to 1.75 billion from 1.05 billion at its September annual meeting. The Xerox 7.5% convertible trust preferred due 2021 added 3.125 points to 48.5 bid, 49 asked. The stock closed up 71c to $7.10.

Decliners were mostly in reaction to earnings.

Fleming Co., the top U.S. food distributor, reported a second quarter profit versus a year-ago loss, meeting analysts' expectations, but in a surprise announcement the company said it is "carefully and thoughtfully evaluating" strategic alternatives related to its retail food stores.

That, traders said, is presumed to mean the company will be looking to sell or shut down some or all of the stores.

Fleming's 5.25% due 2009 lost 3 points to 82.5 bid, 83.5 asked. The stock dropped 97c to $15.21.

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