Convertibles buyers chase paper higher; new GM deal up sharply

By Ronda Fears

Nashville, Tenn., March 4 - Convertibles soared Monday, traders said, as buyers chased issues higher on the second consecutive day of rallying stocks. Tech issues were strong pretty much across-the-board, traders said, but telecom was widely mixed. Transportation was also much higher, giving the new General Motors and Ford issues quite a boost. Northrop Grumman's rejected bid to takeover TRW, however, sent that name sharply lower.

No new deals were announced, but a few more details emerged on the Travelers Group IPO and the accompanying mandatory convertible. Market sources anticipate strong issuance this week.

"It was busy today with people chasing paper," said a convertible trader at a major investment bank in New York.

"This bounce certainly helped the new issues that have recently been brought to market, and it will help with all the stuff that is still in the shadows. "

The new General Motors convertibles were sharply higher, along with Ford and Continental Airlines as transportation stocks rose. Traders said the new GM converts saw a spike in demand on the automaker's good sales report. GM said its sales were up 0.4% in February while those for the industry as a whole fell 3.5%. The GM 4.5% issue was quoted up 3.75 points to 29.125 bid and the 5.25% issue up 3.5 points to 29.25 bid as GM shares rose $3.73 to $58.70.

"The GM issues saw a lot of action today, but so did Ford and Continental," said a trader at a convertible fund in New York.

"People are trying to get ahead of the market. I think that's why there were some telecom issues moving up as well."

Ford Motor Co., which had a decline in sales last month, rode GM's wave, however, with the 6.5% convertible trust preferred due 2005 gaining 1.75 points to 55.5 bid, 55.75 offered as the underlying shares added 53c to $16.17. Continental Airlines' 4.5% convertible due 2007 added 4.25 points to 108.5, 109 offered bid as the stock gained $2.10 to $34.80.

As the Nasdaq gained over 3% and the Dow Jones Industrial Average rose more than 2%, traders said, the extension from Friday's gains roused many buyers to take action. There were a few "downers" like Northrop and some telecom names, but the market was higher for the most part.

Northrop was dealt a set-back in its $6 billion bid for TRW Inc., but quickly turned the courting into a hostile takeover after TRW's board unanimously determined to reject the unsolicited takeover offer. The TRW directors considered Northrop's $47 per share bid financially inadequate. Northrop launched a hostile bid, but said it remains willing to entertain negotiations and is willing to consider non-public information about TRW in order to consider any enhanced values. The TRW board said it will make its recommendation no later that March 15 and asked that shareholders take no action until then.

The Northrop 7.25% convertible preferred due 2004 fell 3.25 points to 113.5 bid, 114.25 offered as the stock lost $4.25 to $103.50, and a couple of other defense names were lower in sympathy.

But L-3 Communications, which has a strong presence in the defense industry as a communications provider, had a huge spike. The L-3 4% convertible due 2011 added 4.125 points to 122.5 bid, 123 offered and the 5.25% convertible due 2009 rose 5.5 points to 156.5 bid, 157 offered as the stock climbed $4.97 to $116.25.

Telecom issues were mixed, however. Traders said there were several names sharply lower, like Nextel and Sprint PCS, but there were also gains liked Nortel's 4.25% convertible due 2008, which added 3 points on the day to 82 bid, 82.5 offered as Nortel shares added 39c to $5.59.

Retail issues were also lower, but Gap's new deal firmed. The Gap 5.75% convertible added 1.375 points to 102 bid, 102.75 offered with the stock up 31c to $12.38. Other retailers, like Home Depot and Lowe's were lower, however. The Lowe's 0% convertible due 2021 was off 0.875 point to 80 bid, 80.25 offered and the 0.861% convertible due 2021 was down 0.625 point to 96.75 bid, 97 offered as the stock closed down 69c to $43.30.

Tech issues saw the sharpest gains by far, traders said

"Semiconductors are making a really strong comeback and suddenly everyone is aware of that and wants to buy," said a convertible trader at a hedge fund in New Jersey.

"We are selling those because we're not really ready to make the bet for a sustained gain in chips. We are looking at advertising, media, cable."

Adaptec's new issue certainly participated in the tech party. The 3% convertible subordinated notes due 2007 added 5 points to 108.5 bid, 108.875 offered and the old 4.75% convertible due 2004 rose 1.5 points to 94.375 bid, 95.375 offered as Adaptec shares gained $1.02 to $13.02.

Many other tech issues were screaming higher, but many of the older issues also did not get as many buyers latching on because they are deep in the money or still too far out of the money, traders said. The Teradyne 3.75% convertible due 2006 added 5.5 points to 168 bid, 169 offered with the stock up $1.65 to $39.20, and the Manugistics 5% convertible due 2007 rose 5.25 points to 79.25 bid, 79.75 offered as the stock climbed $3.03 to $17.60.

Manugistics was getting buyers, traders said, as the company said fourth-quarter earnings would exceed company guidance and analyst expectations with improved business spending raised revenues more than expected. The company also said it was ending an unpaid-leave program as of March 17 for U.S.-based employees that began in October. Manugistics will report earnings on March 26.

Abgenix's new 3.5% convertible subordinated notes due 2007, gained quite a bit of ground, traders said, as the biotech sector showed considerable strength. The convert added 2.625 points to 97.25 bid with the stock up 92c to $19.71.

Although no new deals were launched during the session, the market is awaiting the Commerce Bancorp deal for $175 million of convertible trust preferreds, and sources anticipate several others for the week.

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