Countrywide, REITs head lower; financials, health care in focus; market pares early losses; Thornburg plans deal

By Rebecca Melvin

New York, Jan. 9 - The convertibles of Countrywide Financial Corp. and some other financials sector issuers, including real estate investment trusts, traded mostly lower Wednesday, but a late rally in the stock market helped pare early losses, market players said.

The health care sector, which has shown resilience in recent days, was mixed, and some names in tech, which has been out of favor of late, saw further downward pressure, players said.

"We're starting to see some better sellers in tech, which has been weak for a couple of days," a New York-based convertibles sellside trader said.

The convertibles of other financials including SLM Corp. and Washington Mutual Inc. were mixed to higher in active trade.

Convertibles of healthcare names like Hologic Inc., St. Jude Medical Inc. and Ceradyne Corp. also saw activity, and the convertibles generally followed their shares higher.

Overall, volume was healthier in the session, and a late rally in stocks was taken as a "hopeful indication going forward," the sellsider said.

Thornburg to price $112.5 million

In the primary, Thornburg Mortgage Inc. plans to price a $112.5 million offering of convertible preferred shares on Monday after the close.

The add-on marks a reopening of the company's existing issue of 10% preferreds priced last August.

Concurrently with the preferred offering, the company is pricing a public offering of common stock.

The two issues will raise approximately $200 million in additional long-term capital. A 15% over-allotment option for each offering will be granted to the underwriters.

Friedman Billings Ramsey and UBS Investment Bank are joint bookrunners of the additional 4.5 million shares of the company's existing 10% series F cumulative convertible redeemable preferred stock.

Last August, Thornburg priced $500 million in series F cumulative convertible redeemable preferred stock, with a base dividend rate of 10% or the dividend yield on Thornburg common stock and an initial conversion premium of 3%. The conversion price is $11.50, or 2.1739 shares per preferred share.

Thornburg stock (NYSE: TMA) closed at $8.78 Wednesday.

Proceeds will be used to buy additional adjustable-rate mortgage assets and for liquidity and general corporate purposes.

Thornburg is a Santa Fe, N.M.-based mortgage lender specializing in jumbo mortgages.

Countrywide pares early losses

Countrywide convertibles remained a major focus in the session, retracing early losses to end mostly flat on the day, traders said. That wasn't saying much, they added, given Tuesday's slide on bankruptcy rumors swirling around the Calabasas, Calif.-based home mortgage lender. Countrywide (NYSE: CFC) has denied those rumors.

Countrywide's convertible bonds slipped into the low 50s before retracing early losses to end in the low 60s, traders said.

Countrywide's Libor minus 350 basis points series A convertible senior debentures due April 15, 2037 stood at 62 versus a stock price of $4.69 around midsession.

At the close, the A's were at 62.13, versus a stock price of $5.12, down 6%, compared to 63.985 and a stock price of $5.47 on Tuesday. On Monday, the A's were at 74.192 versus a stock price of $7.64.

The Countrywide Libor minus 225 bps series B convertible senior debentures due May 15, 2037 traded before midday at 60 versus the $4.69 stock price. They closed at 60.055 on Wednesday, compared to 62.394 on Tuesday and 69.527 on Monday.

REITS generally weaker

REIT convertibles were generally weaker along with their shares after an analyst downgraded the sector on credit quality and other concerns. But later in the session, the sector bounced a little along with the overall financial sector.

The convertibles of General Growth Properties Inc. (NYSE: GGP) traded down at 78.5 versus a share price of $34 at midsession on Wednesday, compared to a mid 80s price a week ago, a New York-based sellsider said. General Growth shares ended higher at $34.17.

General Growth is a Chicago, Ill.-based REIT.

"There are too many credit concerns and too many question marks in the REIT sector," said a Connecticut-based sellside analyst.

He said that the questions had to do with valuations that had gotten very high and the fact that earnings are seen growing below expectations and dividend growth that has tailed off.

Sallie Mae follows shares higher

There was also volume in Sallie Mae convertibles Wednesday.

One New York-based sellside desk analyst said Sallie Mae's 7.25% series C mandatory convertible preferred stock traded early at 960, versus a stock price of $18. Another source put the 7.25s' closing at 938 versus a share price of $18.64, up 7%, compared to Tuesday's close at 928.75 versus a closing stock price of $17.30.

Reston, Va.-based student loan giant (NYSE: SLM), better known as Sallie Mae, didn't regain any of Monday's climb. They closed Monday at 989.5 versus a stock price of $17.83.

Healthcare holds up

Convertible players were active in the healthcare sector Wednesday, traders said. The 1.22% convertibles due Dec. 15, 2008 of St. Jude Medical rose to 101.141 versus a closing share price of $42.80, up 3.5%, compared with a close Tuesday of 100.447, versus a close of $41.37.

St. Jude Medical (NYSE: STJ) is a St. Paul, Minn.-based maker of cardiovascular medical devices.

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