Primary gets shot in arm with four new deals; secondary sluggish as many eye Adelphia 8-K

By Ronda Fears

Nashville, Tenn., May 28 - Convertibles trading got off to a sluggish start after the long weekend but issuance took up the slack, providing four new deals for this week totaling $1.1 billion.

Three deals were launched early in the day, then Mentor Graphics launched a $150 million note deal after the closing bell for Wednesday's business.

"A lot of people were still poring over the Adelphia filing," said a convertible trader at a major investment bank, referring to the troubled cable company's 8-K that was filed late Friday at the SEC.

"It doesn't look good from what we've seen and heard, a lot of self-dealing by the Rigas."

There was not much activity in the Adelphia convertibles, traders said.

Otherwise, traders said the secondary market was widely mixed, but described as flat although stocks closed lower.

"We were beginning to see some profit taking in the homebuilders, because even though the data shows strength some people just aren't comfortable with the industry maintaining that level of growth," said another trader.

"There was some buying in the energy and power names, though. There's been some good press on a few of the names and there were some people easing into positions."

A trader at a hedge fund based in New York said that he's become uncomfortable with the homebuilders and retailers because it seems consumer confidence is slipping and the U.S. economic recovery is seen as a consumer-driven event.

"The consumer confidence index was up for May, but they revised April lower and the outlook dropped again," the trader said.

"We've decided to take some profits in homebuilding and retail, and move on to other horizons. We're looking at some of the energy and power names, but not yet comfortable. It's hard to get a handle on some of this. We probably used to trade this stuff like the techs, not really paying a whole lot of attention. Not anymore. We want to make sure we've got our homework done."

The Conference Board reported its consumer confidence index rose to 109.8 in May from a downwardly revised 108.5 in April, and that the expectations index, a gauge of consumers' six-month outlook, fell for the second consecutive month to 109.4 in May

Also, the Commerce Department said consumer spending rose 0.5 percent in April after gaining 0.3 percent the previous month. And the National Association of Realtors reported said sales of U.S. existing homes rose 7% in April.

Lennar and Danaher, both homebuilders with convertibles in play, were both lower.

Among retailers, Toys R Us saw its new 6.25% mandatory slip 0.66 point to 51.7 while the stock closed down 23c to $18.05.

Other retailers losing ground included Gap and J.C. Penney.

Most energy and power names were lower, also, but CMS Energy closed slightly higher.

Williams Cos. had "tremendous volume, lots of two-way activity," as one trader put it. The company unveiled a plan to boost its balance sheet over the next year, including selling up to $3 billion in assets and a stock sale for up to $1.5 billion.

The Williams 9% mandatory, however, closed virtually unchanged. It edged down 0.09 point to 20.5. The stock ended off 31c to $17.11.

The trader said while Williams' move was seen as positive by some players, the S&P downgrade Tuesday put a damper on the situation.

Fitch kept Williams' ratings on negative watch, but said the announcement was positive.

S&P, however, lowered Williams ratings, including the convertible preferreds to BB+, and said the outlook remains negative.

Williams said it was disappointed but not surprised by S&P's downgrade. The company stressed, though, that it remains an investment grade credit.

"Management has proven to be very proactive in enhancing the company's liquidity position during a time of duress, following the market turmoil caused by the Enron Corp. bankruptcy," Williams said in a statement.

In addition to a credit crunch within the energy and power group, the Enron debacle also brought to light several accounting issues and questionable practices such as round-trip or wash trades by power merchants in order to artificially boost trading revenues.

After the closing bell, a group of leading energy companies announced the formation of a self-governing group to set standards in energy trading. The industry committee is charged with the task of identifying the best practices in risk management.

The group is comprised of chief risk officers from participating companies and will be called the Committee of CROs.

"The creation of the Committee of CROs reflects the rapid growth of the merchant energy industry in the United States, following the expansion of wholesale competition in markets for natural gas in the 1980s and for electric power in the 1990s," said a joint press release.

"The increasing profile and interest in the sector among investors, regulators and other parties has created demand for commonly understood and accepted risk management procedures."

"While individual companies have developed extensive risk management structures and procedures, members of this committee saw the need to work together on common standards that are applied throughout the industry and are recognized by investors, regulators, credit rating agencies and counterparties," said Richard B. Priory, CEO of Duke Energy.

Marce Fuller, CEO of Mirant, said through the committee it is possible to create new netting agreements and clearing platforms that can reduce the industry's collateral requirements by as much as 90%.

"Greater cooperation in our industry can deliver tremendous benefits for companies and their stakeholders," Fuller said. "Ultimately, that's capital that can be invested to strengthen America's energy infrastructure."

The Committee of CROs is forming working groups to develop proposals for standardization in areas including risk management metrics, credit practices and disclosure. In addition, the committee will also take steps to develop generic guidelines for risk policies and procedures.

Companies participating in the announcement included American Electric Power, Constellation Energy Group, Duke Energy, Mirant, Tractebel North America Inc. and TXU. The committee is open to all companies participating in energy trading and marketing activities and encourages other companies to join.

TXU also launched a $250 million mandatory convertible offering, plus a stock offering for a total of $750 million, for Thursday. TXU shares ended off $1.75 to $52.55.

Medicis and Orix Corp. joined Mentor Graphics and TXU with new deal announcements.

Orix's deal was pricing after the close.

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