Adelphia, El Paso slip further on worries but market, new issues mostly higher

By Ronda Fears

Nashville, Tenn., May 30 - It was rocky, but traders described the convertibles market at the end of the day as mostly higher after a roller-coaster stock session, and new issues were higher on strong demand for new paper.

Adelphia and El Paso continued to slip, however, on liquidity concerns.

"Stocks leveled off, but we were mostly higher, I think," said a convertible trader at a major investment bank.

"Healthcare names were strong, and that helped Medicis."

Medicis advanced its deal by one day, and the new 2.5% converts gained 1.375 points from par in the immediate aftermarket while the shares slipped 6c to $46.42.

Other healthcare names heading north were LifePoint, whose new 4.5% due 2009 added 1.375 to 106.375 bid with the stock up 94c to $39.30, and Provice Healthcare.

While market participants are eager for issuance to pick up, troubles at Adelphia and El Paso held the market's attention Thursday.

Thursday was the extended deadline for Adelphia to file its 10-K annual report at the SEC, and it made market watchers nervous as the day went on with no news on that subject. Meanwhile, reports of contentions within the new board since the Rigases' departure about the sale of assets at this time weighed on investors sentiment as well.

Investors seemed to be skeptical of speculation that the company may be close to getting waivers from its banks, in order to forestall bankruptcy.

"It looks like they missed the 10-K deadline, and that almost certainly means they will be heading for bankruptcy," said a convertible trader at a hedge fund in New York.

"They will be delisted and go into default on the converts if they don't file the 10-K. All the hoopla about asset sales will be moot, I think. It will be a bankruptcy auction block, not a fire sale."

All week, there has been buzz from reports that Charter Communications, controlled by billionaire investor Paul Allen, was preparing a bid in the neighborhood of $1.5 billion for Adelphia's Los Angeles systems.

That has also pressured Charter's debt, since the company already has hefty leverage.

Adelphia's 6% convert due 2006 lost 1 to 2 points. It was quoted at 38 bid, 40 offered by one dealer and at 39 bid, 41 offered by another.

The Adelphia 3.25% convert due 2021, which is putable at par in May 2003, dropped between 1 and 2.5 points. It was quoted at 42 bid, 44 offered by one dealer and at 40.5 bid, 42.5 offered by another.

Adelphia shares closed up 0.0002c to $1.16.

There had been buyers in the 3.25s last week on hopes that Adelphia could forestall bankruptcy and the put would be of value, but fewer are so hopeful this week.

"Saying the 3.25% issue may be of value due to the put in this situation is premature to say the least. There is simply not enough information in the public domain to form an educated opinion. The only way the put has value is the company gets a large infusion of cash," said Salomon Smith Barney convertible analyst Adrian Miller.

"Under that scenario perhaps they can satisfy the put and move on and then investors in that issue would have a windfall, assuming they got in at the bottom. But until we see someone step forward with a large infusion the situation is just to unstable and too many things are unknown to make an educated guess."

Charter's 4.75% convertible lost 1.25 points to 66.5 bid, 67.375 offered and the 5.75% issue dropped 1.5 points to 73 bid, 74 offered. The underlying shares closed down 44c to $7.16.

El Paso investors continued to bail out, although traders said the converts were "all over the place." The 4.75% convertible preferreds were quoted as low as 27.25 on Wednesday by one dealer, but several traders said the level was off.

Levels were erratic Thursday, as well.

The El Paso convert was quoted at 31.875 bid by one dealer and at 37.875 by another and at 38.75 by yet another. The preferred closed on the NYSE down 0.79 point to 39.01.

El Paso shares fell by another $1.51 to $25.50.

"Stepping back half of its presence in merchant energy trading may help El Paso's image, but it's going to hurt profitability, and that's what the market is reacting to," said one dealer.

Others in the energy and power group were still suffering from investor abandonment, as well.

Williams Cos. 9% mandatory dropped 1.5 points to 17.4 on the NYSE, with the stock dropping $1.47 to $14.

Amid the uneasiness in the power group due to merchant energy trading, TXU is at bat after the close with a $250 million mandatory that many believe will usher in a new crop of energy mandatories.

The TXU 8.75% mandatory ended off 0.22 point to 53.28, as the common shares declined 45c to $51.15.

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