Mixed on seesaw ride in stocks, wider credit spreads due to Ford

By Ronda Fears

Nashville, Tenn., Oct. 8 - Wider credit spreads for high-grade paper, largely blamed on Ford Motor Co., and a gain in stocks after a rocky session, made for a mixed bag in convertibles.

"Flow is still really good. In fact, it was very hectic for a couple of hours this morning and the last hour or so this afternoon," said the head convertible trader at a major investment bank.

"It was kind of a sloppy trading day, though, with stocks seesawing through the session."

Stocks ended higher, though, propelled sharply upwards by President Bush's intervention to end the labor dispute on the West Coast docks.

Traders said credit spreads were wider, with Ford identified as a major contributor to the nervousness Tuesday. A downgrade in Ford shares by Credit Suisse First Boston, which cut its target for the stock in half to $10, caused a landslide in the credit as well.

"Ford spreads blew out something like 275 basis points today," said one trader, noting the market was making a big deal of the fact that the straight bonds suddenly were being quoted in dollars rather than on a spread.

"It was quite a ride."

Ford's 6.5% convertible trust preferreds due 2032 fell 2.5 points to 35.11 as the stock lost 75c to close at $7.75.

General Motors Corp. also was under pressure, on the Ford news as well as a report that its chief executive was anticipating a drop in sales in 2003.

The GM 4.5% convertible bond due 2032 lost 0.5 point to 22.81 and the 5.25% convertible bond due 2032 dropped 0.625 point to 20.83. The converts were issued at 25. GM shares ended down $2.28 to $33.60.

While the West Coast docks are expected to reopen Wednesday, ending a lockout that cost several billion dollars, retailers were not immediate beneficiaries of the news. Traders said investors are still very nervous about the economy and mindful of forecasts for weak holiday sales.

Charming Shoppes Inc. fell sharply after saying that a 6% drop in same-store sales in September prompted it to lower its third quarter EPS target to break even, which would miss the analysts' consensus for EPS of 3c.

The Charming 4.75% convert due 2012 plunged 8 points to 78.75 bid, 80.75 asked while the stock dropped $1.021 to close at $4.329.

Financials continued to suffer from pressure on both the credit and stock sides, traders said, as reports of the government bank loan survey showed a 34% rise in nonpayment risk.

Utilities again were a top loser.

TXU Corp. was still leading the pack of power names heading south. The stock was halted for news pending around midday, which turned out to be the company reaffirming that it is in strong financial position and has ample liquidity.

Also, TXU said in a statement that it "knows of no fundamental reason for the way the TXU common stock traded this morning."

TXU shares closed down another $5.46 to $17.18. The 8.125% mandatory lost 5.5 point to 24 and the 8.75% mandatory fell 5.35 points to 23.5. The 4.375% convertible preferreds were quoted at 23.5 and the 4.0625% convertible preferreds at 23.375.

"They [TXU] may not know why their stock is in a freefall, but the market reaction clearly is that it's way too pricey today compared to its peers," said a dealer.

"Bottom line, people are bailing out of TXU as fast as they can. It's a landslide. People are wanting to get out as early as possible to make as much as they can. At some point, buyers may come back but that may be a ways off."

TXU scheduled a conference call to discuss its financial position and liquidity at 8:30 a.m. ET on Wednesday.

Teco Energy Inc. was another power name on the skids.

Teco announced plans to sell 15 million shares of common stock, which it expects would dilute EPS guidance for 2002 and 2003 by 5c and 10c, respectively.

The Teco 9% mandatory lost 1 point to 17.17 as the stock closed down $1.39 to $13.04.

Speaking of freefalling, Charter Communications Corp. issues continued a losing streak on poor earnings.

Charter's 4.75% due 2006 lost another 3.25 points to 24.75 bid, 26.75 asked and the 5.75% due 2005 fell another 3.5 points to 30.5 bid, 32 asked. The stock ended down 8c to $1.05.

There were a couple of tech names higher, however, as a few "brave, so-called bargain hunters who are probably more like bottom-fishers" emerged.

Advanced Micro Devices Inc.'s 4.75% due 2022 were quoted up 1.25 points to 45.5 bid, 46.5 asked as the stock gained 35c to close at $3.55.

Amkor Technology Inc.'s converts were quoted up 1.5 points with the 5.75% due 2006 at 29.875 bid and the 5% due 2007 at 26.375 bid. Amkor shares ended up 37.8c to $1.988.

Carnival Corp. and Royal Caribbean Cruises Ltd. both rebounded, also.

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