Mirant new deal lower; Tyco, EDS underscore market slide

By Ronda Fears

Nashville, Tenn., July 2 - Amid the prevailing horrible market conditions, Mirant Corp. admirably was able to price an overnighter, but it went south in the immediate aftermarket, losing 2 points from par.

The broader convertible market followed stocks in a continuing retreat, with Tyco International Ltd. and Electronic Data Systems Corp. leading the slide.

"It's a difficult market," said Jeremy Howard, head of U.S. convertible research at Deutsche Bank Securities Inc.

"This kind of grinding pessimism, general lack of confidence and bleakness is very tiring. Most people are just trying to limp through this week to get to the holiday and then hope for some sunshine."

Telecom, particularly wireless, as well as semiconductors were feeling more pain as Anadigics Inc. lowered its revenue and earnings guidance for third quarter. Market watchers said valuations for semiconductors still are a point of contention, evidenced in the wild swings in the group lately.

Software issues were hurt as Rational Software Corp. reported preliminary fiscal first quarter results that missed its earlier guidance and analysts' consensus estimate. And more pain is expected from i2 Technologies Inc.'s conference call after the bell when the company said it expects a 75% drop in sales of its supply-chain software as demand has all but evaporated.

"The market is very schizophrenic right now, paranoid, too," said a convertible trader at a hedge fund in New York.

"We are pulled by bullish signs on the economy and the bearish outlook for corporate earnings. Overall, I think you have to believe that we are at the point where sometime soon the worst is going to be behind us. Until then, it's just pretty hectic to keep up with what you have and make sure you're not losing your shirt."

It was somewhat surprising, many said, that Tyco lost ground a day after completing the IPO of CIT Group.

But Tyco shares lost $1.10 to $12.65.

The 0% convertibles responded in kind, with the 2020 issue losing 1.375 points to 61.125 bid, 61.625 asked and the 2021 issue falling 2.125 points to 67.125 bid, 68.125 asked.

"It was to some extent, buying the rumor and selling the news," said Deutsche's Howard, regarding the Tyco drop.

"Nothing changed overnight. But I think the feeling is that more good news is not likely short-term."

Moody's said late Tuesday that it may downgrade Tyco despite the CIT sale, and S&P said it is keeping the credit on negative watch. Both are watching the upcoming puts on the two convertibles.

Tyco, along with liquidity-strapped Xerox, are both among the names being bandied about as potential candidates for new issues in the near future, but there is nothing definite along those lines.

With stocks so low, and a firm northward track not yet established, most believe issuance will be very thin for the remainder of 2003.

Mirant's new deal was applauded for getting done in this market, but it headed south shortly out of the gate.

"You have to acknowledge that the Mirant deal was remarkable in this climate," said a convertible fund manager in Boston.

"It was a close call, but we ended up with a small piece of it. We decided to take a small chance. It's an area that we would have been glad to own a year ago. Now, it's a lot more risky, of course."

The $370 million of 5.75% five-year convertible senior notes, which sold with a 24% initial conversion premium, traded down 2 points from par to 98 bid, 99 asked. And, that was down at least 2.75 points from where the paper traded in the grey market before pricing on Monday.

Another stalwart in the convertible market on the slide, EDS, leveled off Tuesday after CEO Dick Brown told analysts in a conference call that the planned job cuts at the company had nothing to do with its exposure to WorldCom and only represent 1.4% of its workforce.

EDS shares closed off 33c to the $30.12. The 0% due 2021edged up 0.125 point to 72 bid, 72.5 asked.

Two other dives of note are those of Airborne Inc. and Quanta Services Inc.

Airborne fell after the express carrier said quarterly profits would be far below expectations and announced a restructuring late Monday. Trading in the stock was delayed Tuesday morning because of order imbalances and the shares closed down $4.81 to $13.58.

The Airborne 5.75% due 2007 plunged 11 points to 98.125 bid, 99.125 asked.

Late Monday, Airborne said second quarter EPS would be below first quarter and at or near break-even, within a range of earning 4c to losing 4c, including the restructuring charge. Analysts had expected EPS of 13c on average.

Quanta Services fell sharply after the energy and telecom services provider warned that earnings would miss Wall Street expectations because of reduced spending by customers. Late Monday, the company forecast second quarter EPS of 3c to 5c, below Wall Street expectations of 19c. Full-year earnings are expected at 45c to 55c, lower than the 94c analyst forecast.

The common stock was slammed, dropping $6.22 to $2.92. The 4% due 2007 were quoted down 2 points to 98 bid, 98.5 asked.

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