Market pauses in honor of fallen colleagues at WTC a year later

By Ronda Fears

Nashville, Tenn., Sept. 11 - Trading in convertibles was virtually non-existent Wednesday as the financial markets paused to commemorate the anniversary of the terrorist attacks on the U.S. a year ago.

In memory, the stock market opened after a memorial ceremony at the World Trade Center. There were also commemorative ceremonies at the U.S. Pentagon and Shanksville, Pa.

"We're all glad today is over," said the head convertible trader at a major investment firm in New York.

"It's been very draining in terms of emotions. We tried to get on with the business of the day but the truth of the matter was that no one's heart was in it.

"It was impossible to focus on business really."

Reliving the tragedy, with news teams showing footage from a year ago, took a toll on players. Also weighing on emotions was the threat of a possible anniversary attack, which did not materialize.

There was only a trickle corporate news and very thin volume in other markets to spur converts, as well.

But, overall, most traders described the convertible market as higher, while stocks ended off slightly after opening in an upward trend.

"The open was really confusing this morning. The market was disrupted by the ceremony," said a dealer.

"We started off higher. But there's still a lot of nervousness about whether we're going to war with Iraq. All done, stocks closed out lower, but most of the converts held firm against that."

Players were relieved to see the day pass and are looking forward to getting back to a more normal market, as best as that can be given the overall unsettling stance of the markets.

Specifically, players are hoping that the new deal flow will pick up soon.

"It's really been a drought for a few months," said Barry Nelson, portfolio manager for a convertible fund at Advent Capital Management.

"We keep thinking the rain will come and it hasn't.

"There's every reason to expect the deal flow to resume. I think merely we need some market stability."

Not even a broad-based rise in stock prices is necessary, Nelson said. Rather, he said, if the markets would stabilize and volatility settle down then issuers could get more comfortable with bringing deals.

Possibly on that front, DuPont Photomasks Inc. said in an SEC filing Tuesday that it will require external financing to fund its capital expenditures in order to expand operations and to enhance manufacturing capability.

DuPont Photomasks said it also may need external financing to fund the requirements of its $100 million subordinated convertible notes due July 2004. In addition, the company said it may need additional financing to comply with supply contracts with Infineon Technologies AG and a European joint venture.

However very late in the day, well after the markets closed, Dupont Photomasks responded to news stories during the session by pointing out a passage in the 10Q that cash on hand and cash from operations will meet its cash needs for at least the next 12 months.

DuPont Photomasks shares ended down 26c to $25.68. The 0% convertible due 2004, which was issued at par, ended unchanged at 92.5 bid, 93.5 asked.

Elsewhere, there were only a couple noteworthy movements.

Tyco International Ltd. rose nicely after naming a new chief financial officer.

The company appointed David FitzPatrick as CFO, hiring him from United Technologies Corp., to replace Mark Swartz. In July, Tyco lured Motorola president Edward Breen to be its chief executive after former CEO Dennis Kozlowski resigned in June and was later indicted on tax evasion.

Tyco's credit has been firming up over the past few weeks and the 0% convertibles gained more ground Wednesday on the news. The 2020 issue rose 1.5 points to 67.25 bid, 68.25 asked and the 2021 issued added 0.375 points to 73 bid, 73.75 asked.

A trader noted that the 2020 issue advanced more than the 2021 because of the shorter put date and investors having more confidence that the company could satisfy a put.

Tyco shares ended up $1.90 to $17.80, a very strong recovery from lows seen earlier this year.

Viacom-related converts continued to rise on the heels of positive comments from stock analysts.

The Liberty/Viacom 3.25% due 2031 added another 1.5 points to 95.5 bid, 95.875 asked as Viacom shares closed up 75c to $43.49.

Also notably higher were L-3 Communications Inc. and Mirant Corp., but traders said there was no news on those names.

To the downside, there were some sharp declines in Lucent Technologies Inc., Network Associates Corp. and PRG Schultz International Inc., formerly Profit Recovery Group Inc.

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