Market unexpectedly lively as new year opens strongly

By Ronda Fears

Nashville, Jan. 2 - It was busier than anticipated on convertibles desks Thursday as stocks opened the new year on a very strong note.

"The [convertible] market probably captured half of the gain in stocks," said the head convertible trader at one of the major investment banks.

The Dow Jones Industrial Average gained 3.2% and the Nasdaq 3.7% in what many observers touted as the best start to a new year since 1988.

"It was a very nice start to the new year," the head trader said.

"The only thing that makes me a little concerned about this [advance] having any staying power is that there wasn't really any specific reason for it, no news. Speculation is fine if it's based on fundamentals, but nothing fundamentally has changed except perceptions or attitudes."

Issues of Rite Aid Corp., Tyco International Ltd., Toys 'R' Us Inc., Advanced Micro Devices Inc., Calpine Corp., Nextel Communications Corp., Lucent Technologies Inc. and several other telecoms were busy but without any news to drive the moves.

General Motors Corp. and several healthcare names like Amgen Inc. and Elan Corp. plc were also active with bits of news.

"It was a lot more active than I expected," said Jeff Seidel, head of U.S. convertible research at Credit Suisse First Boston.

"Overall, the market was stronger. But trading was sporadic."

On prospective new deals, participants and onlookers had no news, however.

"I haven't heard of anything on the calendar at all," Seidel said.

"Deals are being worked on, but there's nothing imminent."

Hopes that Tyco launching a new deal, estimated between $2.5 billion and $4 billion, have not been dashed but many think it probably won't be the first deal of the year. Tyco was evasive about a new convertible on its conference call New Year's Eve but acknowledged it will be conducting some financings this year, with the goal of doing them sooner rather than later.

"Tyco will probably do a deal and do it fairly early in the year, but it probably won't be the first one of 2003," said a buyside convertible trader based in New York.

"If it turns out to be the jumbo everyone's expecting, though, it will set a positive tone for new issues. It's likely to come pretty rich, though. That has been the trend lately and probably will continue for most of this year, unless we have some big surge in issuance."

Since nothing was launched Thursday, it is unlikely that anything will come to market until next week.

Traders said trading was choppy and a bit difficult to get a handle on, in terms of major themes.

"There didn't seem to be any trend developing. It was pretty sloppy trading today," said a dealer.

"All the telcos advanced. A lot of people in general believe that the worst is over for the telecom industry."

Nextel's converts were higher by varying degrees. The 6% due 2011 added 3 points to 88.25 bid, 89.25 asked and the 5.25% due 2010 gained 1.5 points to 71.25 bid, 71.75 asked. Nextel shares closed up 91c to $12.46.

Corning's 3.5% convertible due 2008 rose about 4.5 points to 75.5 bid, 76 asked while the stock ended up 44c to $3.75.

The indexes for telecoms, wireless telecoms and networkers all rose sharply - from 5% to nearly 8%.

Encouraging economic data, particularly for the manufacturing sector, seemed to be the trigger for optimism. Yet, jobless claims came in higher than many pundits expected.

"Everyone is hoping that there will be some meat in President Bush's so-called new economic stimulus package but we really don't see much help for some sectors like chips. There's going to have to be some major consolidation in the semicon group," said a convertible fund manager.

Yet, chips advanced nicely.

AMD's converts were very strong with the new 4.5s adding about 7.25 points to 120.75 bid, 121.25 asked as the stock closed up 55c to $7.01. The old 4.75s gained 2 points to 64.25 bid, 64.75 asked.

Virtually every industry group moved higher, as well.

Traders said there continued to be strong interest in Rite Aid although most of the money was made a couple of weeks ago, ahead of the news.

On Tuesday, Rite Aid said it amended its senior secured credit facility to make up to $300 million of funds available for debt repurchases, plus proceeds of up to $150.5 million from new debt can be used to retire old debt.

Following that news, Moody's revised Rite Aid's outlook to stable from negative, saying the drug chain will have sufficient liquidity to meet minimal obligations over at least the next 12 months.

Rite Aid's 4.75% convertible due 2006 gained 4.25 points Thursday to 84 bid, 84.5 asked while the stock closed up 23c to $2.68.

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