Buyers snap up down-trodden names, new deals in short week

By Ronda Fears

Nashville, Nov. 25 - Just as the holiday shopping season is under way, traders said buyers were looking for bargains in the convertibles market Monday and bidding sparked a chase for the most down-trodden names - chiefly in energy and technology.

"The mood is still very good in convertibles with the new deal activity picking up," said the head convertible trader at a major investment bank.

"It's going to be a slow week. There's some bargain-hunters in the mix today, stirring things up, but that will trail off quickly and this week will be very slow. But, we're expecting everything to resume next week, barring any unusual event over the holiday."

New deals were very hot, at least Advanced Micro Devices Inc. and Xcel Energy Inc., and Chubb Corp. pitched in a quickly marketed $525 million mandatory with one round of guidance tightening before it priced.

With some $1 billion of new paper in circulation from last week, traders said volume was better than one might expect for a Monday, especially in light of the abbreviated holiday week.

"A chase started today for the energy names that have taken the hardest blows, and Xcel really started it off last week with the new deal," said a convertible dealer.

"Mirant, Calpine, El Paso all saw a good deal of action today.

"Some of the techy type names also were riding the skirt-tails of the AMD deal. 3M is too pricey, people are looking for more space [for growth]. Agere has been on a tear for a week or so. We're calling it the comeback kid."

The new AMD 4.5% convertible due 2007 climbed 14.125 points to 131.625 bid, 132.625 asked as the stock ended up $1.09 to $7.95.

Agere Systems Inc.'s 6.5% convertible due 2009 added 3.75 points to 84.125 bid, 87.125 asked with the stock up 3c to $1.68.

Xcel's new 7.5% convertible due 2007 gained 1.25 point to 117.625 bid, 118.125 asked as the stock added 26c to $11.

"Some of Xcel's luster was worn off by the NRG bankruptcy," said a buyside convertible trader.

"There' a contingency of investors that think Xcel is worth chasing, but it's pretty risky. The company has only something like $1.5 billion of debt and if they can shake off NRG, then there's a viable credit there that a lot of people want to own. If they are in too deep, then they're looking at more like $10 billion in debt."

The trader noted Xcel has offered to turn the NRG Energy Inc. unit over to creditors and pitch in $300 million to be rid of it.

NRG, the merchant energy arm of Xcel, announced Sunday that five former executives had started involuntary bankruptcy over back pay. But the company said it is still working on a prepackaged bankruptcy with its banks and bondholders in hopes of hammering out a deal by next month.

While Xcel's rise may have cooled off from the initial days after the deal priced, several energy names in similar circumstances gained sharply Monday.

Mirant Inc.'s 5.75% convertible due 2007 rose 4.125 points to 49.5 bid, 51.5 asked. The stock closed up 38c to $2.45.

Calpine Corp.'s 4% convertible due 2006 gained 3.5 points to 52.5 bid, 53.5 asked. The stock closed up 29c to $4.35.

El Paso Corp.'s 0% convertible due 2021 added 5.25 points to 34.75 bid, 35.5 asked. The stock closed off 62c to $10.68.

Also boosting some activity in converts was a quick-sale deal from Chubb Corp.

Chubb was pitching $525 million of mandatories and tightened the price talk once during the day.

Final guidance put the yield at 7.0% to 7.25% and initial conversion premium at 20% to 22%. Original guidance put the yield at 7.25% to 7.75% and premium between 18% and 22%.

With nearly half the cheapness priced out of the deal, syndicate sources said the book was still strong.

Analysts estimated the deal, at the midpoint of revised price talk, about 2.82% cheap, using a credit spread of 150 basis points over Treasuries and 33% volatility in the stock. Under original guidance, it was about 4.23% cheap.

"There's still a lot of money out there waiting to be put to work," said a syndicate source working on the Chubb deal.

"We've got very strong orders and expect it could get priced at the tight end [of guidance.] The revised price talk didn't affect the deal at all, in terms of its reception."

Some of the new paper in the market softened a bit, which some traders attributed to other new deals in the market.

Bunge Ltd. Finance Corp.'s new 3.75% convertible due 2022 slipped 0.875 point to 100.125 bid, 100.625 asked. The stock closed up 1c to $23.28.

PacifiCare Health Systems Inc.'s new 3% convertible due 2032 dropped 1.5 points to 95.75 bid, 95.75 asked. The stock closed down $1.41 to 26.74.

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