Convertible market dips slightly, ready for break to digest new issues

By Ronda Fears

Nashville, Tenn., Nov. 21 - Convertibles held flat to slightly lower Wednesday as stocks declined again. Most of the day's activity took place before lunchtime as market players traders were ready to sit back, digest the influx of new paper and prepare for a full plate that is expected for the remainder of the year. One new issue, a small $75 million deal from Anadigics Inc. was injected and gained in the aftermarket. Otherwise, traders said there was not a great deal of direction to the market because of the lack of volume.

"It dried up around 11 or 11:30. People were packing it in. They did what they wanted to do in the early hours of the day," said a convertible trader at a major investment bank in New York.

The fourth weekly decline in unemployment claims and a rise in the University of Michigan consumer sentiment index failed to reverse the downward trend in stocks, but convertible traders said converts did not fully participate in the decline and were expected to head north next week with the anticipation of more new paper. The Nasdaq edged down 5.46, or 0.29%, to 1875.05 and the Dow Jones Industrial Average lost 66.70, or 0.67%, to 9834.68.

"Converts are holding up nicely right now and the new issues continue to gain," said a convertible trader at a hedge fund in New Jersey. "We'll probably get several more quickly marketed, if not overnight, deals next week and that will help keep converts up, too."

Xerox Corp.'s new 7.5% convertible trust preferreds gained another 2.5 points on the day to 54.5 bid, 55 offered as Xerox shares added 67c to $7.67. Agilent Technologies Inc.'s new 3% convertible notes added 0.5 point on the day to 102.5 bid, 103 offered as Agilent shares rose 55c to $24.33. Cendant Corp.'s new 3.875% convertible senior note was flat at par bid, 100.25 offered with the underlying stock up 28c to $16. Cendant's zero-coupon convertible due February 2021 added 0.375 point on the day to 66.375 bid, 66.375 offered and the Cendant zero-coupon convertible due May 2021 added 0.5 point to 98.625 bid, 99 offered.

"You'll see these new deals will start flattening out. Liquidity in them dries up in about a week after the deal," said one convertible trader, "especially when there's a heavy new issue calendar people are looking at."

The only new deal of the slow session came from Anadigics Inc., which sold $75 million of five-year convertible senior unsecured notes at par to yield 5.0% with a 25% initial conversion premium, at the aggressive end of price talk. The issue gained 4 points out of the gate, one dealer said, and closed up 3.5 points form par at 103.5 bid, 104 offered. Anadigics shares closed down 35c to $16.45.

"There were some sharp movements and there were some converts marked down quite a bit, as well as some that were marked higher. It was a mixed bag. Enron keeps crumbling, but just about everyone who holding that paper is stuck with it right now," said a convertible trader at one of the major investment banks based in New York, who declined to even quote an indicative price for Enron convertibles. "Healthcare, drugs and biotech was a very mixed bag. There were some spikes in telecoms, too."

Amgen Inc.'s convertibles rose as the stock gained $4.07 to $61.98 on the biotech concern's announcement that it expects better-than-anticipated earnings for 2002, but Chiron Corp. fell as the stock plunged $4.50 to $45.59 on news of a failure with one of its major drug products.

Looking to next week, market sources expect to get back to business in the new norm of a heavy load of new issues with several coming to market as overnight transactions or with very abbreviated marketing efforts. There is nothing firmly scheduled to price, however, following nearly $2 billion of new paper this week that takes the market beyond the $100 billion threshold for issuance this year.

"We fully anticipate another week, a full week, like this one," said a trader at a convertible fund based in Connecticut. "There will be a couple of more big deals, we think, before the end of the year. At least it seems everyone is on notice to expect that."

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