Convertibles higher, very thin ahead of holiday; Adelphia still sliding

By Ronda Fears

Nashville, Tenn., March 28 - Convertibles were described as higher, but it was a very thin market. Adelphia was the biggest event, in a second-day plunge in the aftermath of its disclosure of off-balance sheet debt. New issues were widely mixed but mostly higher.

"It was beyond quiet today. There were a lot of people gone because of the holiday and then a lot of people left early because it was so slow," said a convertible trader at an investment bank in New York.

"Adelphia was where the action was, still."

On the heels of its disclosure of $2.3 billion of off-balance sheet debt that is tied to the Rigas family, Adelphia's securities continued to plunge amid a widescale sell-off as S&P and Moody's warned of possible downgrades to the cable company's debt.

Adelphia's 6% convertible notes due 2006 (B3/B) closed down 5.125 points to 74 bid, 74.5 offered and the 3.25% convertible notes due 2021, which are putable in May 2003 at par, closed down 1.875 points to 88.625 bid, 89.25 offered.

The newest Adelphia 7.5% mandatory convertible due 2005 ended losing 2.25 points to 16.625 and the 7.75% mandatory convertible due 2004 lost 1.875 points to 17.

Adelphia shares lost another $1.80 to $14.90.

Dealers said there continued to be some buying on the weakness, as some people believe Adelphia will bounce back eventually.

"If you believe this story, obviously right about now is your entry point," said a convertible trader at a hedge fund in New York.

"You gotta be a believer though, because it could get worse before it gets a lot better. When the rating agencies finish their business, that's when there could be a big turnaround."

Convertible arbs were a bit happier Thursday as volatility edged up, but most of the market sat and watched stocks see-saw as the Dow closed slightly lower and the Nasdaq had a nice 1% gain.

New issues were very mixed and the only firm rumblings about new deals coming up has been the consistent view all week that Stilwell Financial Inc. was planning a new convertible, possibly as early as next week, to pay the upcoming put on its existing 0% convert.

Late Thursday, Stilwell announced it had sold $137.5 million of 7.875% senior public income notes, or PINES, due 2032 at par of $25 via with a $20.625 million greenshoe, via lead manager Salomon Smith Barney.

Market sources were unsure if Stilwell would still be bringing a new convert, afterward.

"They don't have to do a new convert to pay that put. They wouldn't even without the other bond deal, I don't think," said a convertible trader at a hedge fund in New Jersey.

"The put is payable in cash or stock, but Stilwell has that kind of cash on-hand. The only reason I see them doing another deal right now would be to take advantage of rates."

Stilwell said it might use some or all of the proceeds from the PINES deal to pay for any of the convertible notes that may be tendered for purchase on April 30 - the put date. The company notified the note holders Thursday that it would pay cash for any notes that are put back to the company.

The put price is 74.88, and Stilwell said the if all of the issue is tendered the total price cash outlay will be about $697 million.

The convertibles (Baa1/A-) were quoted flat Thursday at 74.875 - right at the put price.

New issues continued to gain ground, for the most part.

The EDO Corp. 5.25% convertible subordinated notes due 2007 added 1.5 points to 110 bid, 110.5 offered as the underlying shares gained 92c to $267.01.

However, the new DDi Corp. 6.25% convertible subordinated notes due 2007 lost 0.5 point to 99.5 bid, 100.25 offered with the underlying shares off 7c to $8.53.

Navistar Finance Corp.'s 4.25% exchangeables due 2009, which convert into Navistar International Corp. stock, gained 1 point to 104 bid, 104.5 offered as Navistar International shares rose 83c to $44.30.

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