Market in slow gear ahead of long weekend

By Ronda Fears

Nashville, Tenn., May 24 - The convertibles market lost ground Friday ahead of the Memorial Day weekend but no one was overly concerned since trading was so thin.

"It was really quiet, as you might expect, right before a long weekend," said a convertible trader at a major investment bank.

"Trading was thin, so it was kind of sloppy and hard to make out any trends. But I would note that there were buyers for some of the beat-up names like Calpine, AES, CMS, Tyco."

Traders said there was not much activity in Adelphia, however.

"I think people are waiting to see the much-awaited 10K before they make another move," the trader said.

Tyco seesawed "all over the place," another trader said, on conflicting reports about a $5 billion cash bid by Lehman Brothers for the CIT Group that the conglomerate bought last year for $10 billion and is planning to spin-off in an estimated $6.5 to $7 billion IPO. Late in the day, news reports said Lehman had withdrawn the reported offer.

At the end of the day, Tyco shares closed down 67c to $23.70. The trader said there was some buying in the 0% due 2020 and selling in the 2021, but was not sure investors were switching out of one issue into the other.

"I think these were separate buyers and sellers," the trader said, adding that in the 2020 issue "the yield is better."

The 2020 issue added 0.5 point to 65.75 bid, 66.75 offered and the 2021 issue was quoted down 0.5 point to 70.75 bid, 71.25 offered.

Lehman shares dropped $1.15 to $64.57 and the floater convertible due 2022 was marked down 0.375 point to 101.875.

Despite the market's downturn, traders said there was some buying in the power sector, even in the fact of some negative news for CMS Energy Corp.

"It looks like the news is out there on most of these names, so we know what's happened and is going on, for the most part - unlike with Adelphia," a convertible trader at a hedge fund in New York said.

"It's easier to get comfortable with some of these stories now, particularly Calpine."

CMS announced Friday its CEO resigned, a week after admitting it engaged in $4.4 billion of round trip power trades over an 18-month span. The trades also are the subject of an SEC investigation, plans to restate 2000 and 2001 financial statements and shareholder lawsuits.

Also Friday, S&P put CMS credit ratings on negative watch.

But the CMS convertible preferreds added 0.72 point to 23.12 while the stock gained 61c to $18.31.

Calpine's 4% convertible notes due 2006 added 1.5 points to 92.875 bid, 93 offered. The convertible preferreds also gained ground, with the 5.75% due 2004 up 0.875 to 41.125, the 5.5% due 2005 up 0.375 to 34 and the 5% due 2005 up 0.125 to 29.875.

Calpine shares added 26c to $10.31.

AES Corp.'s convertible preferred also saw some buying, with the 6.75% issue due 2029 up 2.875 points to 22.75. The stock closed up 3c to $6.63.

Williams Companies Inc.'s convertible got a few buyers, as well. Traders said investors liked the company's move to find some investors/partners in its trading business, which the company hopes will be a source of some liquidity strengthening.

The Williams 9% convertible preferred traded as high as 20.75 but closed unchanged at 20.5. Williams stock ended down 24c to $17.42.

Providian Financial managed to shrug off a downgrade by Fitch, as one dealer put it.

Fitch cut its ratings for Providian to B after the close Thursday, but Providian was quick to issue a statement assuring investors that it would not trigger any early amortization of the outstanding securitizations of its trust unit.

The Providian 3.25% convertible notes due 2005 were quoted at 61.5 bid, 63.5 offered and the 0% due 2021 at 30.125 bid, 32.125, both unchanged. Providian shares added 13c to $7.85

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