Cable sector suffers on Adelphia events; Williams, Tyco converts gain ground

By Ronda Fears

Nashville, Tenn., June 10 - It was another slow day trading convertibles, but traders said there were some contrarian buyers for Williams and Tyco paper. Adelphia, however, fell on bankruptcy buzz and dragged down most of the cable sector along with it.

On whole, traders said the market was widely mixed, but most described it as lower with light volumes.

"There is a very cautious tone right now. If anyone's hitting a button, it's the sell button," said a convertible trader at a major investment bank.

In addition to the blows to the cable sector as an outcrop of Adelphia's woes, which have spread to Cox and Comcast, telecom is still spiraling lower with Sprint PCS feeling a lot of selling pressure.

Energy names are mixed, right now, traders said with some buyers stepping in for names like Williams.

Williams cut its 2002 forecast to EPS of $1.35 to $1.70 from $2.15 to $2.30, on the heels of credit downgrades last week.

The Williams 9% convertible preferred gained 0.5 point to 14.5 while the stock closed off by 11c to $8.59.

"Fund managers, or some of the one who've been around longer, are beginning to think some of the ratings actions have begun to go the other way since Enron, that the ratings agencies have gotten maybe too aggressive," said a trader at a convertible hedge fund in New York.

"We saw that on the S&P conference call on Tyco, I think. There were a couple of fund managers on the call that sort of grilled the S&P analysts about what Tyco's credit protection measures had to do with all the other stuff that's going on."

S&P's conference call Monday on Tyco International came after the agency on Friday cut the long-term debt ratings to BBB-. Moody's also lowered Tyco Friday to Baa3.

Also Monday, Tyco dismissed its top company lawyer and said he was among officials under investigation by the company for possible "improper conduct" - something he denied. A week ago, former CEO Dennis Kozlowski was forced to resign amid a tax probe and was indicted for personal tax evasion last Tuesday.

All of those things were matters addressed by S&P and Moody's, and they also expressed concern about the pending initial public offering of CIT by Tyco and the implications to the company's liquidity position if that were to not go through.

"The attitude of the [S&P] committee that reviews these ratings is 'show me,'" S&P analyst Cynthia Werneth said on the conference call.

A manager with Highland Capital Management said on the call that it seemed a stretch to punish Tyco before the CIT spinoff, particularly since the company will not be hard-pressed for capital for debt obligations until next February.

Next February Tyco's 0% convertible due 2021 is putable while the 0% convertible due 2020 is putable again in November.

Thus, traders said people are willing to pony up quite a bit more for the 2021 issue but it's still trading about 10 points lower than the put price of 76.415.

The Tyco 2021 convert was unchanged at 66.5. But the 2020 convert gained 1.25 points to 57.25.

Tyco shares added $1.30 to $11.40.

On the other end of the spectrum, there was considerable selling pressure in the cable sector, traders said, due to the troubles at Adelphia.

"It's spillage. There's a lot of misgivings about corporate integrity but really it's just that when there's a problem in one name, it tends to weigh on the whole group," said a dealer.

Adelphia's unit Century Communications, which it bought in 1999 for about $4.5 billion, filed bankruptcy in Manhattan on Monday.

Charter Communications, Cox and Comcast all suffered as a result.

Telecoms also were still getting clobbered, traders said.

All the converts linked to Sprint PCS lost ground.

Avaya also dropped ahead of its conference call, as the market anticipated a lower guidance.

The 0% convertible due 2021 dropped 1.75 points to 38.875 bid, 39 offered while the stock closed down 50c to $5.60.

After the close, Avaya said it saw a "modest" sequential increase in fiscal third quarter earnings but indeed cut its third quarter revenue outlook, noting customers continue to forestall capital investments.

Sierra Pacific got a shot in the arm from Duke Energy on a power agreement, but Duke suffered in the markets because of it.

Duke Energy agreed to supply Sierra's utilities in Nevada with power for the peak summer need with an extended payment plan. Sierra has been hurting from disallowed energy cost recovery that stems from the energy crisis of 2000 and 2001.

Duke Energy shares dropped 95c to $20.94 and the two mandatory convertibles fell in tandem.

Sierra Pacific's 9% mandatory, however, rose 1.83 to 38.63 while the underlying shares gained 65c to $7.95.

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