Fleming converts close to zero; Charter holders sigh in relief on pledge to make coupon payment

By Ronda Fears

Nashville, April 1 - Trading was light again in convertibles as month-end markings captured the attention of most market participants, and events such as Fleming Cos. Inc.'s bankruptcy - while not a shocker - and Anadarko Petroleum Corp.'s cash call sent many players onto the sidelines.

"A lot of people are sort of weak-kneed right now, sort of shell-shocked from all the bad news -HealthSouth, Fleming, the Anadarko call," said the head convertible trader at a major investment bank.

"Add to that they've got to remark their books today and no one wants to step out there with a bid. If anything, selling remains the theme right now."

Meanwhile, Allied Waste Industries Inc.'s new mandatory, which is in the midst of a road show, has not been repriced although many still anticipate a tightening in the guidance will come about, and some also believe the pricing could be advanced from plans for after the market close Thursday.

Price talk on the Allied Waste mandatory puts the yield between 6.25% and 6.75% and initial conversion premium at 18% to 22%. Using the midpoint, sellside analysts put it about 4% to 6% cheap.

Traders said the Allied Waste mandatory was bid about 1 point over issue price with offers at 1.25 points over in the gray market.

Interest aside, some market onlookers are far less enthusiastic about the deal.

"The convertible market is tiring of rescue bonds such as the pending Allied Waste. Given the fact this is a B3 (negative)/BB (stable) rated, highly levered company, in which the 1999 credit facilities prohibit paying cash on the mandatory (still under negotiations), what is the point?" asked Steve Jones, head of U.S. convertible research at Wachovia Securities, Inc. in a commentary note on Tuesday.

"Why not own a combination of stock and senior debt to get a mix of yield and equity upside but with a better position in the capital structure (for at least part of that package)? Oh, the good news? The company has no plans to pay a common dividend. This must be an April Fool's joke."

There was little levity in the market at all. Rather, a grave mood seemed to beset many players.

"There were some bright spots, and you look for some positive angle when there are these huge drops, some opportunity to buy on the weakness, but for the most part we're not happy right now," said a convertible trader at a hedge fund in New York.

Fleming's bankruptcy sent the converts still lower, closing Tuesday at 2 bid with no offers, which would be about 3 points lower than the closing bid on Monday. The stock was halted at 50c on the news.

"Those [Fleming converts] are going to zero. I mean 2 bid - I call that zero," said a distressed trader.

Not that Fleming was a surprise, it was just a "harbinger, perhaps, of what's to come," the buyside trader said.

Charter Communications Inc., however, gave many a reason to sigh in relief as it promised to make the April 15 coupon payment on its 5.75% converts.

Also, many were taking the offer of chairman Paul Allen to make a $300 million capital injection as good news although preliminary earnings released by Charter showed a wider loss than expected and the company revealed that it overstated its revenue and cash flow dating back to 2000.

Charter delayed the filing of its earnings until April 15, but released preliminary results.

The company held a very brief conference call Tuesday, but did not take any questions, and said more would be discussed after the April 15 filing.

"They essentially said, 'Film at 11.' The [net loss] numbers aside, I think there was some encouragement gleaned from the Paul Allen offer and the fact that they've got enough money to make the coupon on the converts," said a dealer.

"Everyone is thinking Paul Allen won't let this company slip into bankruptcy."

Charter's 5.75% convertible was quoted up nearly 3 points to 23.75 bid, 25.75 asked. The 4.75% converts also gained, adding about 1.5 points to 20 bid, 21 asked. Charter shares ended up 2.01c, or 24%, to $1.031.

The company said it had cash of about $450 million as of March 31, so it would make the interest payment due Tuesday on a junk bond issue and the April 15 interest payment on the 5.75% converts. Until the required financial statements are delivered to bank lenders, the company said it would be unable to make additional borrowings under three of its bank facilities.

Charter said preliminary fourth quarter results show a net loss of $1.87 billion after large asset write downs, and the company said it overstated its revenue and cash flow dating back to 2000.

The company, under criminal investigation for accounting practices, said the errors were uncovered after discussions with the SEC and audits by its accounting firm, KPMG.

"Upon filing our 10-K, which we expect to do by April 15, we will update our disclosures and have a conference call to discuss relevant findings," said Charter spokesman Dave Anderson, at the beginning of the company conference call.

Charter also said that Allen, the billionaire co-founder of Microsoft Corp., had offered to provide the company a credit line of up to $300 million to assist in meeting covenants in the bank facilities. The company appointed a special committee to evaluate the proposal.

Traders of distressed convertibles also noted a surge in Calpine Corp. with the 4% converts moving up about 2 points on speculative buyers stepping in with the belief that "the worst is over." The converts were quoted at 67.5 bid, 68.5 asked as Calpine shares closed up 16c, or 4.85%, to $3.46.

Also there continues to be some "risk-tolerant yield seekers" picking up XM Satellite Radio Holdings Inc. converts.

"I'm seeing activity in that name," said a convertible dealer.

"It's a pretty interesting gamble, if they are successful in pulling down the subscription numbers."

Agnico Eagle Mines Ltd., however, suffered from a sell-off after the company announced that an avalanche at one of its gold mines in Quebec would curtail companywide production 20% for the duration of 2003.

The 4.5% convertible due 2012 was quoted at 108 bid, 108.5 asked - down about 10 points on the news. The stock ended down $2.08, or 15.87%, to $11.03.

Also noted by traders was a drop in Mandalay Resort Group's new floater, losing about 1.25 points to 98.5 bid, 98.875 asked. Mandalay shares closed down 86c, or 3%, to $26.70.

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