Cable, media issues in flux; Yahoo boosted by earnings; new paper mixed in trading

By Ronda Fears

Nashville, April 10 - Cable and media issues were widely mixed Thursday in the wake of the highly anticipated News Corp. Ltd. deal to nab DirecTV.

"There are a lot of cable converts and satellite converts that could be impacted in the long run by the News deal," said a dealer.

"Everyone is taking a look at these issues and trying to pick the winners and losers. We're looking for credit spreads to tighten across the entire cable sector as a result of this deal, and that will be the biggest impact for the converts."

Yahoo! Inc.' s upside earnings surprise also boosted its new convertible and several internet and media issues like AOL Time Warner Inc..

New paper in general was flat to higher, with the newest entrants - Photronics Inc. and Manor Care Inc. - gaining the most as they injected more traditional vanilla structures into the market, bringing investors flocking to the small deals.

Photronics sold $125 million of five-year convertibles at par to yield 2.25% with a 42.5% conversion premium - at the aggressive end of price talk, which analysts said put it about 1% cheap.

The new Photronics convert soared 4 points from par to 104 bid, 104.5 asked, but it had been that high in the gray market before pricing. The underlying stock closed up 5c, or 0.45%, to $11.20.

Manor Care sold $90 million of 20-year convertibles at par to yield 2.125% with a 60% conversion premium - at the aggressive end of the premium guidance but the cheaper end of yield talk. Sellside analysts put the deal about 1% rich.

The new Manor Care convert climbed to 104.375 bid, 104.875 asked from par while the stock closed up 38c, or 1.95%, to $19.83.

The other two new deals of the week - Wells Fargo & Co. and The Walt Disney Co. - languished.

Wells Fargo's floater was unchanged at 99 bid, 99.25 offered. The underlying stock ended up 53c, or 1.14%, to $46.91.

Disney's 2.125% also was basically flat at 100.4375 bid, 100.5625 offered. The stock ended up 24c, or 1.4%, to $17.34.

Cable and media issues were a focal point, traders said, due to the broad implications in the convertible market from News Corp.'s deal to snare DirecTV via Hughes Electronics Corp. from General Motors Corp.

Not only do News Corp. and GM have converts, but the matter also impacts EchoStar Communications and Liberty Media Corp. along with several cable names.

While traders said the reactions were broadly mixed, they also noted there were no drastic moves in the cable sector.

"There's still a lot of information to digest and earnings to look at," one dealer said.

Many onlookers believe EchoStar will see more pressure on the operational side.

"I expect to begin to see some weakness in DISH," said Rao Aisola, head of convertible research at Bear Stearns & Co.

"People will start to question [the DISH business model], given the clout that DirecTV will have with News."

It may be limited, though, as EchoStar is the dominant player against the traditional cable playing field. Many convertible investors had already sighed with relief when EchoStar fell out of the bidding war for Hughes/DirecTV as it would result in a bigger debtload.

"While an enhanced competitive position for DirecTV will undoubtedly increase the pressure on its primary DBS competitor, we see only limited negative implications for EchoStar (B3/BB-)," said CreditSights analysts Patricia Lee and Glenn Reynolds in a report Thursday.

"With the major content providers facing the much more formidable negotiating power of Comcast (Baa3/BBB) within the cable sector, programming services will likely be looking to pool deals with other distribution companies (e.g. DISH) in order to lessen Comcast's market power.

Similarly, given DirecTV's pending affiliation with News/Fox, the other major content providers will also likely be looking to DISH as an alternative distribution channel/means to maintain the balance of power, the credit analysts said.

"That said, we expect the transaction will still re-raise questions over DISH's ability to survive on its own versus find a partner of its own," Lee and Reynolds said in the report.

"To this point, while we remain unconvinced of the strategic merits of a [direct broadcast satellite] acquisition for SBC Communications Inc., we also note the possibility, albeit still remote in our opinion, of SBC's considering a bid for DISH."

The EchoStar 4.875% convertible due 2007 was quoted off 0.75 point to 96.625 bid, 97.125 asked and the 5.25% convert due 2008 down about 0.875 point to 102 bid, 102.5 asked. The stock closed down 73c, or 2.52%, to $28.27.

From the News Corp. end of the deal there was considerable criticism, based on the structure of the deal.

News Corp. is buying control of Hughes Electronics Corp, which owns DirecTV, from GM in a $6.6 billion deal and then transferring ownership to Fox, which houses most of News' U.S. operations.

The News/BSkyB 7.5% exchangeable due 2023 was quoted up 0.625 point to 101.75 bid, 102 asked. BSkyB shares ended down 10.50p, or 1.61%, to 645.484p.

The News Corp. 0% due 2021 was quoted off 0.375 point to 53.625 bid, 53.875 asked. News shares closed down $1.77, or 6.5%, to $25.45.

And, from GM's standpoint the deal offers little help in the long run because of its staggering pension and retiree medical liabilities.

Standard & Poor's said Thursday that the rating and outlook on GM (BBB/negative/A-2) - the outlook was changed to negative on Wednesday - would be unaffected by the transaction, which is expected to generate total pretax proceeds of about $4.1 billion for GM.

In the decision to revise GM's rating outlook, S&P had assumed that GM would ultimately succeed in its long-standing efforts to monetize its investment in Hughes.

"This transaction will enhance GM's ability to meet its near-term pension funding objectives," said S&P credit analyst Scott Sprinzen in a report Thursday.

"Yet, the massive size of [GM's] unfunded pension liability ($25.4 billion at Dec. 31) and even larger retiree medical liability ($51.4 billion) will still pose significant concerns."

GM shares ended up 2c, or 0.06%, to $34.50 and the GM 4.5% convert due 2032 was up similarly at 24.17 while the GM 5.25% convert due 2032 dropped 1.2% to 23.

Liberty Media Corp. was also part of the mix in the intense battle for DirecTV over the past three years. Liberty shares ended up 6c, or 0.62%, to $9.78 on Thursday.

Liberty's converts are all exchangeable into some other stock, the latest of which was AOL Time Warner Inc., a name also getting attention Thursday, in part due to Yahoo's earnings. The new Liberty/AOL 0.75% due 2023 was quoted up 0.125 point to 77.875 bid, 78.625 asked. AOL shares closed up 16c, or 1.28%, to $12.65.

Several other names are in the spotlight due to the changed playing field in cable versus direct satellite, trader said. Cablevision Systems Corp., Comcast Corp., Cox Communications Inc. and Charter Communications Inc., to name a few.

The AT&T/Cablevision mandatory was quoted up 0.25 point to 22.5 bid, 22.625 asked. The Cablevision mandatory also was quoted up 0.25 point to 22.375 bid, 22.5 asked. Cablevision shares closed up 44c, or 2.3%, to $19.55.

Comcast and Cox's converts are mostly exchangeable into telecom names like Sprint PCS Corp., which saw a tad of weakness but little activity. The Comcast 0% convert due 2020, however, was quoted off 1 point to 78.5 bid, 79 asked while the stock gained 49c, or 1.76%, to $28.41.

Charter converts were weaker Thursday along with the stock, traders said, as a new flood of bankruptcy rumors circulated.

"There was a new batch of talk about bankruptcy and that spooks everybody," one buyside trader said.

Charter's 4.75% convertibles due 2006 are in the 27 bid neighborhood, he said, and the 5.75% due 2005 around 30 bid. Charter shares closed off 6c, or 5.45%, to $1.04.

Yahoo provided some optimism for the media group, too.

After the close Wednesday, Yahoo beat analysts' expectations with its first quarter results, reporting net income of $46.7 million, or 8c a share, compared with a net loss of $53.6 million, or 9c a share, a year earlier. Revenue rose to $282.9 million from $192.7 million.

The new Yahoo 0% convert, issued at par last week, gained about 2.5 points to 97 bid, 97.5 asked while the stock rose $1.40, or 6.12%, to $24.27.

But Steve Jones, head of U.S. convertible research at Wachovia Securities, suggested in his morning note Thursday that it would be "an interesting swap to look at" to move out of Yahoo into Amazon.com Inc.

"We like the [Amazon] bond better and think it is a more interesting company," Jones said.

Amazon's 4.75% convertible due 2009 was quoted up about 0.75 point to 85.125bid, 85.625 asked while the stock closed up 61c, or 2.43%, to $25.67.

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