Ciena boosts telecom names; market trades sideways amid spate of last-minute new deals

By Ronda Fears

Nashville, Dec. 12 - Trading in convertibles was rather slow Thursday even amid a spate of new deals as the final push to raise money in 2002 finally hit.

Most of the so-called window dressing is over, but traders said Ciena Corp.'s smaller-than-expected loss and improved outlook boosted several telecoms and telecom equipment makers.

Traders also noted late news on Electronic Data Systems Inc., a multi-billion-dollar deal with Bank of America Corp., would likely advance that issue early Friday.

Moreover, traders said players were on the hunt for delta, adding to speculation that moods are positive.

"Everyone is really ready for 2002 to be over," one dealer said.

"We're looking to 2003 with some optimism, guarded optimism but optimistic overall."

Although stocks were split Thursday, one trader said, the overall tone is that the markets are doing better and moving northward. Thus, convertible players want to be in a position to participate with the rise in underlying stocks. Hence the search for delta.

"We have a preference for delta because the markets are better," said a buyside convertible trader.

"We're not afraid to receive a little less yield in order to boost our delta, because overall the market is more positive."

That thinking is much of the reason why new deals, although richer than many would like, are in such high demand.

After the closing bell Thursday, Gilead Sciences Inc. was pitching a Rule 144A drive-by.

The $300 million of five-year convertible notes talked to yield 2.0% to 2.5% with a 20% to 25% initial conversion premium.

Although the deal was described by one potential buyer as "not as cheap as we'd like it to be, obviously," traders said it was a hot piece of paper with bids at 2.5 points over par and offers at 3.25 points over par in the gray market.

Analysts put it about 4% cheap at the midpoint of guidance.

Gilead's existing 5% convert due 2007 was quoted unchanged at 164.375 bid, 165.125 asked. Gilead shares closed off 4c to $37.38 but were seen in after-hours trading at $35.75, also suggesting heavy participation in the new deal.

The Phoenix Cos. Inc. also launched a new deal for next week.

The $130 million of three-year mandatory convertibles, which are subordinated, was launched with price talk of a 7.25% to 7.75% dividend and 18% to 22% initial conversion premium.

It is for Monday's business and initial market reaction was good.

Analysts put the Phoenix issue about 3.4% cheap at the midpoint of guidance.

Baxter saw strong demand with its deal, selling an upsized $1.1 billion mandatory with a 7% dividend and 24% initial conversion premium, up from $850 million, at the aggressive end of guidance. Baxter also sold 13 million shares of common stock at $28.78, fetching another $374 million.

"We're seeing a brief rush for capital, but really most of these deals have not been very pretty," said a convertible trader at a hedge fund in New York.

"We would like to have seen more come to market here at the end of the year, sop up some of the demand, so we [buyers] could have more pricing power when the Tyco deal comes early next year."

Tyco International Ltd. is widely expected to bring a new deal in early 2003, perhaps as the first big gang-buster deal of the year.

"It would be a great way to start the new year, but I'm afraid it's going to be rich," the buyside trader said.

Tyco's deal has been talked as a mandatory, but sources have not ruled out the company bringing a convertible bond, either.

Navistar International Corp.'s new convert continued to lose ground as one of the less appealing new deals of late. The existing Navistar convert dropped sharply, as well, but traders said the Navistar junk bonds were firmer.

The Navistar 2.5% convert lost 1.75 points to 96.75 bid, 97.75 asked while the 4.75% convert due 2009 was quoted at 66.875 bid, 67.875 asked. The Navistar 8% due 2008, however, was seen 1 point higher at 82.

Navistar shares ended down 83c to $24.16.

Elsewhere, traders said several telecom equipment makers were firming up nicely on the heels of Ciena's news. Yet, dealers said there was not a huge rush to pick up issues in this group, as many investors want "better proof that the recovery in profits is real."

Ciena posted a smaller quarterly loss and higher revenue than analysts were expecting, and said it expects sales in the current quarter could be 10% higher than last quarter.

"This is a good sign but it's not what I'd call a clear sign that everything is rosy" for the telecom equipment makers, one dealer said.

Ciena's 3.75% convert due 2008 gained about 5 points to 71.75 bid, and the 5% convert due 2005 added 2 points to 83 bid.

Ciena shares closed up $1.02 to $6.20.

"That [Ciena news] was an upbeat thing for all the telecoms and telecom equipment makers but the long-term viability of the telecom networkers in 2003 is still up in the air because spending levels have not rebounded," said Rao Aisola, head of convertible research at Bear Stearns & Co.

"In general, though, it is a good thing for the telecom group."

Lucent Technologies Inc. and Nortel Networks Corp. gained sharply on the news, traders said.

EDS stock soared in after-hours trading on news that it would provide computer services to Bank of America in a 10-year deal worth $4.5 billion.

Convertible traders were anticipating a bounce for the convert as well, albeit probably much less than the common. The EDS 0% due 2021 was quoted up 0.5 point to 76 bid. The common closed up 8c to $18.88 but was seen at $19.90 in after-hours trading.

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