Thin market reported as players digest heavy earnings stream; lack of issuance perplexes some

By Ronda Fears

Nashville, April 28 - Traders reported a very thin market, even for a Monday, and some speculated that number crunching continues in the wake of so many earnings reports last week and in the face of a heavy economic data calendar this week.

Convert traders at shops specializing in high-yield or distressed names continued to marvel at the huge spikes seen in energy issues over the last month, with ongoing interest as several were higher again on Monday.

In the primary market, some participants were also surprised - but because of a lack of any noticeable surge in activity.

Guidance emerged on UnumProvident Corp.'s mandatory, and a couple of other tiny deals popped up, but for the most part it has been slower than many would guess - particularly in light of the terms issuers have been getting away with in recent weeks.

"I'm surprised that we aren't seeing more deals, given that terms of several recent deals have been very attractive to the issuers, and plenty of companies could use some refunding," said Barry Nelson, portfolio manager at Advent Capital Management.

"What are the issuers waiting for? Peace? Euphoria? I think the last euphorias were in 1929, 1969, 1999...so we may have a bit of a wait! Peace will come sooner."

On maybe a more realistic note, Nelson said: "Perhaps the deal flow will pick up when companies regain enough confidence to resume capital spending and/or to resume mergers and acquisitions."

For the most part, dealers at the big shops said convertible players seemed to be taking a break to digest the results from last week.

But energy names were active, as many are yet to report.

"The gains these power names have seen over the past month are just eye-popping," said one trader at a boutique in Connecticut.

"The credit story has really turned around 180 degrees for these guys. They are getting bank lines renewed and with terms that are a lot better than many thought they would get. A lot of people want to get in before the results are turned in."

Calpine Corp.'s and AES Corp.'s convertibles have gained 15 to 30 points on a bond-equivalent basis, he said.

The stock closed up 32c, or 6.7%, to $5.07.

Calpine's 4% convertible bond due 2006 added another 1-2 points on Monday, and was pegged closing at 77.625 bid, 79.625 offered. The three convertible trust preferreds were said to be up about 1 point on average. A month ago, the bond was at about 62, according to the trader.

Calpine is not due to report results until May 13.

AES' 4.5% convertible bond due 2005 was up about 0.25 point to 83.5 bid, 88.5 offered. The two convertible trust preferreds were up about 1 point each, he said. The bond was at 53 a month ago, he added.

The stock ended up 21c, or 3.85%, to $5.66.

On Thursday, the market is looking for AES to report first quarter results, and is primed for good news.

Late last week, AES said it expects to post numbers that far exceeds analysts' expectations. The company forecast income from continuing operations of 13c a shares and net income of 17c a share. According to First Call, the analyst consensus is looking for profits of 6c per share.

Mirant Corp. and El Paso Corp. also have been strong gainers, to a lesser degree, traders said. They saw bigger moves Monday, too.

Mirant's 5.75% convertible bonds were up about 3 points to 72.625 bid, 74.125 offered while the 2.5s were flat at 69.5 bid, 71.5 offered.

The stock closed up 38c, or 14%, to $3.11.

El Paso's 0% convertibles added about 1.25 points to 41.25 bid, 42.25 offered and the 9% mandatory rose 2 points to 29.25 bid, 29.75 offered.

The stock ended 27c higher, or 3.64%, to $7.69.

It was a roller coaster ride for Adaptec Inc. ahead of its earnings, as the converts saw a spurt of activity in the morning moving them southward, followed by another spurt in the afternoon heading northerly.

"Adaptec was very active this morning. If the arbs are coming in, then there's only one conclusion - they are going to miss numbers," said one market source early in the day.

Later, another source said sentiment turned to thinking that they would meet current expectations, and the tide turned positively. Some of the optimism, she said, was the implied spread on the credit is too wide, thus making the converts cheap relative to fair value.

The Adaptec 3% due 2007 closed up 1 point to 90.75 bid, 91.75 offered. The 4.75% due 2004 was quoted flat at 97.625 bid, 98.625 offered.

The shares ended up 34c, or 5.25%, to $6.81.

After the bell, headlines showed mixed results regarding whether Adaptec missed, met or beat analysts' expectations.

Adaptec, which makes adapters and controllers for servers and PCs, reported that fiscal fourth quarter revenues fell to $105.6 million from $108.1 million a year earlier but its net loss narrowed to $3.1 million, or 3c a share, from a net loss of $81.2 million, or 77c per share, a year before.

Earnings excluding special items beat the average analyst forecast of 3c a share, one market source said, while revenues missed the forecast of $109.25 million.

Going forward, Adaptec said it expects fiscal first quarter earnings before items to be below similar earnings in the fourth quarter while revenues rise. The company forecasts earnings before items of 2-4c per share. Revenues are projected in a range of $115 million to $120 million.

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