AmerisourceBergen drops 2.5 points; Sirius Satellite climbs; Penn Treaty sale sparks interest

By Ronda Fears

Nashville, Jan. 2 - It was a slow trading day in the convertibles market with many market participants taking the day off. In the primary arena it was quiet, as well, but market sources say they expect 2004 issuance to get under way soon and also in high fashion.

"There's usually a big deal, a jumbo that starts out the New Year, like the Tyco deal last year [$3.25 billion], and I think it was Ford in 2002 [$4.5 billion], so you could look for something like that over the next week," said a capital markets source.

"It's just the second day of the New Year, and a lot of people didn't bother coming in today since it was a Friday. Next week, we expect there will be something big, though."

In the trading trenches action was scarce as well.

"It was super slow today," said one dealer.

"What we were seeing today was a lot of odds and ends, random things."

There wasn't really a lot of news to stir anyone, either, and even credit rating activity was extremely light.

One off-the-beaten-track situation mentioned by a dealer was Penn Treaty American Corp., the Allentown, Pa.-based provider of long-term care and home healthcare insurance, which just recently completed an exchange for its 6.25% convertible due December 2003. The exchange lengthened the maturity to 2008 and lowered the conversion price from $5.31 to $1.75.

Penn Treaty shares closed Friday up 8 cents, or 4.35%, to $1.92.

"A large holder has gotten out of his bonds. They traded around to about 110," the dealer said.

"The company has talked about having some good numbers in 2004, so this could be a sleeper situation."

High-profile investor Wilbur Ross, chairman of W.L. Ross & Co., was a big participant in the Penn Treaty exchange negotiations via his Absolute Recovery Hedge Fund. The dealer did not say that Ross was the seller, however.

Sirius Satellite Radio Inc. was another big gainer, extending gains over the past several weeks. The convertible bonds gained about 10 ticks, a trader said, to about 73.25 points over parity. The stock shot up 66 cents, or 20.89%, to $3.82.

One trader said some of the momentum in Sirius was bolstered Friday by an industry report, but he said there was no action in the convertibles of Sirius Satellite's chief competitor, XM Satellite Radio Inc. A couple of weeks ago, Sirius spiked higher on inking a non-exclusive contract with the National Football League to broadcast NFL games.

XM Satellite shares gained 51 cents on Friday, or 1.94%, to close at $26.80.

SkyWaves Research Report, an Ann Arbor, Mich.-based research publication covering the satellite radio industry, reported Friday that both Sirius Satellite and XM Satellite saw robust holiday sales and easily surpassed their most recently issued year-end targets.

In a news release, SkyWaves said that, based on extensive channel checks, it estimated that Sirius Satellite Radio added 95,000 subscribers during fourth quarter for a year-end total of 230,000 to 240,000 subscribers. Also, the firm believes that Sirius will add 10,000 subscribers in the first week of January due to the post-holiday lag.

SkyWaves estimated that XM Satellite Radio booked 360,000 to 400,000 new subscriptions during fourth quarter for a year-end total of 1.29 million to 1.33 million subscribers. And, the firm expects XM will add at least 20,000 more subscribers in the first week of January due to post-holiday activations.

XM has consistently predicted more than 1.2 million subscribers by the end of 2003; Sirius had been predicting 330,000 subscribers by the end of 2003, but more recently lowered its prediction to more than 200,000 subscribers.

The trader noted that both Sirius Satellite and XM Satellite are expected to release "significant news" at the Consumer Electronics Show in Las Vegas next week.

The downer for the market, and traders said there were not many, involved AmerisourceBergen Corp.

AmerisourceBergen fell in reaction to its New Year's Eve news that the drug firm was lowering its 2004 earnings estimate following the loss of its contract with the Department of Veterans Affairs. The contract generated roughly $3 billion in revenues annually.

Also on Friday, the stock was cut by several investment firms, including Deutsche Bank Securities, Bear Stearns & Co. Inc., Robert W. Baird Co., Merrill Lynch & Co. Inc. and Raymond James.

AmerisourceBergen cut its earnings outlook for 2004 to $4.10 to $4.20 from $4.50 to $4.60, but that is still a 5% gain from 2003.

The AmerisourceBergen 5% convertible due 2007 dropped 2.5 points to 117.5 bid, 118 offered, while the stock fell $2.15, or 3.83%, to $54.

A market source also mentioned "a bunch" of trading in Charming Shoppes Inc., moving the convertibles up about 0.25 point. There was no news in the name, however, and the stock inched up 6 cents, or 1.09%, to close Friday at $5.54.

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