JPMorgan tugs on financials, transports fall on war worries

By Ronda Fears

Nashville, Tenn., Sept. 18 - In a mostly lower session, convertible players continued to be scarce amid spurts of activity with no clear direction.

That said, traders noted that buyers, while a minority, seemed to be more interested in zeroes and mandatories - zeroes for a defensive posture and mandatories to boost income.

In general, financials were mostly weaker on the troubles besetting JPMorgan and transports were lower on concerns that a war would hurt the already ailing airline industry.

To the positive, a couple of utility names were higher along with several in the retail group.

"It's very quiet out there," said John Seibel, head convertible trader at Silverado Capital Management.

"At this point, we're just trying to protect what we've made. We've been lucky enough to make some money in a very tough market. I'm just sitting on my hands. We're trading around, but being very conservative."

Players are still hopeful of a forward calendar building sometime soon but admit there's not much in the way of tangible signs to support those wishes.

NDCHealth Corp. did, however, reiterate its plans to refinance its $143.8 million 5% of convertible subordinated notes due Nov. 1, 2003, in its earnings release. But whether that will be in the form of another convertible is yet to be seen.

"We intend to refinance our convertible notes and are continuing to analyze possible transactions, said NDCHealth chief executive Walter Hoff in a statement.

NDCHealth doesn't technically have to do anything until May 1 to avoid termination of its $150 million three-year revolver.

Goodrich Corp. is the only other firm candidate for a convertible offering, although several names have been bandied about within the convertible market.

Goodrich is slated to present remarks Thursday at 2 p.m. ET at the Morgan Stanley aerospace & defense and multi-industry conference in New York.

Outside of what was directly going on in converts, or not going on, there were some players who also delve into risk arb that were slammed by the Hershey news. Hershey Trust Co., a majority owner in the chocolate candy maker, withdrew its stake from the auction block, so to speak, rejecting an $89 per share bid from Wrigley.

"We're in shock," said a trader at a hedge fund in New Jersey.

"It's just ludicrous that they did not take the Wrigley bid. We're sick over it."

On the news, Hershey shares plunged $8.81 to $65.

There wasn't much in the way of news to sweeten the moods of convertible players, either, although hedge players were okay as they've been betting stocks will continue to move southward. Some were a bit concerned about declining volatility, but noted that will help performance in mandatories.

Continental Airlines and transport company EGL Inc. went into a nosedive after Merrill Lynch & Co. stock analysts said a war with Iraq would hurt the already ailing carrier industry.

Bids on Continental's 4.5% convertible due 2007 dropped 2.375 points to 42 but traders said holders were still hanging on to offers in the neighborhood of 47, unwilling to sell at that level until there's a clearer picture about the prospects of a U.S.-led war with Iraq.

Continental shares dropped $1.24 to $6.79.

EGL was lower in sympathy with the airlines. EGL's 5% convertible due 2006 lost 2 points to 91 bid, 91.875 asked as the stock closed down $42c to $11.18.

JPMorgan's substantial profit warning let the air out of several banking and financial issues, but mortgage insurers Radian Group and PMI Group saw a turnaround from earlier losses.

The Jardine Matheson/JPMorgan issue actually was fairly insulated from the sharp decline in JPMorgan shares, with a conversion premium approaching 200%, traders said. The issue also is supported by Jardine's credit rating.

The Jardine/JPMorgan 4.75% due 2007 was quoted off 0.625 point to 95.125 bid, 96.125 asked as JPMorgan shares closed down $1.11 to $20.44.

Several other financials were lower, like NCO Group, Affiliated Managers Group, Eaton Vance and Commerce Bancorp. Commerce Bancorp's 5.95% convertible due 2032 dropped 2.125 points to 50 bid, 51 asked as the stock fell $2.25 to close at $41.80.

Rumors circulating that Gilead Sciences was the target of a bid from GlaxoSmithKline lifted the securities, but traders said the buzz was not confirmed. The source of the buzz was also unclear, traders said, noting that the company made a presentation at the Bear Stearns & Co. healthcare conference on Wednedsay.

The Gilead Sciences 5% convertible due 2007 was quoted up 7.375 points to 158.5 bid, 159 asked. Gilead shares closed up $2 to $34.

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