Convertible market moves higher, gets spate of new deals lineup

By Ronda Fears

Nashville, Tenn., Dec. 4 - Convertible traders said the market was beginning to show signs that investors would begin strong buying in tech and chip issues, which were getting marked up sharply on a strong rise in the underlying stocks, when a wave of new issues emerged. As it turned out, late in the session traders saw some profit taking in the tech, chip and electronics issues as the two deals slated for overnight pricing were from those areas.

Four new deals emerged with price talk, three of which will price this week. And, a small deal was priced by EGL Inc.

"It was a positive day on whole," said the head convertible trader at a trader at a major investment bank in New York. "There was a lot of inquiries into a lot of the techy areas like chips and software, and we saw what looked like a strong move toward buying some of those issues that have been hit so hard. But the new issues that came out really helped our liquidity late this afternoon, particularly in the tech and biotech and drug sectors."

The market ratcheted up with stocks as the Nasdaq rose 58.20, or 3.06%, to 1963.10 and the Dow Jones Industrial Average advanced 129.88, or 1.53%, to 9893.84.

As buzz about Enron began to take a backseat as old news, the market got focused on the business at hand, traders said. But, Enron's zero-coupon convertible due 2021 got a bounce from the lift in the stock, gaining 1.75 points to be quoted at 14.75 bid, 15.75 offered as Enron shares gained 47c to 87c. The Enron exchangeable that converts into Enron Oil & Gas added 0.88 to 5.00 as Enron Oil & Gas shares rose $1.21 to $37.23.

"There was some glimmer of hope that there could be a bailout for Enron in some fashion, but as it sank in that the complexity of the situation will probably reduce the chances of that, people began to move on," said a trader at a convertible fund based in New York. "I think there may be some buying by the real betters that are out there, but very few."

New issues took center stage as buzz of new deals began circulating early, after EGL Inc. sold a tiny $85 million issue of 5% five-year convertible subordinated notes, with a 19% initial conversion premium. A surge of new issues were announced late in the day, totaling nearly $1 billion.

Two of the new deals will price overnight, those from Clearwater, Fla.-based Tech Data Corp., which provides IT products, logistics management and other services, and Alameda, Calif.-based Wind River, a provider of software and services for connected smart devices. Wind River is not new to the convertible market.

Tech Data shares closed Tuesday up $1.12 to $47.63. Wind River shares closed Tuesday up $1.72 to $18.57 and the Wind River 5% convertible notes (B-) due August 2002, a $140 million issue that sold at par in July 1997, were quoted flat at 95 bid, 97 offered.

"There are more people willing to buy tech issues right now if the deal is structured right. The new deals right now are designed for hedge funds and the demand is still very strong for convertibles right now," said a convertible trader at a hedge fund in Chicago. "We are seeing some traditional deals, too, so it's not like the hedge funds are squeezing out the traditional players. There's enough to go around for everyone."

Tech Data launched $250 million of 20-year convertible notes with price talk of a 1.625% to 2.125% yield and a 25% to 27% initial conversion premium in the Rule 144A via book-running lead manager Salomon Smith Barney. And, Wind River is sellling $125 million of five-year convertible notes with price talk of a 3.75% to 4.25% yield and a 30% to 33% initial conversion premium in the Rule 144A market via book-running lead manager Credit Suisse First Boston.

Tech issues were sharply higher Tuesday, traders said. ATMI, Nvidia, PMC Sierra, Manugistics, Veritas and FEI Co. were all marked higher.

Later this week, health-related issues are the focus.

Cephalon Inc. trotted out a deal for Wednesday's business, a $300 million convertible bond to go toward its $450 million cash purchase of the French pharmaceutical company Group Lafon. The new five-year issue is expected to price with a coupon of 2.75% to 3.25% and an initial conversion premium of 12% to 17%. Cephalon's 5.25% convertible due 2006 slipped another 0.875 point on the day to 114.625 bid 115.625 offered as the stock lost 41c to $69.62.

For Thursday's business, Cambrex Corp. is pitching $125 million of five-year convertible subordinated notes with price talk of a 3.5% to 4.0% yield and a 30% to 34% initial conversion premium. Cambrex is a global, diversified life science company that provides products and services to the pharmaceutical, biopharmaceutical, biotechnology and other research industries. Cambrex shares closed Tuesday down $1.30 to $37.50.

As has become the norm, at least three of the four new deals in the pipeline have contingent conversion features - those from Cambrex, Cephalon and Tech Data.

Healthcare related issues showed mixed, but mostly higher, results Tuesday, traders said, with Aviron gaining nicely again on the heels of the MedImmune merger. The Aviron 5.25% convertible due 2008 gained another 4.25 points on the day to 95.875 bid, 96.875 offered as the stock added $3.73 to $45.15.

As cable issues gained ground, AT&T Corp. launched a mandatory exchangeable that converts into Rainbow Media Group, the tracking shares of the non-New York Cablevision assets. The small $185 million deal, which will price alongside a 12.675 million share offering, is expected to yield 6.5% to 7.0% with an 18$ to 22% initial conversion premium. The deal is not set to price until next week, however.

Rainbow Media shares closed Tuesday up 1c to $20.76.

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