Convertibles marked lower still in thin summer trading pattern

By Ronda Fears

Nashville, Tenn., June 20 - Convertibles were marked down again Thursday, traders said, but there was very little trading.

Techs continue to take the brunt of the recent blows, with cable particularly weak. There were some bargain hunters seen picking among the wireless telecom rubble, traders said.

More inquiries came for healthcare issues, however, and homebuilders.

"Everyone is getting past the market being so busted. That can be negative when you're hoping for a big turnaround," said a convertible trader at a major investment bank in New York.

"But if you're still seeing things go south, you want a wide premium. We were getting a lot of calls on healthcare today and a few for the homebuilders. We even had some inquiries into a few of the wireless names."

Another dealer said there were some lookers for the down-trodden cable sector, "but some of it is morbid curiosity."

Adelphia on Thursday announced missing the grace period to make several interest payments but there still was no news on what is considered an impending bankruptcy filing.

The Adelphia converts were unmoved as was the stock in over-the-counter trading.

But there was interest in the Cablevision mandatory, sources said, as the convert dropped 0.75 point to 18.5. Cablevision shares closed down $1.20 to $13.90.

"People are looking for ideas," said John Levin, head of convertible research at JPMorgan.

"Mandatories are being viewed as one place for refuge. People like the way mandatories are behaving."

It is the structure of choice in the primary market, as well.

Mandatory convertibles are popular among buyers, but also issuers looking to bolster their balance sheets.

DTE Energy upsized its deal to $150 million from $125 million, pricing it with an 8.75% dividend and 20% premium at the midpoint of guidance.

The new DTE mandatory was quoted 0.5 point higher at 25.5 bid while the underlying shares closed up 50c to $44.15.

After the closing bell, El Paso was pricing a $500 million mandatory that sources said could be upsized also.

"We would not be a bit surprised if El Paso was upsized," said a convertible trader at a hedge fund in New Jersey.

"It wouldn't be a bad deal for the issuer and the orders, from what we're hearing, would support it."

The new El Paso mandatory was quoted 0.125 to 0.25 points over issue price in the gray market.

El Paso stock closed down $1.60 to $19.95, suggesting heavy hedge fund participation.

With the market picked over, buyside sources said they are looking at healthcare and homebuilders.

"Convertibles have actually held up rather well," said a hedge fund manager in New York.

"There are names that are breaking down, certainly, in tech and telecom. But there are some that have held up real well throughout the storm, L-3, Genzyme."

Genzyme Corp. lowered its 2002 earnings guidance for the second time this year, due to slower sales of its Renagel drug for dialysis patients.

Sales of the drug are now estimated at roughly $200 million for 2002, down from a previous estimate of $260 million to $280 million.

S&P analyst Arthur Wong said that while Renagel is a key growth driver for Genzyme, its main product, Cerezyme, continues to provide stable sales of roughly $600 million and Fabrazyme sales are estimated at $25 million to $40 million.

Also, Genzyme believes the peak sale potential for Renagel is unchanged, Wong said. He noted the company has roughly $400 million in cash and investments on hand and debt maturities appear manageable.

Genzyme shares were crushed, nonetheless, plunging $6.17 to $19.70.

The Genzyme 3% due 2021 held up, though, as the conversion premium is now at about 191.3%. The bond lost 3 points to81.375 bid, 81.875 asked.

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