El Paso leads market plunge, bias shifts to selling in choppy trading

By Ronda Fears

Nashville, Tenn., Sept. 23 - Whether a case of nerves or opportunistic profit taking, traders said the convertible market bias shifted to selling Monday.

Burdened by ongoing profit warnings and war jitters, the continuing weakness in stocks pushed them down to six-year lows and that combined with widening spreads in corporate bonds pressured convertible investors to sell out.

"There was definitely a shift today toward better selling," said a convertible trader at a hedge fund in New York.

"Everything is starting to get heavy. For the last few weeks there had been more buyers and at times it seemed like the worse the credit the more buyers there were. Now the high-yield market is beginning to break down."

While buyers were scarce, they were not entirely absent during the session, however.

"There's really nowhere to hide right now," said a convertible trader at a hedge fund in New Jersey.

"So we're thinking we may as well be buyers right now."

Buying was seen in CenturyTel Inc. and Cablevision Inc. but Sprint PCS paper got no buyers as a result of the parent's sale of yellow pages operations for $2.23 billion.

There were also a few buyers for Northrop Grumman Corp. on the war angle but other defense names like Raytheon Co. did not participate in that.

Performance Food Group Corp. was another gainer on buying, traders said, as investors look for safer places to wait out an economic recovery.

To that end, there also were a few buyers for Travelers Property & Casualty and Prudential Financial.

El Paso Corp. and Continental Airlines Inc. were vying for the disaster du jour title and the airline industry's troubles weighed on Airborne Inc.

Other noticeable areas of strong selling were in semiconductors and virtually all tech names, as well as many telecoms and power names.

El Paso was getting battered because of a Federal Energy Regulatory Commission administrative law judge's recommended finding to the panel that El Paso put the squeeze on power supplies during the California energy crisis in 2000 and 2001.

"We are disappointed ... We are confident in the strength of our position and believe that we will ultimately obtain a favorable ruling," said El Paso chief executive officer William A. Wise in a company statement, inferring the company would appeal the ruling.

El Paso's 9% mandatory fell 6.70 points to 19.20 while the stock dropped $4.16 to close at $7.51.

A report in the Wall Street Journal that the major airlines are preparing to ask the federal government for a new round of emergency financial assistance hurt the group and the concern spread into the broader transport sector.

Continental's 4.5% convertible due 2007 was quoted down 1.325 points to 40 bid. The stock ended down 70c to $5.75.

Airborne also was getting brought down. The 5.75% convertible due 2007 was quoted down 2.5 points to 91.125 bid at one shop, and at 92.5 bid at another. The common closed off 72c to $11.25.

Despite Sprint's sale of its directory business and raising its EPS forecast, traders said none of the Sprint PCS-linked paper gained ground. PCS shares ended down 16c to $2.58.

Nothing much is expected in the way of new issues for the week, if not for a couple of weeks, as the month and quarter wind down.

Until the end of the month, sources expect trading to be heavy as managers move to clean up their portfolios.

"We expect trading to be pretty heavy until the end of the month. People will want to get some of this trash off their books," said a dealer.

"Issuance looks tough for a while. For how long, no one knows, but it doesn't look like anything's coming anytime soon."

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