New issues trade up mostly, except for Lockheed; airlines higher in overall mixed market

By Ronda Fears

Nashville, Aug. 8 - For the most part, traders said new paper put into circulation recently was higher. But Lockheed Martin Corp.'s new convertible slipped right out of the gate, after pricing at the middle of wider yield talk.

In trading trenches, dealers reported another mixed bag.

"There was a lot of activity today for a Friday, but it would be hard for me to say the market was up by so much or down by so much. Stocks were flattish and, on whole, that's probably about where converts landed," said a sellside trader.

"Nearly all the airline paper was higher, but beyond that you couldn't even really make a call on industry groups. Trading is pretty selective, still. Everything is name or issue specific."

Observers - both buyside and sellside - say the convertible market is cheapening or at least beginning to show more appeal to buyers.

"The market is a little tough right now but there are some opportunities. Also, as time goes on and the market continues its general direction, more and more opportunities will present themselves," said a hedge fund manager in Bermuda.

"It was pretty clear the market needed a correction and, over the last few months, we got it."

New deal terms have given way to more buyer-friendly terms and that segment of the market is one of the most visible, as it remains fresh on the radars of market watchers. Lehman Brothers research shows that new issue terms averaged 3.5% cheap in July, versus 2% cheap in June. (See full story on page 1 of this issue.)

The widening trend in new issue terms continued Friday with the Lockheed and Ptek Holdings Inc. deals.

Lockheed sold $850 million of 30-year cash-to-zero convertible floating rate notes to yield three-month Libor minus 25 basis points with a 52.5% initial conversion premium - at the middle of revised yield talk, which was sweetened by 25-60 bps, and at the cheap end of premium guidance.

Still, the new Lockheed convert slipped in the immediate aftermarket. One of the three bookrunners closed it at 99.1875 bid, 99.4375 offered. Lockheed shares ended up 89c, or 1.79%, to $50.59.

Ptek sold $75 million of five-year convertible notes to yield 5.0% with a 28% initial conversion premium - at the wide end of yield talk and cheaper than the indicative premium range of 32.5% to 37.5%.

Those deals came on the heels of a string of new issues that priced at the wide end of guidance, some at the wide end of widened talk. And, earlier this week AMR Corp., parent of American Airlines Inc., scrapped a deal after having to sweeten terms.

DST Systems Inc.'s new two-parter, which priced at the cheapest end of backed out price talk, continued to gain ground, however, with traders reporting the yields on both tranches particularly appealed to the market.

The DST 4.125s added 1.25 points to 104.5 bid, 105.5 offered and the 3.625s also gained 1.25 points to 102.25 bid, 103.25 offered. DST shares rose 33c, or 0.92%, to $36.31.

Most new issues were better Friday, particularly airline paper. Recent issues from Continental Airline Corp., Delta Air Lines Inc., ExpressJet Holdings Inc. and JetBlue Airways Corp. were all on higher ground as July traffic figures are being digested favorably.

Yellow Corp.'s new 5% convert added 1.625 points on the day to 104.625 bid, 105.125 offered while the underlying stock gained 84c, to 3.27%, to $26.53.

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