Duane Reade slides in mixed retail group, other new issues buck overall downturn

As the markets reversed course to head south, most convertibles followed suit. Several new issues, however, resisted and headed north on some buying. Duane Reade Inc. found buyers for its deal in a new structure, upsizing it on strong demand, but the paper weakened in the aftermarket on pressure in the retail sector due to worries about sales figures.

For the most part, however, volume remains stilted and the "usual suspects" - Adelphia, Xerox, Nortel, Nextel and Lucent - were the market's chief source of buzz, as one observer put it.

"It just is excruciating lately. We're off the desk about 30 minutes after the close, sometimes sooner," said a convertible trader at a major investment bank.

"This has been going on for a while now, and it's really getting grueling. We need something to break the market loose."

There were a few new issues changing hands, traders said, but Duane Reade's new deal lost ground out of the gate.

Duane Reade was pitching a new structure of CATZ, or cash-to-zero, convertibles that were said to be well received by initial buyers. The deal was upsized to $190 million in proceeds from $110 million and was sold at the aggressive end of guidance.

The 2.1478%/0% issue (Ba3/BB-), which sold at 57.276, was bid down 0.125 point from issue price. The stock dropped 91c to $30.89.

Duane Reade was not alone heading south as much of the retail sector was headed that way, too.

The Gap's 5.75% convertible due 2009 was quoted down 8 points to 110.75 bid, 111 offered with the stock falling $1.58 to $13.86 on the company's warning that April sales will be much lower than anticipated, possibly as much as 25%.

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