Sloppy session ends mixed; Charter continues to plunge, Xerox gains

By Ronda Fears

Nashville, Tenn., Oct. 23 - In sloppy trading, convertibles were mixed. Telecoms were mostly lower, traders said, while chips staged an afternoon rally.

General Mills Inc. priced a $1.35 billion zero-coupon deal at the cheap end of guidance and it gained 0.25 out of the gate.

Convertibles, like the broader stock and bond markets, continued to be buffeted by earnings news.

"Trading was sloppy but it was a very busy day," said a convertible dealer.

"Having some new paper in the flow helped a lot."

General Mills' new deal, a 20-year zero-coupon convert, priced at 67.165 for a yield-to-maturity of 2% with a 25% initial conversion premium.

In trading it added a quarter point to 67.375 bid, 67.875 asked. General Mills shares ended up 19c to $41.44.

"I'm not sure I'd go so far as to say there's going to be a flood of new deals now, but I think this [General Mills] deal sort of cleared the air for a lot of issuers that have been sitting on the sidelines afraid to make a move," said a salesman familiar with the new deal.

Xerox Corp. resurfaced as a potential new deal candidate after the office equipment maker filed a $3 billion shelf, although the company said it was a routine course of business.

"I think this is just a lot of noise, like the talk about a deal from Motorola a couple of weeks ago," said a convertible trader at a hedge fund in New York.

"Aside from that, there were better bids for Xerox today on the earnings. There's still an accounting investigation going on but that seems to have taken a back seat right now."

Xerox reversed trends with third quarter net income of $105 million, or 5c a share, versus a net loss of $32 million, or 5c per share, a year earlier. That beat analysts' consensus estimate for a profit of 2c a share.

Cost-cutting accounted for much of the improvement, as revenues dropped to $3.79 billion from $4.05 billion.

Xerox's 0.57% convertible due 2018 added 1 point to 60 bid, 61 asked. The Xerox 9.75% straight bonds were quoted up 3 points to 84.

Xerox shares, however, dropped 29c to $6.41.

Charter Communications Inc. continued to fall sharply on the heels of revealing that it had put its chief operating officer on indefinite paid leave amid a federal probe into its accounting practices.

Charter's convertibles and junk bonds were quoted down 4 points each. The 4.75% converts were at 17.625 bid, 19.625 asked and the 5.75% converts at 21.125 bid, 23.125 asked. The 8.625% junk bonds were at 42.

Charter shares ended off 13c to $1.07.

"A lot of people still believe some sort of restructuring, potentially a bankruptcy, is imminent for Charter," said a dealer.

Fleming Cos., Inc. firmed on a narrower loss in third quarter, which the company said suffered from the money-losing retail operations that are up for sale.

The food distributor reported a net loss of $20.9 million, or 39c a share, for fiscal third quarter ended Oct. 5, compared with net income of $19.1 million, or 40c a share, a year earlier. The loss from continuing operations came to $1.5 million, or 3c share, compared with year-ago earnings of $16.5 million, or 35c a share. Sales in the latest quarter climbed 12% to $3.97 billion from $3.53 billion a year earlier

But Fleming beat expectations on The Street and investors were heartened with plans proceeding to sell the retail operations.

Fleming's 5.25% convert was quoted up 4.5 points to 38.5 bid, 40 asked. The stock added 80c to $6.30.

Computer Associates International Inc. soared on its earnings, which were reported after the close Tuesday, despite some tepid reactions to the news by analysts still concerned about ongoing investigations of the company's accounting practices.

The Computer Associates 5% convertible was quoted up 8 points to 98.25 bid, 99.25 asked, while the stock gained $2.65 to $14.75.

Province Healthcare Co. met analysts' and its own estimates, but traders said profit taking drove its convertibles lower. The 4.5s were down 1.375 points to 89.25 bid, 90.25 asked and the 4.25s down 1.125 points to 98.625 bid, 90.625 asked. The stock also lost ground, closing off 49c to $17.10.

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