Boston Private, Parker Drilling move up early; Fair Isaac jumps

By Evan Weinberger

New York, June 29 - Convertibles trading started with a burst Friday thanks to new offerings from Boston Private Financial Holdings Inc. and Parker Drilling Co. which drew heavy interest early.

But, according to one trader, the weekend and the broken holiday week ahead kicked in early. "In the afternoon, all went silent," he said.

Action in the secondary market focused around Fair Isaac Corp., as its convertible finished up on news that a major investor called on the company to find itself a buyer.

Fair Isaac's 1.5% convertible senior notes closed at 105.245 versus $40.12, after opening the day at 102.25 versus $37.38 for the stock's close Thursday. Investors took an interest in the Minneapolis-based software maker after Thomas Sandell, chief executive officer of Sandell Asset Management in New York wrote a letter to Fair Isaac management saying he thought the company's turnaround would move faster if Fair Isaac was bought by a larger firm. The stock (NYSE: FIC), ending at $40.12, marked at gain of $2.74.

Overall, the stock markets closed lower Friday, with the Dow Jones Industrial Average finishing the day at 13,402.62, down 13.66, or 0.10%. The Nasdaq finished down 5.14 points, or 0.20%, at 2,603.23.

But while convertible trading was slow - another trader simply said "Today is dead" when asked about the day's action - two investment firms released their reports for June and one also weighed in on proposed changes to accounting rules for net share settlement option convertibles.

The day was not without a little international flair with one new deal announced out of India.

Gayatri Projects Ltd. of Hyderabad, India, priced ¥3.075 billion in zero-coupon convertible bonds due 2012 to yield 3.75% with an initial conversion premium of 25%. The construction firm plans to use the proceeds for capital expenditure and investment infrastructure projects, international acquisitions and other uses as it deems necessary. The bonds were offered at par and have a conversion price of Rs. 378.3452. They will be redeemed of 120.414% at maturity.

New issues generate early buzz

Offerings from Boston Private and Parker Drilling caught investors' eyes early Friday morning.

Boston Private's $250 million in contingent convertible notes, which priced at par after the market close Thursday at a 3% yield with a 22.5% initial conversion premium, had moved up to 101.5 over the course of the morning. The bonds, which were talked to yield 2.75% to 3.25% with an initial conversion premium of 20% to 25%, came at the middle of talk. Boston Private stock (Nasdaq: BPFH) closed at $26.87, down $0.37, 1.36%

Meanwhile, Parker Drilling's $115 million in convertible senior notes, priced to yield 2.125% with an initial conversion premium of 32.5%, also saw a bounce. One trader said the bonds opened up 0.5 from par and had moved as high as 101.50 over the first half-hour. The latest information on the Parker Drilling convertibles was that they had moved back down to 101.125, according to another trader as of around 2 p.m. ET. Parker Drilling stock (NYSE: PKD) closed up $0.09, or 0.86%, at 10.54.

Convertibles looking up

June was the second-largest month for new convertibles issues in 2007, according to a report released by Citigroup's director of U.S. convertible securities, Stu Novick. The 27 new issues in June were five more than May. But the average deal for the month was on the small side, below $300 million he said.

Lehman Brothers' convertibles analysts put the total amount raised by new issues in June at $8.1 billion while Novick had the total at $8 billion. May saw $12.6 billion accumulated in new deals, according to Lehman. The firm's analysts said average cheapness for June was down to 0.91%, in comparison to the 1.39% average cheapness for May. Average cheapness is at 1% for 2007, compared to 1.25% average cheapness for all of 2006.

Average yields in June, according to Novick, were at 3.66%, up 1% from May.

Overall for the year, Novick said there were 127 new convertible offerings in the first half of 2007 generating a record-setting $57.88 billion.

Beware of new accounting rules

Meanwhile a proposed change in accounting rules for net-share option convertibles could lead to increased calls and higher levels of uncertainty in the convertibles market, according to a report released by Lehman Brothers in circulation Friday. The new rules, which will be debated by the Financial Accounting Standards Board at its meeting at the end of July, would call for bond issuers to separate par amount of the convertible into debt and equity components.

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