Market cheapening poses double-edged sword as new paper suffers; 4 deals emerge

By Ronda Fears

Nashville, June 23 - Four new deals emerged Monday, joining the jumbo General Motors Corp. deal on this week's slate, and potential buyers are happy with that terms appear to be easier to swallow these days following a huge run of aggressive pricing.

Meanwhile, the convertible market continues to cheapen, although traders said it's a double-edged sword.

"The market had gotten pretty rich, so there are a lot of people in the buying mood that like to see things come in," said a dealer.

"But the problem is that all the new paper is coming in too. That doesn't make people very happy."

The cheapening was somewhat magnified by Monday's massive drop in the stock market, with some buyside traders reporting they were "getting killed in some names," but the weaker trend in converts had been under way for about the last week at least.

Traders said it now appears that the slackening will stabilize after Monday's big decline, and some sellside traders expect bargain-hunters to be out in full force Tuesday with bids, but several note that there still seems to be a good deal of anxiety about redemptions or calls in the market.

"There have been so many calls that everybody is just a little nervous about this," said a buyside trader.

"A lot of these names, Teva Pharmaceuticals, Johnson & Johnson, are still coming in pretty sharply."

Mirant Corp.'s converts were 1-3 points lower after gaining on Friday as a result to modifications to the company's exchange offers, including the 2.5% converts. A distressed trader said the converts were following the stock lower Monday but are also getting pressure as the threat of bankruptcy appears more likely.

On Friday, Mirant asked its banks to approve a prepackaged bankruptcy plan, as it had done with bondholders earlier this month.

That prompted Standard & Poor's late Monday, after the market close, to cut Mirant's senior unsecured debt to CC from CCC and its trust preferred stock to C from CC, and revise the ratings watch to negative from developing.

Mirant's 2.5s were quoted at 70 bid, 72 offered and the 5.75s, quoted as points over parity, at 31 bid, 32 offered. Mirant shares closed down 21c, or 7.58%, to $2.56.

All that said, however, dealers said trading volume was light Monday as a fair amount of the market was preoccupied with the new deals that continue to pop up.

While demand is still described as "raging," by both the sellside and buyside, buyers have become a bit more finicky and less tolerant of terms that don't make sense to traditional convertible investors.

"There's still a lot of demand for convertible paper," said a convert salesman at one of the busier shops.

"There is a bit more muscle on the buyside right now, though, and I think we're seeing that reflected in the terms - a little more yield and the premiums are not so big for the most part."

On Monday, Halliburton Co. launched a $1 billion deal and three others popped up with offerings totaling $325 million.

Halliburton is pitching $1 billion of 20-year convertibles talked to yield 2.625% to 3.125% with a 65% to 70% initial conversion premium, with pricing scheduled after the close Tuesday.

Nektar Therapeutics, formerly Inhale Therapeutics, is pitching $100 million of seven-year convertibles talked to yield 1.75% to 2.25% with a 25% to 30% initial conversion premium, for pricing after the close Monday or Tuesday. Some of the proceeds may go toward buying back its existing 3.5% and 5% converts, both due 2007.

Also for Tuesday's business, McMoran Exploration Corp. launched $100 million of five-year convertibles talked to yield 5.5% to 6.0% with a 25% to 30% initial conversion premium.

And, IMC Global Inc. is pitching $125 million of three-year mandatory convertibles talked to yield 7.5% to 8.0% with an 18% to 22% initial conversion premium to price after Tuesday's close.

GM's deal isn't slated to price until Thursday, but it was already trading in the gray market. During the morning, it traded at 1 point over issue price, but toward the end of the day a buyside trader said it was bid at 0.25 point over with the offer at 0.5 point over.

GM shares sank $1.21, or 3.14%, to $37.38.

The GM 4.5% convert due 2032 was quoted by a dealer down 0.25 point to 24.6875 bid, 25.1875 offered and the 5.25% due 2032 down almost 1 point to 23.1875 bid, 23.6875 offered.

Both existing GM converts, which together total about $3.5 billion, were issued at part of 25.

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