Opportunists take profits in Skyworks, new issues gain

By Ronda Fears

Nashville, Nov. 27 - Nearly everything in convertibles was marked higher Wednesday as stocks surged, but the bulk of the meager volume ahead of Thanksgiving was in new issues.

Bunge Ltd. Finance Corp., PacifiCare Health Systems Inc., Scottish Annuity & Life Holdings Ltd. and Xcel Energy Inc. were the big gainers among the new issues.

Skyworks Solutions Inc., however, headed south in a sell-off to take profits.

El Paso Corp.'s bonds continued to show weakness on the heels of the downgrade to junk by Moody's Investors Service, but there were buyers for the mandatory.

"Just about everything was marked up. There was some profit taking on the Skyworks run-up, so we saw sellers in that name," said a convertible dealer.

"The only real flow we saw all day was in the new issues. It seemed like a short day because a lot of people took off early, due to the holiday."

A spate of mostly encouraging economic news fueled some of the stock market's climb.

The Fed's Beige Book to be used at the upcoming FOMC meeting notes a slow but growing economy as the labor market remain soft.

Jobless claims were up a bit, but no more than expected, and the Michigan consumer sentiment report was off just slightly.

The big shot in the arm seemed to be sharp rise in durable orders reported in the Chicago PMI.

"The players who were in the game today, and it was pretty thin, were looking to make some opportunistic trades," said a convertible trader at one of the major investment banks.

"They were taking advantage of the thin volume, trying to get ahead of the curve. The thinking is that the market will be in rally mode after the holiday."

There's not a lot of anticipation about any big deals coming to market during the remaining few weeks of the year, although some still believe Tyco International Ltd. could bring a deal in the first half of December.

Last week, buzz put Tyco planning a mandatory for $2.5 billion to $4 billion as it faces some $6 billion in debt that may need to be refinanced next year.

"It would have to be early in December, like before about Dec. 18," said a convertible trader at a hedge fund in New Jersey.

"That's possible. And, it might be more to Tyco's advantage to price it now while the convertible market is getting deals done so aggressively."

Others think the Tyco deal may be delayed until January and come out as the first deal of the new year.

"If the [Tyco] stock gets a pop, they may go ahead with it. Or, they could wait until the first of the year and that would be the block-buster deal to start off the new year," said Rao Aisola, head of convertible research at Bear Stearns.

"A lot of value players will be interested. A lot of the value managers are bottom fishing and this is definitely one of the names for value fishing."

New paper continues to account for a lot of the flow on convertible trading desks as so much of the remaining market has been picked over.

Xcel saw some buyers Wednesday step in on the weakness in reaction to El Paso's news Tuesday. The 7.5% convertible due 2007 added back 1.625 points to 116.375 bid, 117.375 asked. The stock closed up 15c to $10.70.

"In an otherwise holiday-shortened, quiet week, the downgrade of El Paso ... has consumed the entire focus of both the high grade and high yield markets," said David Goldman, head of research in the global markets group at Banc of America Securities, in a report Friday.

"We see limited impact for the overall market as the material increase in risk in the name occurred with the ALJ [Federal Energy Regulatory Commission administrative law judge] ruling last month, not with the downgrade yesterday."

El Paso's 0% convertible bond continued to weaken along with the 4.75% convertible preferred, both down 0.75 point. But traders said buyers stepped in for the 9% mandatory on the weakness.

The El Paso bond was quoted at 30 bid, 30.75 asked. The 4.75s were quoted at 18.5 bid, 18.75 asked.

The El Paso mandatory was quoted at 28.5 bid, 29 asked.

El Paso shares ended off 17c to $8.46.

Bunge's 3.75% convertible due 2022 gained 1.625 points to 102.5 bid, 103 asked with the stock edging up 29c to $24.21.

Scottish and PacifiCare benefited from the positive tone in healthcare related and insurance sectors, traders said. Some of that was fueled by news from Scherring-Plough of regulatory approval in the U.S. to sell its allergy drug Claratin over-the-counter.

Scottish's 4.5% convertible due 2022 rose 2.125 points to 106.875 bid, 107.375 asked. The stock closed up 4c to $16.47.

PacifiCare's 3% convertible due 2032 climbed 5.625 points to 100.75 bid, 101.75 asked. The shares ended up 75c to $27.45.

Teva Pharmaceuticals Industries Ltd also gained, but more in its older issues than the new convert.

The Teva 0.75% convertible due 2021 gained 1.125 points to 108.375 bid, 109.875 asked and the 1.5% due 2005 added 1 point to 109 bid, 109.625 asked.

Teva's new 0.375% convertible due 2022 was quoted flat at 105.375 bid, 105.375 bid, 105.875 asked.

Teva shares closed up $2.05 to $79.

Advanced Micro Devices Inc. also saw more action in its older convert than new.

The AMD 4.75% convertible due 2022 climbed 2.125 points to 69.25 bid, 69.75 asked while the new 4.5% due 2007 added 0.875 point to 132.25 bid, 132.5 asked.

AMD shares closed up 63c to $8.59.

There was a sell-off in the new Skyworks convert, traders said, as investors capitalized on its run-up since pricing two weeks ago.

The Skyworks 4.75% convertible due 2007 lost 1.875 points to 149.75 bid, 150.75 asked. The stock gained 67c to $12.30.

Outside of new issues, traders said there was some activity in telecom names like Nextel Networks Corp. and Lucent Technologies Inc. Nextel saw buyers for two of its three converts, while Lucent saw sellers.

Nextel's 4.75% convertible due 2007 and 6% due 2011 both added 2.5 points with the 4.75s at 88.5 bid, 89.375 asked and the 6s at 91 bid, 92 asked. The 5.25% convertible due 2010 gained 0.5 point to 73 bid, 73.5 asked.

Nextel shares closed up 84c to $13.59.

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