Slow-going pace of issuance expected throughout summer

By Ronda Fears

Nashville, Tenn., July 1 - The convertible market is sitting back, expecting a long, hot, slow summer, particularly with regard to new issues.

Last week there were no new deals.

It was only the second week this year for that to occur. The other was the first week of the new year, which typically does not see any new issue action.

"Certainly, we're now really tracking behind a year ago," said Kimberlee Brody, convertible analyst at Wachovia Securities.

She puts issuance year-to-date at $41.8 billion, compared with $57.6 billion in the first half of 2001.

"With the markets acting like this, I don't envision issuance picking up much," Brody said.

"Until we see a pick up in the stock market, it's going to be really slow."

The negative trend in the broad equity markets is blamed most for the drop off in the convertible new issue pace.

"While the jury is most certainly still out on the absolute level of new issues this year, we currently believe, under the current market environment, we estimate 2002 will see fewer than $50 billion in new issuance," said Adrian Miller, convertible analyst at Salomon Smith Barney. His tally so far this year is $40.9 billion.

No one was expecting convertible issuance to break the 2001 record, which exceeded the previous record in 2000.

But not everyone is pessimistic about the prospects, particularly on the buyside.

There is plenty of capital to invest, several sources confirm. It's just a rough pricing environment.

"Convertibles can always be marketed, at a price. The new issues will come back," said Barry Nelson, co-manager at Advent Capital Management.

All that is required is for the market to resurge is stability, he said, adding "volatility is just too high."

"Roadshows are a necessity," he added, however. "The markets are just too suspicious."

Market participants expect new deals that will trickle in over the summer will be for specific purposes, like Mirant's deal this week, the Goodrich deal that is pending and Xerox.

Mirant is looking to boost liquidity.

Goodrich is buying the aeronautical systems unit of TRW.

Xerox is looking for a capital infusion to help its liquidity picture, as well.

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