Nextel gains on Berkshire's ballooning stake in bonds; Interpublic up on higher ad outlays

By Ronda Fears

Nashville, Aug. 29 - It was a very anticlimactic end of summer Friday as The Street - or, rather, the bulk of the professional investment community - was virtually cleared almost as the closing bell rang for stock trading, which typically signals the end of the activity for convertible traders, as well.

Thin trading volume spanned the full spectrum of securities - stocks, converts, corporates and Treasuries - as many desks were running on skeleton crews just ahead of the long Labor Day weekend, which traditionally marks the end of summer.

Everyone expects to get "back to the grind" next week, as one junior convertible trader put it.

"Dead doesn't even approach what today was like," the trader said.

While traders from several shops echoed that remark, there was mention of a couple of situations that brought a few buyers into the market and that lifted some convertibles.

Nextel Communications Inc. got a pop from reports that Warren Buffett's Berkshire Hathaway is still buying its bonds and preferreds. As of June 30, Berkshire and other subsidiaries of Buffett's empire owned $468.6 million, according to filings with the National Association of Insurance Commissioners.

"The news hit the tape around noon and we saw the Nextel converts make a nice pop, especially the 6s," said a dealer.

"When we see Buffett as a buyer, we always get a few nibbles. We didn't see anything in Level 3, though."

The dealer also noted that Nextel was gaining ground Friday due to the latest Business Week issue quoting an investor saying the stock could double in the next 18 to 24 months from the expected rapid earnings growth in wireless business, especially from the government sector.

Nextel's 6% convertible due 2011 rose 3.5 points on the day to 106.5 bid, 107.25 offered. The 4.75% due 2007 also gained, by about 1.75 points, to 101.5 bid, 102.5 offered. The 5.25% due 2010 were quoted up about 0.75 point to 90 bid, 91 offered.

Nextel shares climbed $1.27, or 7%, to $19.33.

Interpublic Group of Cos. Inc.'s new convertible continued to rise, fueled Friday by reports of advertising spending picking up.

Ad spending in the U.S. surged 6.8% in the first half of 2003, buoyed by increased ads from automotive and entertainment companies, according to a new survey from TNS Media Intelligence/CMR, a New York research firm.

Interpublic's new 4.5% convertible due 2023 added another 2 points to 147 bid, 147.5 offered, building on a steady rise all week. The stock closed up 16c, or 1.07%, to $15.15.

Lamar Advertising Co.'s new 2.875% due 2010 had a more muted reaction, edging up 0.25 point to 92.5 bid, 92.875 offered. The stock ended 33c higher, or 1%, to $33.47.

General Motors Corp. and Ford Motor Co. shares were higher, which one convert trader said might be related to the ad outlay story, but the convertibles saw very little action.

Also of note, HealthSouth Corp.'s convertibles were seen a tad higher in reaction to its banks unblocking the company from paying the interest in arrears on its 10.75% straight junk bonds due 2008.

A focal point of getting back to business as usual next week will be the primary market.

Market sources expect a few deals next week, even though it will be shortened by the holiday, followed by a return to the busy pace seen most of this year. It will also mark the beginning of a new month for those following league table time frames.

Though August was a slow month of new issues for convertibles by the standards of most of this year's pace of issuance, it was strong on an historical basis.

According to Prospect News data, the month's tally came to $4 billion - well behind the $11 billion in July but over seven times more than the $523 million for August 2002.

Year-to-date issuance now comes to $75.9 billion, far ahead of $49.54 billion for the same period a year ago and near the pace of record-setting 2001. Through August, 2001 produced $79.31 billion of new issues, and that year's total was $114.8 billion, according to Prospect News data.

Prospect News data includes dollar-denominated deals offered in the U.S., including those by investment banks that are convertible into or linked to another company's stock. Excluding the synthetics, August volume was $3.87 billion and year-to-date volume is $72.78 billion.

For the coming week, estimates pretty much boil down to a handful of deals, or around one a day. The only candidate gleaned from the calendar is The PMI Group Inc.'s estimated $207 million of equity-linked units, which is planned alongside $100 million of common stock, to fund a portion of its part of the purchase of Financial Guaranty Insurance Co. from General Electric Co.

On Friday, Fitch downgraded PMI's existing converts, the 2.5% issue, to A+ from AA-, and then changed the outlook to stable from negative.

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