Market remains quiet as two small deals price, stocks slip

By Ronda Fears

Nashville, Dec. 17 - Players continued to sit on the sidelines, biding time until the year closes. In the primary arena, The Phoenix Cos. Inc. and Steel Dynamics Inc. priced small deals, the latter of which was cheapened.

"We're busy enough, for this time of year, but nothing very interesting happened," said a convertible dealer.

Convertibles were pretty much standing pat against the declines in stocks, the dealer said, as credits firmed somewhat.

In the primary market, the year was winding down in a rather anticlimactic fashion.

The Phoenix Cos. Inc. priced an upsized $150 million mandatory at the aggressive end of guidance, with a 7.25% dividend and 22% initial conversion premium.

And Steel Dynamics Inc. priced a drive-by $100 million of 10-year convertibles to yield 4.0% with a 41% initial conversion premium. The quickly shopped Rule 144A deal was cheapened on the yield end from talk that put the coupon between 3.25% and 3.75%. It came at the richer end of premium talk in a range of 37.5% to 42.5%.

In the gray market, the Steel Dynamics deal had been bid 2 points under par.

"This is ridiculous, when you see a company like this coming with a 3 handle," said John Seibel, head trader at Silverado Capital Management.

"Until we stop buying these, this is what we get."

Bear Stearns & Co. convertible analyst Matt Hempel said the Steel Dynamics deal looked very aggressive, reminding him of the recent Navistar International Corp. deal, which traded below par from the open. Bear Stearns recommended investors avoid the deal.

The new Navistar 2.5% convert was quoted Tuesday off 0.25 point to 97.375 bid, 98.375 asked with the stock down 18c to $24.27.

Bear Stearns put the new Steel Dynamics convert 3.4% rich, using a spread of 700 basis points over Treasuries and 42.5% volatility, at the midpoint of price talk.

Wachovia Securities, Inc. put the deal 6.43% rich, using a credit spread of 875 basis points over Treasuries and 38% volatility, at the midpoint of price talk.

Salomon Smith Barney put it 3.2% rich, using a spread of 550 basis points over Treasuries and 40% volatility, at the midpoint of price talk.

Deutsche Bank Securities Inc. put it roughly at fair value, or 0.4% cheap, using a spread of 700 basis points over Libor and 45% volatility, at the midpoint of price talk.

Analysts noted that Steel Dynamics' 9.5% straight bonds were trading around 500 basis points over Treasuries, and most widened that out to account for the subordination of the convert as well as the small $600 million equity market cap of the name.

Steel Dynamics shares closed down $1.57 to $12.06.

Trading desks were said to be rather quiet, however.

"It was pretty quiet, given this is essentially the last full week of business for the year," said the head convertible trader at a major investment bank.

"We're geared down, don't expect much else to go on."

Players were, however, watchful that some convertible issuers were tapping other capital markets, looking for any interesting developments.

Newell Rubbermaid Inc. (Baa1/BBB+) and Lamar Media (Ba3/B), a unit of Lamar Advertising Co., both issued bonds Tuesday.

Sanmina-SCI Corp.'s junk deal was rumored early in the day to have been upsized to $600 million from $450 million, but a syndicate source told Prospect News late in the session that was not the case. The new issue (Ba2/BB-) is expected to price to yield 10.25% to 10.5%.

The Sanmina 4% convertible due 2004 was quoted up 0.5 point to 95 bid, 96 asked. The 0% due 2020 was off 0.5 point to 39.5 bid, 40.5 asked. The 3% due 2007 was quoted up about 3 points to 69.5.

Convertible players are hoping for some sort of refinancing in regard to the three convertible issues, but there has been no firm indication along that front. Calls to Sanmina were not returned Tuesday.

Cell Therapeutics Inc., whose exchange for its 5.75% convertibles due 2008 expired at midnight, said it would host a conference call at 4 p.m. ET Wednesday to discuss the exchange offer (See related story on Page 1).

Management will also discuss its recent announcement regarding its agreement with Nippon Shinyaku and will review product and development highlights for 2002.

Sonic Automotive Inc.'s 5.25% convertible due 2009 (B+) dropped sharply on a downward revision by the company to its 2002 and 2003 earnings guidance.

The convert lost 3 points to 73.875 bid, 75.875 asked while the underlying stock dropped $1.03 to $14.71.

Sonic lowered its earnings targets for fourth-quarter by 20% to 48c-52c from 62c-66c, for 2002 to $2.44-$2.48 and for 2003 by 8% to $2.70-$2.80.

Nextel Communications Inc. reaffirmed its 2002 guidance early Tuesday, but traders said the converts firmed only slightly as investors are becoming skeptical of the valuations at current levels.

The Nextel 4.75s were quoted at 89, the 5.25s at 72.5 and the 6s at 91 by one shop.

Nextel shares ended up 41c to $13.23.

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