Firm tone on rising confidence; Allergan prices $450 million, Lucent, EDS active

By Sara Rosenberg

New York, Oct. 31 - The convertible market was characterized as firm on Thursday as investor confidence continues to grow and people are beginning to view the current market environment as a buying opportunity. Trading was fairly active with names such as Lucent Technologies Inc., Electronic Data Systems Corp., Ohio Casualty Corp., PerkinElmer Inc. and Omnicare Inc. being listed as some of the day's movers.

Meanwhile, in an unexpected deal, Allergan Inc. priced $450 million in proceeds of 0% convertible senior notes due 2022 after the close Thursday. They priced to yield 1.25% with a 25.45% initial conversion premium via Banc of America Securities and Salomon Smith Barney.

"The tone of the market is actually firm. It's looking very solid," said Rao Aisola, head of convertible research at Bear Stearns & Co. "Names have been holding up, even names like Lucent. [But], nothing spectacular is going on today."

"As people start to feel a little more confident about the market, they're willing to be more aggressive and take a chance on names like Lucent," said Stuart Novick, convertibles analyst at Salomon Smith Barney.

On Thursday, "USA Today reported that the SEC is investigating possible improper accounting at Lucent. More specifically, the SEC is looking at whether Lucent used aggressive accounting in 1999 and 2000 to inflate sales numbers. The publication reported that a notice will be sent to the company within days," according to Wachovia Securities, inc. analysts, Jeanine Oburchay and Brian Park. However, this seemed to have little effect on the company's convertibles and stocks as both were up on the day.

Lucent's 8% convertible closed at 399.680 bid, 404.680 offer and its 7¾% convertible closed at 361.694 bid, 361.694 offer, compared to Tuesday's offer around 350, Aisola said. The stock closed at $1.23, up 3c or 2.5%.

Electronic Data Systems 0% convertible firmed about a point on Thursday after dropping Wednesday in response to the company's earnings release. The 0% convertible closed at 72.609 bid, 73.109 offer. On Wednesday, the issue was quoted around 72 versus about a $13.50 stock price. The stock closed at $15.06 Thursday, up $1.31 or 9.53%.

In other news, price talk emerged on The Phoenix Cos. Inc./Hilb, Rogal & Hamilton's $125 million of three-year mandatory convertibles sale. The yield is talked in the 7% to 7.5% range and the initial conversion premium is talked in the 18% to 22% range, according to market sources.

The registered deal, which is expected to price on Nov. 7, is coming via lead managers Banc of America Securities, Merrill Lynch & Co. and Morgan Stanley.

The issue price is expected to be the same as where the common stock is trading.

There is no greenshoe on the deal.

Moody's Investors Service rates the deal Baa2 and Standard and Poor's rates it BBB+.

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