Convertibles mixed, flat on light volume in holiday-shortened session

By Ronda Fears

Nashville, Tenn., Dec. 24 - Convertible traders said it was a light holiday-shortened session, as expected. The market was described as mixed and flat, in very thin trading. Retail issues were mixed, traders said, as investors perceive the holiday shopping was less than spectacular but better than expected during a recession. Likewise, airline, hotel and restaurant issues were mixed on anticipation that more Americans were staying home or driving rather than flying during this holiday season.

The primary market was idle, having wrapped up the year with the $1 billion Solectron mandatory convertible late last week. The market generally doesn't expect any more new deals for the year, but sources were not entirely ruling out the possibility of a deal between the Christmas and New Year's holidays.

"It was a typical holiday session. It was virtually dead today. We were open for business, yes, but there wasn't any business going on," said a convertible trader at a major investment bank. "I don't know if anyone here actually did a trade for convertibles. If so, there were very few. Stocks were very light, too. "

On a Wall Street Journal item saying the final weekend of holiday shopping was weaker than expected with most major stores expected to see slight increases of 1% to 2% in holiday sales from last year, retail issues were widely mixed. Stocks in general were flat on light volume, with the Nasdaq off 1.35, or 0.07%, to 1944.48 and the Dow Jones Industrial Average unchanged at 10,035.34.

"Trading was very thin, so it's really difficult to make any sort of description of what the market did on a day like today. The light volume really makes it hard to assign value to characterize what happened," said another convertible trader at a major investment bank.

"Of course, given that it's the Christmas holiday there was the usual attention to retail, travel and leisure sectors. There wasn't much going on there today, though, because most of the positioning has already taken place. Unless there are some surprises after the holiday, probably all the selling or buying in those areas has been done."

In the retail sector, indeed there were only a couple of moderate changes. Most of the group, and there are several convertibles in this sector, were flat to slightly higher. But, Genesco's 5.5% convert due 2005 (B2/B) added 1.625 points on the day to 110.5 bid, 111.5 offered as the stock added 55c to $20.66. J.C. Penney's 5% convertible due 2008 (Ba3/BB+) gained 1.5 points on the day to 109.375 bid, 109.875 bid as the stock gained 42c to $25.81. And, Costco Wholesale's zero-coupon convertible due 2017 (A3/A) was also higher, by 0.5 point to 101.5 bid, 101.75 offered with the stock up 42c to $44.03.

Decliners in the retail sector include Amazon.com's 4.75% convertible due 2009 (caa3/CCC+), dropping by 0.5 point to 46.5 bid, 47.5 offered with the stock off 17.1c to $9.829. AnnTaylor's 0.55% discount convertible due 2019 (B2/B), which sold at 55.26 in June 1999, was also lower by 0.5 point to 56.5 bid, 57 offered with the stock down 77c to $33.67.

Hotel issues were flat to slightly lower, traders said, and airline and travel issues were also lower. Cendant, another name associated to holidays and travel as the company owns Avis car rentals, declined, as well. The Cendant zero-coupon convertible due March 2021 (Baa1/BBB) lost 1.5 points on the day to 71.5 bid, 72 offered and the 3.875% convert due 2011 fell 1.375 to 105.25 bid, 105.625 offered. The Cendant zero-coupon convert due February 2021 lost 0.5 point to 100 bid, 100.375 offered. Cendant shares dropped 61c to $18.99.

Drug, healthcare and biotech issues were higher for the most part, traders said. The news from late Friday that Schering Plough had gotten approval for its Clarinex allergy drug sent Sepracor Inc. securities higher, traders said, because it was expected to produce something in the neighborhood of $30 million in royalties for Sepracor. The Sepracor 5% convertible due 2007 gained 2.5 points on the day to 86.5 bid, 87 offered. The 5.75% convert due 2006 rose 4 points to 108.25 bid, 108.75 offered. And, the 7% convert due 2005 added 3.875 to 105 bid, 105.75 offered. Sepracor shares climbed $3.05 to $56.60.

New paper gained ground, traders said, but added that there was little to no activity in the names..

Solectron's new 7.25% mandatory convertible, which sold at par of 25 last week, added 0.75 point on the day to 27.25 bid and the stock was up 27c to $10.52. Electro Scientific Industries Inc.'s 4.25% convert due 2006 edged up 0.5 point to 100.25 bid, 101.25 offered as the stock rose 24cto $29.90. SanDisk's 4.5% convert due 2006 was up 0.25 point to 97.75 bid, 98.75 offered with the stock up 8c to $13.49.

Calpine's new 4% convert added 2.5 points to 109.875 bid, 110.125 offered as the underlying shares added 50c to $15.51. The 5.75% convertible preferred added 2.125 to 57.5 bid and the 5.5% convertible preferred was up 1.125 to 41 bid.

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