Market watches stocks gain from sidelines, Phoenix in market with small deal

By Ronda Fears

Nashville, Dec. 16 - Convertibles were marked up along with stocks, but the most players were on the sidelines. Otherwise, The Phoenix Cos. Inc. was in the market with what many expected to be the final deal of the year - although a late-Monday announcement with few details by Steel Dynamics, Inc. could create a rival.

"It's Christmas time already," said a convertible trader at a hedge fund in New Jersey.

Thus, the trader said, not much was going on.

"We're in full-blown holiday mode," said a convertible dealer.

"Nextel traded, but then Nextel is always pretty active. Some Lucent, what have you. Just bits and pieces, here and there. I wouldn't say there was any trend developing."

Indeed, most buyside sources said whatever so-called window dressing was planned has been executed.

"There would have to be something compelling happen to move people right now," the dealer said.

"No one's staking out a position. Tweaking, maybe."

The Phoenix deal, a $130 million mandatory talked to yield 7.25% to 7.75% with an 18% to 22% initial conversion premium, probably will be the last for 2002.

The deal, via joint book-running managers Merrill Lynch & Co. and Morgan Stanley, was up just slightly in the gray market.

"It's such a small deal, a small insurance or financial company," said a buyside source, noting the market capitalization for Phoenix is just $680 million.

Phoenix shares ended up 43c to $7.23.

The mandatory was quoted by a buyside source at 8c/15c over issue price.

It was quoted 5c/20c over par by a sellside source.

Both gray market levels suggest only marginally positive interest.

"It's small and probably the last deal of the year," said a buyside trader.

"I mean, if there isn't a deal out there getting talked up today, which we've not heard of, then there probably won't be another for the rest of the year."

Market sources were not talking about another deal this week, buyside or sellside.

There is time for more, but buyside sources said they've not been put on alert to expect anything.

However well after the close Monday Steel Dynamics announced it would sell $100 million of convertible subordinated notes due 2012 in a Rule 144A offering with a $25 million greenshoe. Proceeds will repay bank debt. No other information was disclosed.

If 2002 does wrap up with Phoenix and Steel Dynamics, they would take 2002's issuance total to $59.7 billion including investment bank synthetics or $57.6 billion excluding synthetics, according to Prospect News data. Greenshoe exercises could raise the figures slightly.

Convertible players are, however, watching for the Sanmina-SCI Corp. junk deal this week.

Sanmina-SCI's $450 million of senior secured notes due 2009 (Ba2/BB-) are seen pricing to yield 10.25% to 10.5%, a syndicate source told Prospect News.

Goldman Sachs & Co. is the bookrunner. Co-managers are JP Morgan, Salomon Smith Barney, Banc of America Securities, Scotia Capital and Wachovia Securities, Inc.

Pricing is expected late Wednesday, with proceeds of the Rule 144A notes earmarked to repay debt under the existing credit facility, to repay the outstanding balance on the receivables securitization facility, to refinance or restructure other debt and to fund further expansion of the business, and for working capital.

Therein lies the interest from the convertible market, as many believe Sanmina will look to refinance or restructure one or more of the three convertible issues outstanding.

There has been some buzz about Sanmina buying back the convertibles in the open market, which has been a somewhat common occurrence for issuers with cash and convertibles trading at a deep discount to par.

A buyside source heard of a transaction Friday or Monday that suggested Sanmina bought some of the old 3% SCI convertibles, but that was not confirmed.

A dealer said Sanmina's 4% convertible due 2004 was flat at 94.5 and the 0% due 2020 was flat at 40. The 3% due 2007 saw the only trade, the dealer said, moving down about 3 points to 66.125.

Gilead Sciences Inc.'s new 2% convertible gained 1.25 points to 106 bid, 106.5 asked as the stock ended up 72c to $36.40.

Computer Associates International Inc.'s new 1.625% added 0.875 point to 98 bid, 98.5 asked with the stock closing up 63c to $13.81.

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