OMI slides again with oil; Calpine, utilities hit by gas prices; Cray, Synaptics rise with techs

By Ronda Fears

Nashville, Dec. 2 - With little faith in a Santa Claus rally prevailing, what with retail sales data looking weak and unemployment claims unexpectedly high, many convertible players were looking to add technology and telecom positions. Conversely, they were dumping energy-related issues as oil and natural gas prices continued to plummet.

When asked if he were a believer in a year-end rally for 2004, one convertible manager said, "I do not, do not, do not, and have been selling and selling and selling, or letting my put names get heavier and heavier! My worry is that I will have all cash and a bunch of puts when we go up another 25%."

Not that more gains in convertibles would be a complaint, but the market is generally described as expensive and getting richer by the day.

"Well, INTC [Intel Corp.] looks good so Santa Claus might be in the house after all! Yikes!" he continued. "At least maybe I get more rotation out of oil/materials and into tech/biotech. That could benefit some of my puts, but I am not long enough tech/biotech."

Intel raised its sales forecast for fourth quarter Thursday, lifting the chip sector in after-hours trading along with other tech issues like computer hardware maker Cray Inc.'s new deal although many of those names closed the day on lower ground. Telecom and telecom equipment makers were higher in the regular session Thursday.

Another drop in oil prices put a damper on that sector, including oil tanker OMI Corp.'s new issue, as it was slammed again by the drop in oil futures, while power and utility issues like those of Calpine Corp., TXU Corp., Dynegy Inc. and Reliant Energy Inc. plunged on the drop in gas prices.

"I say take the money and run, regarding oil, if you have time still," said another convertible fund manager. "It may be too late already."

Lexington at bat as pace slows

Meanwhile, the pace of new deals was rapidly winding down for the week with Lexington Corporate Properties Trust's singular deal pending after Thursday's close.

Lexington launched the $125 million convertible preferred deal after the close Wednesday with price talk for a dividend of 6.25% to 6.75% and 17.5% to 22.5% initial conversion premium.

Lexington, a New York City-based real estate investment trust, said it planned to use proceeds to fund future acquisitions and for general corporate purposes.

The REIT's stock closed Thursday down 88 cents, or 3.79%, at $22.35.

Scientific Games space a hit

While the new Scientific Games Inc. deal was considered rich, many considered it a decent bet at the middle of price talk - which was roughly where it priced - and, thus, potential buyers scrambled for a position in the gaming sector.

"SGMS is priced rich. We like the stock but like the deal only at the mids at best," said a buyside source, who ended up taking a chunk of the new deal, and said he would "probably buy some more too. The market is feeling pretty toppy though."

Scientific Games' $225 million of 20-year convertible notes were printed with a 0.75% coupon and 25% initial conversion premium - smack in the middle of guidance for a 0.5% to 1.0% coupon and cheaply outside premium talk of 27.5% to 32.5%.

It didn't show a big pop out of the gate but edged up from the par bid in the gray market to close Thursday at 100.75 bid, 101.25 offered. Scientific Games closed off 39 cents on the day, or 1.68%, at $22.89.

The New York City-based online betting and video poker company, which also provides ticket machines for lotteries and pari-mutuel betting, said it would use proceeds to repay a portion of the term loan outstanding under its existing senior credit agreement and to finance a tender offer for its 12.5% senior subordinated notes due 2010. The company launched a new $300 million credit facility consisting of a $200 million senior revolver and $100 million senior term loan on Thursday.

OMI, oil issues tumble again

Most of the new paper from this week was sharply higher again Thursday, in fact, but in another contradictory example, OMI dropped again as the January contract for crude oil lost another $2.24 to settle at $43.25 a barrel.

The Stamford, Conn.-based crude oil tanker company's $225 million deal, boosted from $200 million, was printed Tuesday with a 2.875% coupon and 46.5% initial conversion premium - near the midpoint of yield talk of a 2.75% to 3.25% coupon, not outside coupon guidance of 3.75% to 4.2.5% as previously reported incorrectly.

OMI's new convertible was quoted by a sellside trader Thursday down by 2.75 points to 99.25 bid, 99.75 offered, while the underlying stock fell $1.32, or 6.43%, to $19.21. The convertible had shot up as high as 104 before oil prices plunged Wednesday.

Also hit by oil prices were several drilling names.

Pride International Inc.'s converts fell 2 points or a little more, a sellside trader said, while the Houston driller's stock lost 32 cents, or 1.69%, to close at $18.58 on Thursday. Schlumberger Ltd.'s converts dropped similarly, he said, as the oilfield services stock plummeted $1.58, or 2.49%, to end at $62.05.

Gas prices hit power issues

Natural gas futures slid alongside oil, losing 60.2 cents to settle Thursday at $6.811 per million British thermal units, and traders said that sent power and utility paper lower as well.

"There was a general sell-off in utilities today," a trader said. "Gas prices dropped sharply but that doesn't explain the total price action. There was a lot of hedging impacting the stocks, and the converts just went along for the ride."

Calpine's new 6% convertible due 2014 was one of the biggest losers on swap, falling 5.5 points to 103.75 bid, he said, while the underlying stock dropped 22 cents, or 5.9%, to end at $3.51.

Reliant Energy's 5% due 2010 lost 3.5 points with the stock down 37 cents, or 3%, to $11.69, he added.

TXU and Dynegy also were big losers.

Synaptics deal goes to 101.25

Synaptics Inc.'s deal became a hit by virtue of a rise in interest in tech paper, boosting it by 1.25 points or more in the immediate aftermarket, a buyside trader said, while terms on the new issue were considered "sort of lousy."

The San Jose, Calif.-based company, which makes components for notebook computers such as the signature scroll wheel on Apple Computer Corp.'s iPod, sold $100 million of 20-year convertible notes at par to yield 0.75% with a 40% initial conversion premium - inside price talk for a 0.5% to 1.0% coupon and at the tight end of talk for a 35% to 40% initial conversion premium.

Synaptics said it would use proceeds for working capital and potential future acquisitions, but stressed it currently has no specific acquisition plans.

The new convertible closed at 101.75 bid, 102.25 offered while the underlying stock ended Thursday down another $1.27, or 3.52%, to $34.82 on heavy participation in the deal by hedge funds.

Cray's deal, another new issue in the tech sector, also continued to climb with the 3% convertible gaining to 108.625 bid, 109.625 offered. The only strenuous complaint about the deal, one buyside trader said, was its small $65 million size. Cray shares on Thursday added 9 cents, or 0.2%, to close at $3.96.

Players want tech positions

In general, buyside sources were keen to pick up new tech paper or add to positions in the tech space. Intel's forecast, in the face of the retail and unemployment data, didn't hurt that effort, either. Sellside traders said there was some buying in tech converts Thursday on recent softness, and interest was anticipated to balloon on the Intel news.

Netherlands-based semiconductor circuitry maker ASM International NV's new 4.25% convertible was described as up just by about a half-point along with its 5.25% convert, while the stock rebounded 1.14%, or by 18 cents, to close Thursday at $15.92.

Euro converts in the chip sector were mentioned with interest, a buyside source in London said, as many of those issues have been easier to pick up recently. Specifically mentioned were Infineon Technologies AG and ASML Holding NV.

Four Infineon executives agreed to pay $250,000 fines and serve prison time in the U.S. for their roles in an international conspiracy to fix prices for computer memory chips, the U.S. Justice Department announced Thursday, and another convertible issuer, Micron Technology Inc., is involved in the ongoing investigation of that case.

Along with Micron and Germany-based Infineon, Samsung and Hynix Semiconductor have acknowledged receiving subpoenas related to the investigation. With Infineon, these companies control more than 75% of the market for dynamic random access memory, or DRAM, chips.

Infineon's euro convertibles were described by the buyside source as "probably not changed much, but there was good two-way interest in both issues." He pegged the 4.25% due 2007 at about 100.75 bid, 101 offered and the 5% due 2010 at 114.75 bid, 115 offered. Infineon shares closed in the U.S. off 8 cents, or 0.72%, to $11.10.

ASML's converts moved up about a half-point, he said, putting the 5.5% euro issue due 2010 at 122 bid and the 5.75% U.S. issue due 2006 at 113 bid. ASML shares in the U.S. gained a penny to close Thursday at $15.77.

Telecoms picked up, too

"As for techs/biotechs, there is some opportunity in a handful of issues that are pure techs and a FEW biotechs, but those are small," said a convertible fund manger. "I'm more interested in telecom, right now, but would hold my cards close."

Millicom International Cellular SA sold a deal off the London desk of Morgan Stanley & Co., and while interest was more concentrated abroad, the issue did lure a few buyers among U.S. accounts.

Luxembourg-based Millicom's new 4% convertible moved up to close Thursday at 100.25 bid, 101.25 offered with the stock adding 72 cents, or 3.1%, to close in the U.S. at $23.96.

Also mentioned gaining in the telecom or telecom equipment space were Nortel Networks Corp., Juniper Networks Inc. and UTStarcom Inc.

Juniper gains on merger buzz

Juniper Networks' surge was particularly pegged with reports putting the company on the hunt for acquisitions. Extreme Networks Inc. was at least one convertible name edging a bit higher as a potential target for the telecom equipment maker.

Juniper's 0% convertible gained about 2 points, a sellside trader said, while the stock gained 42 cents, or 1.5%, to close Thursday at $28.70.

Extreme Networks' 3.5% convert due 2006 added about a half-point, he said, to 97. The stock ended up 9.8 cents, or 1.41%, at $7.058.

"We are investigating the market in all directions," CEO Scott Kriens was quoted as saying in an interview with Germany's daily Financial Times Deutschland. "We can use our liquid cash assets of $1.5 billion for this."

A sellside desk analyst said Extreme Networks' market cap is about $840 million "and their products are a perfect fit into Juniper's line of products to compete against Cisco (Cisco Systems Corp.), so this might have some credence."

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