New issues invigorate otherwise languid market; Calpine seen heading south

By Ronda Fears

Nashville, Tenn., April 23 - Just as market players seemed to be at their wits' end, a string of new issues popped up. Trading was described as quiet with the market widely mixed as stocks continued to slide, but a couple of fair-sized new deals were launched that piqued some interest.

In secondary activity, traders were anticipating Calpine Corp. would open lower on Wednesday in response to its stock sale and profit warning.

IDEC Pharmaceuticals was in the overnight market, and Sempra Energy launched a $450 million mandatory for later this week. Also later this week, Isis Pharmaceuticals is bringing a small $125 million note to market.

"Just as you're ready to throw your hands up for lack of any new blood, new deals, something hits the tape," said a trader at a convertible fund in New York.

"Not that we've been really, really excited about most of the new deal terms, but there's been good diversification and terms are decent."

Dealers said trading was quiet Tuesday as the earnings season peaked.

Biotech and health-related issues were mixed, traders said, as IDEC and Isis launched new deals.

IDEC's new 0% convert, aiming to fetch $675 million in proceeds, traded at issue and slightly below in the gray market. The existing IDEC 0% convert fell 4 points on the news, but the company said it will be trying to get holders of the deep in the money issue to convert it to common shares.

To entice hedged buyers, IDEC said it would use up to $135 million of the new issue proceeds to buyback common stock. But buyside sources said the new paper was trading lower due to the terms, which one analyst put at 1.3% cheap using a credit spread of 500 basis points and 42.5% volatility in the stock.

"That's reasonable," said a convertible trader at a hedge fund in New Jersey, noting that IDEC is issuing the convert on swap.

"We'd like to see terms on new deals get back to the 5% cheap area at issue," he continued, adding that IDEC was on the richer side while Isis was perhaps too cheap.

"You don't really like to see deals issued 10% cheap, either, but you don't want it to be right at fair value, too rich."

At the midpoint of guidance on the Isis deal, Bear Stearns convertible analyst John Wright puts it about 6.5% cheap using a credit spread of 900 basis points and 50% volatility. Wachovia Securities convertible analyst Kimberlee Brody puts it about 10% cheap using a spread of 800 basis points and 55% volatility.

Isis is pitching $125 million of seven-year convertible subordinated notes talked to yield 5.0% to 5.5% with a 20% to 25% initial conversion premium.

Sempra Energy launched a mandatory convertible as it reported earnings. The issue has guidance that puts the dividend at 8.5% to 9.0% and initial conversion premium between 18% and 22%.

"We've decided to buy the Sempra deal. We like the terms, great yield. And, we like the sector. It's a good complement to holding Calpine," said the convertible hedge fund trader.

Calpine's securities closed higher but after-hours trading erased all the day's gains, traders said.

On Tuesday, Calpine gained ground on news that the independent power producer had settled the disputes with California state energy regulators. Calpine will pay a fraction of the damages the government sought and the state agreed to drop all lawsuits that accused Calpine of price fixing during the energy crisis. Also, Calpine agreed to restructure its long-term power sales contracts with California at lower prices.

Calpine's 4% convertibles due 2006 added 5.875 points to 100 bid, 100.5 offered as the underlying shares gained $1.42 to $13.33.

But after the close, Calpine announced that it would sell 60 million shares of common stock and warned it would miss analysts' expectations for first quarter earnings.

One trader said the stock offering will dilute Calpine shares by 20%. Calpine said the proceeds would be used to pay down debt.

In after-hours trading, Calpine shares were down $1.53 to $11.80, a trader said.

"Well, when they filed the registration a couple of months ago they said they weren't going to issue any debt," the trader said.

"That bothered the market, the idea of more debt. I don't think anybody really thought they'd do a stock deal right now, in this climate."

Much of the energy sector was higher Tuesday, traders said, along with homebuilders, financials, retailers and a few healthcare names.

Trading was rather quiet, however.

Notable gains were seen in the old COR Therapeutics convertibles after Millenium added a put to both issues. The COR 4.5% issue due 2007 rose 8 points to 107.125 bid, 107.625 offered and the 5% issue gained 5.25 points to 107.25 bid, 107.75 offered. Millenium assumed the debt in its acquisition of COR.

Millenium's 5.5% convertible note due 2007 declined by 0.5 point to 90.25 bid, 91 offered as the stock closed down 96c to $20.50.

Lucent also continued to head north.

The Lucent 7.75% convertible trust preferred due 2017 rose 2.25 points to 94.25 bid, 94.75 offered as the stock gained 5c to $4.54.

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