Slow session follows frantic week of heavy new issuance

By Ronda Fears

Nashville, May 16 - It was a slow session in convertibles Friday following a week of more than a dozen new deals totaling $4.4 billion without the greenshoes. Traders said the secondary market was very quiet, including even most of the new paper that was injected into the market this week.

"A lot of buyside people were out this afternoon. I would've taken off too if I could," said a dealer.

"It was an interesting week, exciting at times. A lot of people are not too crazy about the terms of some of this [new] paper but overall I think everyone feels like it's good for our market."

Next week only The Hartford Financial Services Group Inc.'s $600 million mandatory sits on the calendar and capital market sources are saying the pace will slow down substantially from the likes of the past week.

"There is still a very healthy shadow calendar sitting out there," said a source active in convertible underwriting.

"Of course, everything is timing. But I expect we will stay busy for a while, and more than usual probably throughout the summer."

Discounting by underwriters continued on several issues from the most recent batch of new issues, but the capital markets source speculated that practice may subside sharply.

"Convertible people are not so willing to buy into some of the richer paper, so it [discounting] will probably depend on how active cross-over buyers are going forward," he said.

While several of the new deals turned heads this week, both in positive and negative response, the only big mover mentioned Friday was PPL Energy Supply LLC.

PPL Energy sold an upsized $350 million of 20-year convertibles, which convert into parent PPL Corp. shares and are guaranteed by PPL, at par to yield 2.625% with a 30% initial conversion premium - at the middle of guidance.

It shot up immediately out of the gate by 2 points from where it closed in the gray market on Friday, a buyside trader said. One of the three lead banks closed it at 101.5 bid, 102 offered. The stock ended up 77 cents at $39.24.

Deutsche Bank Securities had put the PPL issue just slightly rich, 0.81% to be exact, using a credit spread of 150 basis points over Libor and a 20% stock volatility.

Deals from Sinclair Broadcast Group Inc. and CenterPoint Energy Inc. - both well received - gained just about 0.5 point. And Triarc Cos. Inc.'s deal, another home run, slipped about 1 point to 104 bid, traders said.

Among the discounted issues, Northwest Airlines Corp.'s new issue lost another 1.5 points to 96 bid and the Sallie Mae jumbo was quoted flat at 98.125 bid.

It was a broad mix of credit quality, buyside sources noted, which seemed to "draw buyers from all corners of the market."

Indeed, one of the busier salesmen from this week's stream of deals said: "There was a pretty even mix of participants in the deals on whole. Some issues drew more hedge funds, others more outrights and crossover buyers. But, all in all, it was pretty evenly distributed."

Dealers said there still seemed to be willing buyers for the lower credits but analysts are beginning to urge investors to look at "crawling up the credit curve," as one put it.

"We feel like the steam is going to be let out of the spread rally soon, not that we think spreads are going to blow out like before, but it's time to look at getting into a defensive position," the analyst continued.

Among lower credits still catching the eye of buyers, Charter Communications Inc. made a sharp gain Friday.

"There are occasional spikes here and there in these junkier names as somebody steps in or bows out, whichever is the case," said a distressed trader.

"Maybe there isn't a big trade that takes place, which is why sometimes it's sort of esoteric to quote this stuff, but it does speak to something moving, some interest one way or the other."

Charter's 4.75% due 2006 shot up 3.5 points to 51.5 bid, 52.5 offered and the 5.75% due 2005 spiked up 4 points to 54.5 bid, 55.5 offered, according to the trader. There was no news, he said, but Charter shares also gained nicely on short covering, which also could have been a factor in the bond movements.

Charter stock closed up 0.479c, or 23.14%, to $2.549.

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