Sirius overnighter pops up; Charter weaker, "rudderless;" Corning, Nortel credits firm;

By Ronda Fears

Nashville, Oct. 7 - A day after Sirius Satellite Radio Inc. inked a deal with shock jock Howard Stern, the New York based broadcaster was peddling a $200 million overnighter and convertible market sources speculated the paper would find "easy buyers."

"With the Stern deal and lots of manufacturers putting Sirius equipment in their cars out of the factory, this could be the cusp of a big turnaround," said a market source familiar with the new deal. Sirius is not new to the convertible market, either, he added, which makes an overnight transaction easier.

The Sirius 2.5% convertible due 2009, typically an issue rarely heard on the trading desks, was very active on the Stern news Wednesday, a sellside trader said, and shot up about 6 points outright to 116.5 bid, 117.5 offered and the issue added another 2 points Thursday. Sirius also has a 3.5% convertible that is deep in the money and never seen.

The new seven-year non-callable convertible notes were talked to yield 3.25% with a 31.6% to 41.6% initial conversion premium over the $4.00 closing price Thursday, which was a 13-cent gain on the day.

Also at bat after the close with an overnighter was Terra Industries Inc. The Sioux City, Iowa fertilizer company was pitching $75 million of perpetual convertible preferreds talked to yield 3.75% to 4.25% with a 20% to 25% initial conversion premium.

Converts stubbornly resistant

In some cases the weakness in the markets Thursday resulted in a battle of wills. Convertible prices doggedly resisted any softness prevailing elsewhere - in underlying stocks as well as the bond market - and yet, in many cases traders were loath to bid them up. While not a bad situation from a portfolio value stand point, lots of traders in a buying mood were frustrated.

"Converts are just not coming in, and the markets are weak," said a buyside trader at a hedge fund in New Jersey. "I've been trying to buy certain things, but I'm not having any luck. I just refused to keep bidding this stuff up."

Several high-profile names headed south like Charter Communications Inc. and Corning Inc. with stocks tumbling hard as oil prices hit $53 a barrel briefly Thursday, but the convert market overall was still being described as expensive.

Hobbled output in the Gulf of Mexico, the threat of violence in Nigeria and general tensions in the Middle East that have disrupted oil shipments continued to push oil prices higher and crude oil reached $53 on Thursday before dropping back to settle at $52.67, still up 65 cents.

Oil, gas prices seen leveling

For those wanting to play the spike in oil and gas prices, it has been even more frustrating in the convertible universe as that paper - especially that of oil and gas production companies - is very pricey.

"Oil at $50 near-term may be able to stick for a while given a 13% drop in U.S. crude inventories in the face of reduced global (total and spare) production capacity and increasing supply disruption threats," said CreditSights analysts Brian Gibbons and Spencer Siino in a report Thursday.

Natural gas prices should taper off, though, the analysts added in a separate report Thursday. Heating fuels like natural gas and heating oil have spiked recently on warnings by government officials that it will be a colder than normal winter in the Eastern U.S., who estimated heating costs would be about 15% higher this year.

"Gas can only ride oil's coattails so far before the market comes to conclusion that there is plenty of gas to go around for winter," Gibbons and Siino said. "We expect prices to come off considerably, back to the 5-6/mcf range in the near-term."

Halliburton gets a lift

Because the major oil and gas names, what little there is in the convertible universe, are so rich, and partly due to the instability of oil and gas prices at present levels, a desk analyst noted Thursday that companies with dark histories like Halliburton Co. are a bright spot.

"Everyone would like to play oil and gas at these prices but all those bonds are extremely rich, so they are looking at the service companies, Halliburton and even BJ Services Co.," the analyst said.

Halliburton got a lift Thursday, with the stock gaining 26 cents, or 0.75%, to $3.505 after at Morgan Stanley & Co. Inc. equity analyst raised the one-year price target on the stock to $50 from $40. The Halliburton 3.125% converts were pegged at about 115.

"The beaten-up sentiment on HAL is about to return to old highs," Morgan analyst Ole Slorer said in a research note.

Asbestos claims along with trouble surrounding government contract prices have haunted Halliburton. The Houston oilfield services company now is restructuring its KBR unit, the engineering and construction division, under scrutiny for its work in Iraq and Kuwait. The company will make a decision on whether to sell all or parts of KBR, spin it off into a separate entity or launch an initial public offering once it resolves its asbestos settlement.

Charter easier on guidance

Charter Communications Inc.'s numbers on the tape Thursday, a peek at its third-quarter revenue forecast, were disappointing but not critical, an analyst said. The actual numbers will show more about the St. Louis cable company's operations, which he said seemed "rudderless" in the wake of the chief operating officer's exit.

Charter shares dropped a nickel, or 1.85%, to close Thursday at $2.66. The 5.75% converts due 2005 - at the top of the food chain in terms of getting redeemed or refinanced - were off about a half-point to 90.5 bid, 91.5 offered while the 4.75% issue due 2006 lost about a quarter-point to 86.75 bid. Charter's straight junk bonds at the holding company level also were off by about a half-point while the operating company bonds were static.

"The numbers are disappointing. Are they fatal? No," said Carl Blake, bond analyst at Friedman Billings Ramsey. "With the departure of the COO, you'd expect the numbers to be weak in third quarter. But operating expenses remain high. And there seems to be uncertainty as to strategy and executive management's commitment to strategy."

Charter forecast revenues to be up 7.5%, after factoring out the sales of several cable systems in the past year, Charter said, with actual revenue expected to be up 3%.

Revenue growth was primarily offset by increased programming, customer care and service-related expenditures, resulting in compression of the adjusted EBITDA margin. Adjusted EBITDA is seen flat on a comparable basis and down 3 percent to 5 percent on an actual basis.

Charter forecast a third-quarter loss of 55,000 to 60,000 basic cable subscribers on a comparable basis, compared with a loss of 11,000 subscribers a year ago.

While there was a gain in basic cable subscribers, or analog subscriptions, Blake said the numbers were expected to be much better because the third quarter is historically good for cable companies.

Corning credit "holding up"

Corning Inc. was reeling Thursday on the heels of announcing a $2.9 billion change late Wednesday, with the stock plunging 7.5%, but convertible traders said the credit was holding up well and served to prop up bond floors. One pegged the 3.5% issue at 112.625 bid, 113.125 offered., down about 1.5 points on swap or 7.5 points outright. Another put the 7% mandatory at 54 bid, off 4.5 points.

Corning shares fell 85 cents to close Thursday at $10.50.

After the close Wednesday, Corning said it will take a $2.8 billion to $2.9 billion onetime charge in the third quarter as prices for optical products remain depressed, eroding the value of its fiber-making assets. Corning also said he does not see the market recovering any time soon.

"Much of this had been expected although we thought the goodwill charge would be announced at the end of the year. The charges generally reflect accounting rules more than any change in the quality of current business, which has been improving, and the tone of business is good, in our view," said Deutsche Bank Securities Inc. analysts Raj Srikanth and Alex Barros in a report Thursday.

"The valuation allowance is the most significant item in our minds as it is based on changes in the outlook for fiber through 2011. In the shorter term things look good as the company re-affirmed 3Q guidance, and LCD [business] remains robust."

Corning said it now plans an additional $326 million spending for the second phase of its LCD manufacturing plant expansion project in Taiwan.

Corning said the anticipated charges include $1.4 billion to reduce the goodwill value of its telecom division, about $420 million for impairments to fixed assets and equity method investments and up to $1 billion to establish a valuation allowance against deferred tax assets.

Last month, Corning had reversed its view on third quarter optical-fiber volume and reiterated its sales forecast of $950 million to $1 billion. The company also said it was "very comfortable" with the pro forma earnings view of 10 cents a share to 12 cents a share, before special items.

Tower bonds off 3 points

Tower Automotive converts continued to gear down Thursday and in fact haven't skipped a beat in a steady decline since the Novi, Mich.-based auto parts maker warned of a larger-than-expected quarterly loss on Monday, although the corresponding junk bonds in that name had bounced back on Wednesday.

Any bounce in the Tower bonds, indeed, may have been premature, according to a bond analyst who said the credit could see further weakness.

Tower's 5.75% convertibles have soundly skidded since the news hit the tape and were pegged Thursday closing at 61.875 bid, 63.875 offered, off about 3 points on the day and down from a level of 74 at the beginning of the week. The junk bonds, however, had dropped precipitously on the new initially, but bounced back Wednesday by around 4 points.

Tower shares Thursday dropped 12 cents, or 6.5%, to $1.80.

"Given its liquidity and the fact that it has no major debt maturities until 2009, Tower shouldn't implode like Intermet. Its financial results should improve once the new business kicks in and steel prices decline, and if launch costs come down," said GimmeCredit analyst Shelly Lombard in a report Thursday.

Tower on rocky path still

Intermet Corp., which makes chassis and the like, warned about a steep third quarter loss in mid-September. That put it into a default on its bank covenants and about 10 days later the company filed bankruptcy.

Tower Automotive may not necessarily be on the road to bankruptcy, but the analyst said its path may get rockier before it smoothes out.

"Even so, this company [Tower Automotive] is going to be cash flow negative for a while and financial results will look lousy for the next two quarters at least," Lombard said.

"The bonds offer a juicy 15% current yield but we wouldn't be buyers just yet. Given current market sentiment about the automotive industry, these bonds could get even cheaper."

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