Northeast "Blizzard of 2003" hampers trading desks but doesn't thwart deal activity

By Ronda Fears

Nashville, Feb. 18 - The convertible market was slow in the aftermath of the so-called "Blizzard of 2003" that struck the Northeast over the holiday weekend.

"It was really quite slow today, some of it the weather and some because we're coming back from a long weekend," said a convertible dealer.

"We saw some activity in a few preferreds and some convertible people were active in the XM and Sirius satellite names. Otherwise, there's not much to report."

Several people on convertible desks reported it took them longer to get to work - one commuter said it took as long as four hours. A few even were short-staffed as people stayed home.

Hutchinson Technology Inc. however was not deterred and at the open launched a drive-by deal that met with strong demand.

"The books ran very well," said a banker working close with the deal.

"We saw a broad investor base coming to this book," he added, noting some were holders of the Hutchinson 6% convert that will be redeemed with proceeds from the new deal.

Pricing at the expensive end of price talk, Hutchinson sold $130 million of seven-year convertible subordinated bonds at par to yield 2.25% with a 36% initial conversion premium.

Syndicate sources said the deal went "very well," and in another measure of strong interest traders quoted it closing 1.625 points over par on the bid side and 2.25 points over on the offer side.

Hutchinson shares closed off 57c to $21.95.

Sellside convertible analysts put the deal, at the midpoint of guidance, from 0.95% cheap to 3.15% cheap.

Buyers liked the name, and indeed many were holders of the existing Hutchinson convert.

"They definitely have a strong story," one buyside source said.

"This is one of the top names in the disk drive sector."

Hutchinson's market share in the disk drive industry has slipped over the last five years, to 50% from about 75%, but the entire industry has been in a slump since about 1997, the source noted.

Elsewhere, it was a mixed bag, but traders said more of the actual trading activity moved convertibles lower.

Allen Telecom's convertible preferred gained nicely on merger news.

Andrew Corp. is buying Allen in a $500 million stock deal that would give Allen shareholders 1.775 shares of newly-issued Andrew stock for each Allen share that they currently own, which was translated into $15.99 per Allen share.

Allen shares closed up 27c to $13.50 but the 7.75% convert due 2014 added 1.5 points to 97.5 bid, 98 asked.

Defense names lost ground, despite the talk of conflict, on some profit taking as a Banc of America Securities equity analyst said that while military equipment makers like L-3 Communications Holdings Inc. may rally ahead of any potential conflict in Iraq, they may not live up to their sales forecasts in the long run.

L-3 Communications' 4% convert due 2011 lost about 1.75 points on the day to 103.25 bid, 103.75 asked and the 5.25% convert due 2009 fell about 3.5 points to 116.75 bid, 117.25 asked. L-3 shares dropped $1.85 to close at $37.35.

Northrop Grumman Corp.'s 7.25% mandatory was quoted by a dealer down 2.375 points to 100 bid, 100.25 asked. The convert closed on the New York Stock Exchange down 0.55 point to 101.75. The common stock ended down 38c to $91.79.

El Paso Corp. shares continued to come under pressure, as a high-profile stockholder on Tuesday called for the ouster of its board of directors.

But traders said there were some high yield buyers picking up the convertible bonds. El Paso's 0% was quoted up about 2 points to 29.25 bid, 30.5 asked. The 9% mandatory was quoted flat at 23.125 bid, 23.375 asked. El Paso shares closed off 14c to $4.05.

A Barron's article moved XM Satellite and Sirius Satellite shares higher, and convertible traders said that's where most of the activity was - in the stock. But they said a good portion of the activity in those stocks was by way of convertible holders.

The article was more positive on XM Satellite, but noted considerable risk with both names.

XM Satellite shares closed up 72c to $4.49. The 7.75% convertible due 2006 (Caa3) was quoted at 26 bid and offered at parity.

Sirius shares ended up 18c to 93c but a quote on the 8.75% convertible due 2009 (CCC-) was not available.

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