New issues hit amid sell-off, Snow nomination a plus

By Ronda Fears

Nashville, Dec. 9 - Sellers prevailed in the convertibles market Monday but trading was very thin. Hardest hit, traders said, were new issues, chips, telecom and telecom equipment issues.

Skechers U.S.A. Inc. was the "disaster du jour," however, as the company warned that its fourth quarter is expected to show a net loss rather than the previously expected profit.

"Virtually everything was marked lower," one dealer said, "but we didn't really see much action today."

Although there was no market reaction, analysts said President Bush's appointment of John Snow, currently chairman and chief executive officer of CSX Corp., as the new Treasury Secretary was a positive for the financial markets.

"The market sold off a bit," said Rao Aisola, head of convertible research at Bear Stearns & Co.

"It was a very slow day, though. Market volume should pick up in the next couple of weeks as people start to rebalance their portfolios."

Nothing stirred as a potential new issue and buyside sources were less optimistic of "something interesting" coming this week as stocks started the week with a sharp retreat.

Meanwhile, recently priced new issues continued to lose ground.

"Some of these deals that were going to be the next high-flyers have turned out to be very disappointing," said a buyside trader.

Computer Associates International Inc.'s new deal traded lower immediately after pricing last week and has not turned around.

The new 1.625% due 2009 ended down 1.125 points to 94.875 bid, 95.625 asked.

Computer Associates stock closed down 90c to $12.76 with very high volume.

Advanced Micro Devices Inc.'s new 4.5% convert fell 12.375 points to 124.375 bid, 125.375 asked. The 4.75% convert lost 3.125 points to 65.875 bid, 66.375 asked. AMD shares closed down 80c to $7.31.

Nortel Networks Corp., Corning Inc. and Skyworks Solutions Inc., along with Skechers, were about the only other convertible names with any volume to speak of, traders said.

Nortel shares dropped 36c to $1.53 amid a big sell-off, which dealers attributed to profit-taking from the recent run-up.

The Nortel 4.25% convertible bond was quoted down 3.5 points to 46.375 bid, 48.375 asked while the 7% mandatory was quoted down 15 points to 317.25 bid, 317.5 asked.

Skyworks's new deal took a beating, also, losing 5.75 points to 134.375bid, 135.375 asked as the stock lost 61c to $9.81.

Corning's 3.5% convertible bond dropped 3 points to 70.5 bid, 72 asked with the stock closing down 48c to $3.37. The Corning 7% mandatory was quoted at 189.75 bid, 190.75 asked.

Lucent Technologies Inc. and Nextel Communications Inc. were also lower amidst the telecom and telecom equipment sell-off.

Software names continued to see some softness in the wake of IBM's purchase of Rational Software Corp. last week for $2.1 billion.

The Bisys Group Inc., a financial services outsourcing firm, saw its stock dive $1.24 to $18.30 but the 4% convertible due 2006 was quoted off 0.25 point to 95 bid, 96 asked.

Skechers was the big loser of the day, and traders said there a "considerable" amount of the converts dumped. Skechers said it expects a loss of 25c to 35c a share, versus its previous estimate of a profit of 3c to 8c, and it is reviewing its outlook for 2003.

Skechers' 4.5% convertible due 2007 fell about 12 points, one dealer said, to 72.375 bid, 73.375 asked as the underlying stock plunged $5.043, or 41.72%, to $7.02.

While there were few convertible names moving to higher ground, there were some positive forces in the market.

Snow's appointment was seen as a positive event, although even the CSX convert was not higher because of it.

"We believe that the appointment is positive for the financial markets, going by Mr. Snow's past pronouncements and his overall policy stance," said David Goldman, head of global markets group research at Banc of America Securities in a report Monday.

"It is too early to predict precisely what tack the new Treasury Secretary will adopt, but his stated views and intellectual disposition suggest that he will be open to a profound re-thinking of fiscal policy. That is what the current economic environment requires."

CSX's 0% convertible due 2021 was quoted flat at 84 bid, but a dealer said the ask price came in about 0.125 point to 84.375. CSX shares ended off 42c to $28.08.

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