New paper active, little changed; Disney drops 1.5 points outright on in-fighting over Comcast bid

By Ronda Fears

Nashville, Feb. 20 - Convertible players stepped back a bit Friday as stocks slipped amid valuation concerns and the terrorist alert in Japan, dealers said. New paper was among the most active area of the market as some $2.2 billion of paper was put into circulation even though it was a holiday-shortened week.

The fresh supply was in demand, dealers said, but there has not been any big pops in any of the five new issues.

"We aren't seeing the 10-point spikes we used to see on a hot new deal. Part of that is because deals are coming fully priced so there's not a lot of wiggle room," said a sellside convertible trader at one of the big shops.

"Some of the luster [of new deals] gets tarnished when they are priced so aggressively, but what we're seeing is that in a couple of weeks, over time, these will run up, too. That's because the whole market is pretty rich right now, so when you pore through it, then the new paper looks a lot better."

Convertible players seemed to be sitting on the sidelines Friday, as trading volume was described as light to moderate, although lots of players were busy in stocks.

For example, airline stocks were hit, partly due to headlines out of Japan. The convertibles, while marked lower with the stocks, saw very few bonds change hands. ExpressJet Holdings Inc. was one of the more active, though still light, and those 4.25% converts edged off 0.75 points outright to 109.75 bid.

Walt Disney Co. continues to be one of the most active convertible issues, losing 1.5 points Friday in one of its biggest moves since the Comcast Corp hostile bids was aired last week.

Some Disney holders walk out

As the Disney drama continues to take new twists, leading some to speculate that the Comcast ordeal will be a protracted one, traders said there were some convertible holders taking profits Friday, choosing to walk away from the show, for now.

"We saw more selling [Friday], but some of these guys will be back," one dealer said.

"It looks like this is going to play out a number of ways, and in case it all comes to nothing, there are some who are taking profits now. If they really like the Disney story, they'll be back, after the dust settles."

Disney namesake Roy Disney, and fellow former board member Stanley Gold, put an interesting kink in the situation when in an open letter to shareholders they blasted the Disney board as "just plain wrong" to support chief executive Michael Eisner, who was a source of conflict with Roy Disney that ultimately resulted in his leaving the board of directors.

Gold and Roy Disney in the letter to shareholders blamed Eisner and said upper management at Disney "has made Disney a target for unacceptably low bids" such as Comcast's.

The two former directors also expressed concern about adopting a poison pill defense, the sale of assets at "fire sale" prices or overpriced acquisitions to ward off the bid - all speculations that have been fodder for press reports over the past week.

Disney's 2.125% convertible dropped 1.5 points outright, or about a 0.5 point on swap, traders said. The bonds closed at 111.5 bid, 112 offered, with the underlying stock ending down 45 cents, or 1.67%, to $26.55.

Fresh paper mixed, flattish

In the biggest deal of the week, AngloGold Ltd. sold $900 million of five-year convertibles at 2.375%, up 60% - at the middle of yield talk for a 2.125% to 2.625% coupon and at the cheap end of premium guidance of 60% to 65%.

It also was one of the most popular new deals of the week but moved only slightly higher in the immediate aftermarket.

Deutsche Bank Securities, one of the joint bookrunners on the AngloGold deal, closed the convertible at 100.1875 bid, 100.4375 offered. AngloGold shares ended in the United States off 8 cents, or 0.2%, to $40.61.

A drop in gold prices was partly to blame for the weakness, a buyside trader said, noting that gold futures were pressured on the alert in Japan as well as a spike in the dollar.

Another hot deal, according to market sources, was Atlantic Coast Airlines Holdings Inc., despite the downturn in airline paper Friday. Atlantic Coast sold $125 million of convertibles at 6%, up 45% - at the middle of yield talk for a 5.75% to 6.25% coupon and the aggressive end of premium guidance of 40% to 45%.

Lead manager Morgan Stanley & Co. closed the Atlantic Coast convertible at 101 bid, 102 offered. That was up 1 point from par but off 0.25 point from gray market levels before pricing. Atlantic Coast shares ended down 14 cents, or 1.83%, to $7.50.

Sovereign Bancorp Inc.'s new 4.375%, up 35% convertible preferred, which priced at the cheap end of guidance, was unchanged at 50.375 bid, 50.625 offered. Sovereign shares ended off 6 cents, or 0.27%, to $22.15.

CP Ships Ltd.'s 4%, up 35% convertible, which sold smack in the middle of price talk, ended up 0.5 point to 104 bid, 104.5 offered. CP Ships shares ended in the United States down 7 cents, or 0.39%, to $18.01.

Fisher Scientific International Inc.'s new 3.25%, up 50% convert, which priced at the cheap end of yield talk and at the middle of premium guidance, was off 0.25 point to 103.25 bid, 104.25 offered. The stock closed down 28 cents, or 0.51%, to $54.70.

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