Convertibles widely mixed, Ohio Casualty deal emerges

By Ronda Fears

Nashville, Tenn., March 11 - Convertibles were widely mixed with a lack of any strong trend, and described as flat along with stocks. Trading was thin and traders noted a cautious tone late in the day. After the close, Ohio Casualty Corp. announced plans to sell $125 million of 20-year convertible notes, but market sources said this week's calendar is expected to be fairly light.

Performance Food Group Corp. gained in the session but after the closing bell announced accounting errors, which could put pressure on its securities Tuesday. Tyco's convertibles were mixed on reports that bids had come in on its plastics units.

"It was a very light day," said a convertible trader at a major investment bank in New York.

"You couldn't really put your finger on a definite conviction out there. It was very mixed. Corning and Ciena firmed up quite a bit, but several networking names began to give up a lot late in the day. L-3 was down a lot but Northrop Grumman we saw much higher. There just didn't seem to be a great deal of cohesion to what was going on. But with such a thin market, it really doesn't have that great an impact."

Dealers said there was an impressive turnaround midday in software, Internet and networking names along with a steady uptick in banking but a somewhat cautious tone became evident late afternoon.

"Probably in the last hour of the day it seemed that some nervousness re-emerged," said a convertible trader at another major investment bank in New York.

"There were a lot of quality-type names seeing buyers, like SPX. The energy and power groups, though, were cooling off."

Performance Food Group said accounting errors discovered at one of its subsidiaries will lower its net income overall by $4 million to $5 million. The company also said it expects to earnings per share for first quarter of 23c to 25c and for the year of $1.41 to $1.45.

The Performance Food Group 5.5% convertible due 2008 added 1.5 points to 128.25 bid, 129 offered with the stock gaining 55c to $35.50 on the day, but the news came after the close.

Tyco's 0% convertibles were split on the news of bids on its plastics unit, with the 2020 issue up 0.25 point to 66.875 bid and the 2021 issue off 0.125 point to 70.375 bid. Tyco shares added 73c to $35.62. Two groups have made bids for Tyco's plastics business for $2.5 billion to $3 billion, said a market source. The company was expecting the price to range between $3 billion and $4 billion. News reports said Carlyle Group and Madison Dearborn Partners made a joint bid, and another came from Blackstone, Bain Capital and TL Partners.

Networking names like Ciena Corp. and ONI Systems Corp. climbed on an upgrade to the sector by Buckingham Research Group, traders said. Traders added, though, that Ciena was also gaining ground on short-covering and takeover rumors, and many were showing weakness in after-hours stock trading.

Ciena's 3.75% convertible due 2008 added 1.5 points to 64 bid as the stock rose $1.02 to $10.29. Others in the sector rose in sympathy. Corning's 3.5% convertible due 2008 soared 9.75 points to 110.5 bid, 110.625 offered with the stock up $1.05 to $8.90.

Also of note, but to the downside, was Emulex Corp., sharply lower on cuts to storage estimates. The Emulex 1.75% convertible due 2007 lost 4 points to 88.75 bid with the stock down $2.80 to $32.01.

L-3 Communications also declined, but traders said the defense group was mostly higher. "I think it was a valuation concern with L-3," said a convertible trader at hedge fund in New York. L-3's 4% convertible due 2011 lost 2.625 points to 117.375 bid, 117.875 offered and the 5.25% convertible due 2009 fell 4 points to 148.25 bid, 148.75 offered. L-3 shares dropped $3.31 to $109.18.

Northrop Grumman was on the rise, however, as the company filed to get anti-trust clearance for its hostile takeover bid to TRW Inc. The Northrop 7.25% convertible preferred added 2.25 points to 118 bid, 118.5 offered as the stock rose $2.54 to $108.46.

New issues are expected to have another light week, sources said, unless stocks make a strong surge. Nothing is firmly scheduled for this week, but after the bell Ohio Casualty announced its deal.

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