Convertibles marked higher in very thin post-holiday session

By Ronda Fears

Nashville, Tenn., July 5 - It was exhaustingly slow following Independence Day, but the few traders that were in were upbeat as stocks soared higher in a shortened session. Although most players are skeptical that the gains will stand up to a more liquid market on Monday, they are hopeful.

"This feels good, but I don't know it is will hold water. Boy, that's a tune we've heard too many times, huh?" said a convertible hedge fund manager in Bermuda.

"I'd have to wait until Monday to bank on it, though."

Not much convertible trading took place, but virtually the entire market was marked up as stocks were screaming higher.

Nasdaq ended up nearly 5% and the Dow Jones Industrial Average gained 3.5% in a short post-holiday session.

Convert arbs were adjusting hedges, and otherwise it was an excruciatingly slow session for convertible traders.

"We were in for half a day and then getting out," said Tom Sugiura, convertible analyst at Bear Stearns & Co. "Most people are out today."

Mirant Corp.'s new deal gained ground, the first time since coming to market Monday.

The new 5.75% due 2007 added 1.75 points on the day to 97 bid, 97.75 asked, according to a dealer. Mirant shares closed up 26c to $5.76.

There are still no solid candidates for new deals, but some are anticipating that issuers facing puts in the near future will be likely to consider refinancing if not adding puts as sweeteners.

Over the next six weeks or so, those include WellPoint Health, Masco Corp., Novellus Systems Inc., Household International, USBancorp and Eaton Vance.

Names mentioned by market sources with news or buzz were scarce.

But some were looking for a possible surge in store for Advanced Micro Devices, despite another warning from the chipmaker earlier this week.

An equity analyst at Prudential says that Dell's evaluation of Advanced Micro Devices' upcoming Opteron chip could be a coup for Advanced Micro Devices. Advanced Micro Devices will compete against Intel's Xeon and Itanium server processors for the business.

Prudential's equity analyst believes that not only is Advanced Micro Devices gaining traction with Opteron faster than expected at major PC makers, but datapoints suggest that the Opteron is "a real screamer" in terms of performance.

Advanced Micro Devices' 4.75% convertible due 2022 gained 2.75 points on the day to 75.5 bid, 76 asked as the underlying stock rose 91c to $9.34.

A Morgan Stanley equity analyst says that Cubist Pharmaceutical Inc. shares may receive a modest near-term boost from excitement over potential increases for its novel antibiotic agent Cidecin.

"They [Cubist] need it," said a dealer. "That bond just fell off the chart, and quick."

Morgan Stanley has a price target of $15 on Cubist Pharmaceutical stock.

The Cubist 5.5% convertible due 2008 was quoted at 48.875 bid, 50.875 asked. The stock ended up 50c to $7.50.

XM Satellite Radio Inc. and Sirius Satellite Inc. were lower on a downgrade to the stock at Merrill Lynch.

The convertibles of both in-car satellite radio names are not very liquid, but both were slightly lower.

The XM Satellite Radio convertible was quoted at 71.25 bid, 72.25 asked with the stock down 47c to $5.75.

The Sirius Satellite convertible, originally issued by CD Radio, was quoted at 43.375 bid with the stock off 59c to $3.01.

Merrill Lynch said there is little appetite for risk and liquidity stories given the current telecom and media malaise. Thus, the investment firm is less comfortable with satisfying funding needs with single-digit stock prices as well as the current cost of debt.

That said, the Merrill Lynch equity analyst said there is greater relative confidence in XM Satellite Radio's ability to stay afloat.

Participating heartily in the stock market's party were SPX Corp., Northrop Grumman Corp. and Lehman Brothers.

The SPX 0% convertible due February 2021 was quoted at 64.5 bid and the 0% convertible due May 2021 at 60.5 bid. SPX shares climbed $7.36 to $105.06.

Northrop's 7.25% mandatory due 2004 gained 4 points on the day to 131.15 with the stock rising $4.70 to $124.10.

Lehman's floater due 2022 was quoted at 101.375 bid with the stock up $2.29 to $61.75.

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