JetBlue underwater; Encysive last seen at 101 bid; oilpatch issues in flux; Tech Data falls; Best Buy off

By Ronda Fears

Nashville, March 11 - Another spike in oil prices, driven in part by a forecast of higher demand in 2005, moved convertibles across the spectrum of the oilpatch but in mixed fashion. Halliburton Co., Schlumberger Ltd. and a ChevronTexaco Corp.-linked issue were lower while a Diamond Offshore Drilling Inc.-linked issue moved up.

The handful of new issues for the week was a rather dull lot in secondary action, however.

JetBlue Airways Corp. sold a $250 million issue with a 3.75% handle and 42.5% initial conversion - at the cheap end of guidance for 3.25% to 3.75%, up 42.5% to 47.5% - but it broke Friday with a bid of 98.5 and stayed underwater throughout the session. Bookrunner Morgan Stanley & Co. Inc. sent it out for the week at 99 bid, 99.25 offered while the stock closed Friday up 18 cents, or 1%, at $18.18.

Encysive Pharmaceuticals Inc. boosted its deal to $115 million from $100 million and final terms put the coupon at 2.5% and initial conversion premium at 35% - at the middle of yield talk of 2.25% to 2.75% but at the aggressive end of premium guidance of 30% to 35%. A buyside trader said the last two-way market he saw on the issue was 101 bid, 101.75 offered. Encysive shares ended Friday up 41 cents, or 3.97%, at $10.74.

The Playboy Enterprises Inc. and Nash Finch Co. convertibles were both unchanged on the day. Playboy's 3% convert was 101 bid, 101.5 offered while the stock slipped 3 cents to close at $13.22. Nash Finch's 3.5% cash-to-zero issue was 46 bid, 46.25 offered as the stock gained 19 cents to $36.12.

Elsewhere in secondary action, most of the tech crowd was easier Friday despite Intel Corp. forecasting improved profit margins and a revenue outlook that topped Wall Street estimates.

Tech Data Corp. was slammed following a weaker-than-expected 2005 outlook from the computer hardware company, with its 2% convertible dropping about 3 points to 97.5 as the stock fell $3.03, or 7.57%, to $37.00. Electronics retailer Best Buy Co. Inc. also slipped on concerns of a weak tech retail climate, with its 2.25% convertible off about 0.25 point to 101.75.

Winter's obstinacy eventually will give way to spring and warmer weather, which was sparking some interest in Oklahoma City-based amusement park operator Six Flags Inc., a day after its earnings and better outlook for 2005.

Oil prices move entire sector

Several issues in the oilpatch, which is not frequented by convertible players very often, were mentioned Friday. In all areas - oilfield services, drillers, producers and the majors - convertible issues were active Friday as crude oil futures were signaled to climb further with the International Energy Agency's boosted demand forecast for 2005, which caused concern about supplies.

Oil for April delivery surged 89 cents on the day to $54.43 a barrel on the New York Mercantile Exchange.

Most of the oilfield convertibles were lower, which one trader attributed to some profit taking. Another said analysts are skeptical that higher oil prices and gasoline prices will indeed translate into higher profits for oil companies, particularly with the renewed push for alternative energy under way in the United States.

There are very few ways to play major oil in convertibles, but one sellside market source remarked that the Devon Energy Corp. 4.95% exchangeable that converts into ChevronTexaco shares was trading, and quoted the issue at 116.625 versus the underlying stock at $58.50. The stock closed at $58.30, down 19 cents, or 0.32%, on the day.

Among drillers, the Loews Corp. 3.125% exchangeable, which converts into Diamond Offshore Drilling shares, gained about 1.5 points to 98.625 while Diamond Offshore shares gained 78 cents, or 1.61%, to $49.16.

Oilfield services firm Schlumberger has two convertibles in play but sources saw only the 2.125% issue active Friday, dropping about a half-point to 110.5. Schlumberger shares lost 39 cents, or 0.53%, to close at $72.75.

Another oilfield services firm, Halliburton, was the only oilpatch convertible moving in addition to news from the company. Halliburton had announced Thursday that the DII Industries LLC Asbestos PI Trust will make an offering of 54.5 million of Halliburton shares that it was issued as part of an asbestos settlement. If all shares, including the greenshoe, are sold, the trust will no longer hold any stake in Halliburton.

Halliburton's 3.125% convertible was lower, however, losing 0.5 to 1 point at 124.5 while the stock dropped 63 cents, or 1.54%, to $40.38.

Tech Data slammed on outlook

Intel's rosy outlook aside, most of the tech group was easier Friday - typically because of their own disappointing outlooks, such as was the case with Tech Data.

Tech Data shares were hit by a trio of ratings downgrades following its forecast late Thursday of first-quarter earnings per share that were 5 to 10 cents below Wall Street expectations. The company projected quarterly revenue in a range of $4.95 billion to $5.1 billion, also short of analyst forecasts.

Concern that corporate spending on technology will continue to rise in a lackluster manner has concerned the markets, a trader said, while Tech Data also expressed concern about increased competition in Europe.

Tech Data's 2% convertible was quoted earlier in the day at 98.375 with the stock at $40.00. The sellside trader said the issue closed at 97.5 bid, 98 offered, down about 3 points on the day, while the underlying stock ended at $37.00, losing $3.03, or 7.57%.

Six Flags riders hold steadfast

A day after Six Flags executives boasted a better outlook for 2005, some convertible players watching the story said they are expecting an upgrade to the stock that will spur the theme park operator's convertible higher.

"I think there is going to be a [stock] upgrade, maybe as early as Monday," one holder said. "Definitely, the stock and converts have come off their lows and are ready to pop. There's been a lot of interest piqued lately."

Six Flags' 4.5% convertible bonds closed Friday at 102.75 and the 7.25% convertible preferred at 21.5. Both were little changed but with modest activity considering it was a Friday, the buyside source said, adding that the bond spiked about 2 to 3 points on Thursday. Six Flags shares ended up a penny at $4.73.

On Thursday, Six Flags management said in the company's earnings conference call that 2005 will be better, on the heels of a tough time in 2004, with big plans of capital expenditures for new and improved park rides.

Six Flags reported a $115 million balance on its bank revolver, $260 million of available credit plus $60 million of cash at year-end 2004. The company plans to spend about $135 million in capital improvements this year, up from $107 million last year.

Snyder hullabaloo was a bluff

Apparently the ruckus raised about Six Flags' poor performance and rally for action last year from major shareholder Daniel Snyder, owner of the Washington Redskins, was nothing more than talk, the buyside source said. He said that when Six Flags CEO Kieran Burke was asked about Snyder's demands and role in the company's plan of action, Burke said, "Frankly, he never came forward with any specific, meaningful actionable steps for the company."

Snyder apparently has already dissolved much of his stake in Six Flags, from references made in a letter to a Six Flags independent director in January. Snyder had bought an 8.8% stake in the amusement park operator last summer but then said in a Securities and Exchange Commission filing that he felt the company was mismanaged, and that he planned to try to influence steps to build up its financial performance.

In January, however, in a letter to independent director Michael Gellart, Snyder said he was snubbed in his efforts to join the Six Flags board and try to implement his suggestions. Thus, he wrote, "In light of what we believe will be a disappointing future for the company, we have determined that continued investment in the company is not in our best interest."

Six Flags holders await Spring

To the contrary, the Six Flags convert holder said "market sentiment has changed to positive. Spring is around the corner. It's going to warm up, eventually, and people will be getting out to the parks."

"I'm not going to lie to you; Six Flags has problems - obvious problems. They are deeply in debt. Even a brilliant ad campaign last year couldn't nudge the company toward profitability," he continued. "A turnaround is in the cards. I think it's [the stock] at a trough. If you look at the company's chart over the past few years, you see that the stock is now trading at the low end of its range. In other words, the typical pre-summer price buildup is coming.

"What a wonderful time for a contrarian to defy the odds and bank on either the company finally getting it right this summer or coming to its senses and cleaning house."

Following the earnings, he said a stock upgrade is likely soon. Meanwhile, next week, Six Flags chief financial officer James Dannhauser is due to make a presentation at the Lehman Brothers high-yield bond and syndicated loan conference on Wednesday.

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