Liberty Media convertibles gain; BearingPoint gets default notices; market players eye Genworth/Citi deal

By Rebecca Melvin

Princeton, N.J., Sept. 16 - Convertibles related to Liberty Media Corp. gained Friday as investors continued to digest reports that Microsoft Corp. is seeking a stake in America Online.

Liberty Media Group's 0.75% exchangeable, which converts into AOL Time Warner Inc. stock, was up more than 1.5 points. The Centerpoint/AOL 2% convertible due 2029 was up about 0.5 point, and Liberty Media/Motorola convertibles extended a 1 point-plus advance seen over the last several days, traders said.

Bearing Point Inc.'s news Friday that it had received purported default notices on two convertible debt issues didn't spur those bonds, however, traders said.

Bisys Group Inc. had a lot of bids but no offers after news emerged that it agreed to sell its business services group for about $300 million, after taxes and charges.

And Massey Energy Co.'s 2.25% convertibles gained amid reports that Jana Partners, a hedge fund shareholder, is urging the company to buy back shares, according to a letter Jana filed with regulators.

Overall, however, activity was very quiet, players agreed, and focus began to shift ahead, in particular to a large deal from Citigroup Funding Inc. that is exchangeable into Genworth Financial Inc. stock. The deal is expected to price Wednesday via bookrunner Citigroup Global Markets.

"Bits and pieces" traded "here and there," but it was very quiet, one New York-based sellside shop convertibles director said.

Microsoft news spurs Liberty Media

Various convertibles of Liberty Media traded higher a day after news surfaced that Microsoft and Time Warner were in talks regarding how the two could partner on their internet assets, including a possible investment by Microsoft.

Talks of a Microsoft stake in the AOL division was one of several scenarios under review, reports said. Such a combination would create a formidable online competitor for the likes of Yahoo Inc. and Google Inc., which currently lead the field.

Liberty Media Group's 0.75% exchangeable due 2023, which converts into AOL Time Warner, was up more than 1.5 points with trades at 114.5 on Friday.

The Centerpoint/AOL 2% convertible due 2029 gained 0.5 point to 35.5, while the Liberty Media 3.5% exchangeable due 2031, which converts into Motorola shares, edged up a point to 103 bid, 104. offered.

The Liberty Media 3.25% notes due 2031, exchangeable into Viacom shares, were also seen higher.

The news comes amid stirring from activist shareholder Carl Icahn, who has been pressuring Time Warner to do something to get its stock out of the doldrums.

Icahn has demanded that the media company spin off its entire cable division and buy back $20 billion worth of shares.

Default notices leave BearingPoint unchanged

BearingPoint's convertibles that are the subject of notices of default were steady Friday, with the 2.75% series B convertible seen at 96.136 bid, 97.126 offered; while the 2.5% series A convertibles were seen at 96 bid, 96.5 offered.

BearingPoint "is getting a lot of questions," regarding its 8-K filing disclosing that "the holders are trying to trigger a default event since they're late with the 2004 10-K and all the 10-Qs since that time," a New York-based sellside trader said.

"They [BearingPoint] claim there isn't one [a default scenario], which is likely the case," the trader said. "The indenture says they have to file with the trustee 15 days after they file with the SEC. It doesn't say that they have to file on time. WG is going through something similar right now. They've negotiated to give convert holders two additional years of call protection and takeover protection."

The trader was referring to Willbros Group Inc., a Houston-based oil and gas services company, which said Sept. 8 that it is soliciting consents from the holders of its outstanding 2.75% convertible senior notes due 2024 to amend certain provisions in the indenture governing the notes.

Mclean, Va.-based BearingPoint, a management consulting firm, delayed filing its 2004 10-K to the Securities and Exchange Commission earlier this year, and the law firms assert that it's in default because it failed to make the filings in a timely fashion.

In response to the default notices, BearingPoint said: "We believe these notices are invalid and completely without merit. It is our view that there is no requirement in the series A and series B debentures for BearingPoint to file its annual and quarterly reports within the deadlines set forth in the SEC's rules and regulations."

Earlier this month, the company said it expects to file the 10-K by the end of October. At the same time, it said that in informal probe of the SEC into its business dealings had been upgraded to a formal investigation.

Later Friday, S&P said its ratings for BearingPoint (B-/Watch developing) remain on CreditWatch with developing implications following the company's announcement of the purported default notices.

Genworth eyed favorably

The roughly $900 million of three-year securities to be issued by Citigroup Funding Inc., exchangeable into shares of Genworth Financial, will likely get a good reception from investors, sources agreed, partly because the market is starved for paper, especially investment-grade paper.

With price talk on the coupon at 5.35% to 5.85% and an initial conversion premium of 20%, many say it looks pretty attractive, although not everybody.

"It's good for growth and income funds, but it's not what we play in," said a Connecticut-based buyside analyst.

But a sellside convertibles trader said, "I think it's well priced. I think every equity income fund in America is going to load up on this one. People see it as an equity alternative; the coupon is decent and the premium is low enough."

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