Market firms slightly, but cautious tone visible

By Ronda Fears

Nashville, Tenn., June 4 - The market took a breather from its latest recent slide, firming a bit on Tuesday, but traders anticipate a further retreat amid a very cautious tone and suspicious sentiment.

Meanwhile, traders noted no gray market activity in the pending mandatory issues slated to price Thursday, which is not too unusual given the structure. But Nortel's deal was definitely stimulating the market as players tried to pin down valuation on the new deal.

"There was a lot going on today, and then there wasn't," said a convertible trader at one of the major investment banks.

"The trouble spots smoothed out a bit," the trader said, noting that Tyco, El Paso, Williams all leveled off or firmed slightly.

"We stayed busy, but there wasn't really any apparent trends, an exodus or anyone chasing something. It was choppy, a very mixed bag."

The market has been quiet in terms of trading for quite some time, outside of sell-offs in spurts as situations blow up, and with only a steady stream of small new deals that do not provide much impetus in terms of secondary activity.

"People are tweaking positions," said Salomon Smith Barney convertible analyst Adrian Miller. "There are not any big moves going on."

Tyco's convertibles leveled off, edging up a bit with the stock regaining 72c to $16.77 but traders did not notice a lot of activity in the convertibles.

"There's so much uncertainty with the name, I'd just as soon take a step back and let the dust settle," Miller said.

"Regardless of what the put value is [on the convertibles], it's just not worth the effort to try to get in there now. I'd have an 'avoid' on these things. If you've already ridden this thing all the way down, would I go into a sell? I doubt it. If you hold it, hold on. But I wouldn't say buy in now."

In general, traders are anticipating more downward pressure in the market.

"The underlying sentiment is still very negative," said a hedge fund trader in New Jersey.

"We would need something positive, very positive, to make us feel better. We're still bearish, and really have been all along through these periodic spikes."

Sierra Pacific Resources could see some additional downside pressure, one trader said, noting an S&P report that expressed negative sentiment on the company's liquidity situation.

There was no S&P action on Sierra Pacific on Tuesday, but a report on the utility market noted a negative position on recent events at the company that stem from Nevada regulators refusing to allow the holding company's utility subsidiaries to recapture all its power costs during the power crisis of 2000 and 2001.

According to the S&P report, a Sierra Pacific spokeswoman said the company "could run out of cash within a month" if it's unable to renegotiate power deals with suppliers.

The Sierra Pacific Resources 9% convertible preferred, which sold in November at par of 50, closed off 0.08 to 35.92 on Tuesday with the stock ending up 10c to $7.

Last week, the Nevada voted to allow Sierra Pacific Power Co. to recover some $150 million of deferred energy costs over a three-year period beginning June 1. The utility had originally sought to recover about $205 million in fuel and power purchases made in 2001 when volatility in the Western energy market drove the price of electricity to unprecedented high levels.

Nevada regulators disallowed $437 million of $922 million in power costs of sister utility Nevada Power in late March.

Traders said American Tower and Clear Channel Communicaitons were finding buyers after presentations at the Deutsche Bank Securities media conference.

Buying was also seen in Viacom-linked converts.

But there was some selling in the financials and biotech areas.

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