Market, new paper decline as investors mull Buffett activity

By Ronda Fears

Nashville, Tenn., Aug. 1 - Virtually the entire convertible universe declined Thursday as stocks fell on fears that the economy might take a double-dip. A few mandatories were seen higher as investors moved to pick up yield, but Corning's new mandatory as well as Scios' new bond went south with the broader market.

Many players sitting on the sidelines during the turbulence were mulling over recent support by Warren Buffett of credit-troubled telecom and energy names but a lack of conviction resulted in little movement.

"It was pretty quiet today or it got quieter as the day wore on. It's just been really gruesome lately, very taxing on the nerves," said the head convertible trader at one of the major investment banks.

"Corning's new deal was active this morning, with a lot of people flipping it, but even that trailed off this afternoon. The [stock] market put a damper on trading."

Corning's new $500 million mandatory, which came with aggressive terms at 7% up 23%, dipped in the immediate aftermarket. It was closed down 0.75 point to 99.25 bid, 99.75 asked after being quoted up as much as 1.75 points over par in the gray market before pricing.

Corning shares ended off 44c to $1.56. The old 3.5s due 2008 were quoted up 0.375 point to 53.74 bid, 54.75 asked and the 0s unchanged at 45 bid, 45.5 asked.

The tone turned decidedly negative and trading volumes fell off sharply, traders said, taking a cue from equities. One dealer noted, too, that the credit markets also were stalled after several days of gains, due to general investor nervousness.

Stocks dove as manufacturing growth and construction spending came in surprisingly weak, rekindling fear that the U.S. economic recovery might have suffered a set-back or that it might be headed for a double-dip recession.

"No one's making any swift moves of a big nature right now. There's just too much uncertainty. I don't know what's going to have to happen" for confidence to return, said a convertible trader at a hedge fund in New Jersey.

"We're looking at the telecom and power credits, purely because of the Buffett factor, but our analyst isn't ready to say go, hit the buy button yet."

A day after Buffett was reported to be buying Qwest bonds, Williams announced that it raised $1.4 billion in cash from asset sales and has obtained $2 billion in secured financing, including a $900 million secured credit agreement with a group of investors led by Lehman Brothers and Buffett's Berkshire Hathaway Inc.

"We are well covered for the debt maturities that we have scheduled for the remainder of the year," said Williams chief executive Steve Malcolm in a conference call Thursday.

"We are moving ahead and pursuing additional asset sales very aggressively. You should see additional asset sales over the next few months."

Williams was among the mandatories moving higher, and positive news sent AES and El Paso converts higher. A second day of power outages amid one of New York City's hottest weeks this summer also contributed to the gains for power issues due to another spike in spot natural gas prices in the Northeast, traders said.

The Williams 9% convert gained 0.91 point to 8.62 as the stock closed up 85c to $3.80.

Calpine Corp., however, did not participate in the party.

Before the open, Calpine reported lower second quarter earnings and slashed its earnings forecast for 2002, citing weak prices for electricity.

Also pressuring Calpine was a note by Standard & Poor's that more than half of the power plants proposed during the height of California's 2000-2001 energy crisis have been put on hold, with companies citing lower demand, declining electricity prices, a lack of financing and strict regulations.

Calpine's 4% convert due 2006 fell 2 points to 53.5 bid, 54 asked. The three convertible preferreds were also down sharply as the common stock lost 77c to $4.20. But, a market source, said the Calpine 8.5% junk bonds due 2011 were quoted up 1.5 points to 50.5 bid, 52 asked.

After the bell, traders said they were anticipating a big pull back in Tyco converts due to the late-day news that its chief financial officer Mark Swartz resigned.

Tyco shares ended up 1c to $12.81. The 0s due 2020 were quoted at 60.75 bid, 61.25 asked and the 0s due 2021 at 70 bid, 71 asked.

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