Calpine, Tyco active on fresh round of news, Waste Connections sells floater

By Peter Heap

New York, April 24 - Long-time headline-hoggers Calpine Corp. and Tyco International Ltd. were back in the news Wednesday and dominated trading activity in the convertibles market. Meanwhile Waste Connections, Inc. became the third issuer to use the new floating-rate convertible structure and the first away from investment banks pricing deals for themselves.

In trading, Calpine was the most active name, according to market sources, in the wake of its announcement of a stock sale and a profit warning late Tuesday.

"There was a tremendous amount of volume in front of the stock offering," said one trader.

While the convertibles fell with the company's stock, he noted that action in the name was two-way.

And although equity investors received the news badly, he noted the equity sale is beneficial to the company's credit quality. "It's obviously helped by any situation that ensure the liquidity of the company going forward," the trader commented.

Calpine's stock was down $1.53 on the session to $11.80, an 11.5% decline.

After Tuesday's close, Calpine announced plans to sell up to 60 million new shares. The offering priced after Wednesday's close at $11.50 and was upsized to 66 million shares, with a further 9.9 million available for the greenshoe.

The company also said Tuesday that it expects earnings for the quarter to March 31 of 10 cents per share before non-recurring equipment cancellation costs and extraordinary items. Analysts had previously been forecasting 13 cents per share. Including the additional items, Calpine expects a net loss of 25 cents per fully diluted share. It blamed the continued uncertainty over the timing of the domestic economic recovery and a return to more normal weather and a gradual improvement in pricing.

Also active was Tyco.

The chief influence on the name was a New York Times article which "throws the whole question mark about their ability to spin off or sell Plastics and sell CIT, spin CIT, do something with CIT," in the words of one analyst.

The convertibles were "very active" but it was not just sellers; the analyst said there are believers in the story as well as doubters.

"People either think there's value in those securities or think that there isn't value," he commented.

Also prompting activity in the name is Tyco's upcoming earnings release, scheduled for Thursday, added a trader with a convertible hedge fund.

But he said there is too much information and not enough clarity at the moment for him to play the convertibles - although he said his firm does have a position in the stock in its risk arbitrage account.

"We are not going to do anything until we hear what the company has to say," the trader said. "We can't imagine what's going to be said. We are kind of throwing our hands up right now. There's too much going on."

He said there had been a lot of shorting of the stock but he believed people did not want to be short going into the earnings announcement.

With so much happening, the trader added, Tyco is also the subject of numerous rumors and reports, some of which he said were of doubtful veracity.

Tyco's stock was 79 cents lower on the day at $25.90, a 3.0% decline.

In primary activity, the market continued its revival after the long lull of recent weeks.

Waste Connections announced a new overnight deal via Deutsche Bank Securities Inc. and priced it at Libor plus 50 basis points and an initial conversion premium of 32% (See story on page one of this issue).

It follows the sale of $675 million in proceeds by IDEC Pharmaceuticals after Tuesday's close.

In addition, Sempra Energy's offering of $450 million three-year mandatory convertibles in the uppers DECS structure was advanced to price after the close Wednesday, according to a market source. It had been scheduled for Thursday. Talk was for an 8.5-9.0% yield and an 18-22% initial conversion premium. Joint lead managers are Merrill Lynch & Co. and Salomon Smith Barney.

Still to come this week are Isis Pharmaceuticals Inc.'s $125 million of seven-year convertible subordinated notes via UBS Warburg and Temple-Inland's $300 million of three-year mandatory convertibles in the uppers DECS structure via Salomon Smith Barney.

But the hedge fund trader said he was unhappy with valuations at the moment.

"I refuse to put any capital to work given the terms of what some of these convertibles are coming out at," he said and said he would remain very conservative "until the market gets a little more rational."

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