Buffett rumors don't budge Countrywide; several REITs rise; Wild Oats continues upswing; market facing gridlock

By Evan Weinberger

New York, Aug. 21 - Countrywide Financial Corp. convertibles failed to get much of a bounce out of rumors that super-investor Warren Buffett may be considering a purchase of Countrywide stock. Convertibles market watchers were skeptical that the Omaha-based investor was looking to get in on the largest mortgage lender in the United States.

With no new issuances to goose along trading, convertibles investors held steady Tuesday as they watched the stock market fluctuate in a seeming search for direction. Investors, according to one portfolio manager, were sitting on their losses. They didn't want to sell positions, and weren't looking to buy into others, either. "We have the same gridlock going on as other asset classes," he said.

A sellside analyst said that Monday's trading was particularly slow, which meant that on Tuesday the only way left to go was up. He didn't expect the uptick to be very high, however. "The volume in Trace was half of a normal day [Monday]," he said. "I wouldn't be surprised if it was up a little, because it was so low. It just seems to be that no one's doing anything."

That is not to say that there was no trading at all. Convertibles linked to WCI Communities Inc. were relatively active on news of yet another star investor, Carl Icahn, getting a seat on the troubled homebuilder's board of directors. Also traded were convertibles issued by Boston Properties Inc., even as home foreclosures in July for the broader housing market were reported to be 9% higher than in June.

Two convertibles issued by companies linked to buyouts in the news, Wild Oats Markets Inc and RARE Hospitality International Inc., traded up.

And two technology names were active, as convertibles issued by Advanced Micro Devices Inc. and Linear Technology Corp. changed hands.

The equity markets provided little guidance to convertibles players Tuesday, as stock investors searched for answers about the Federal Reserve's next move on interest rates. After hovering within a narrow range around the break-even point, the Dow Jones industrial average lost 30.49 points, or 0.23%, closing at 13,090.86.

The Nasdaq and Standard & Poor's 500 went the opposite direction, posting modest gains. The Nasdaq picked up 12.71 points, or 0.51%, closing at 2,521.30. The S&P 500 finished Tuesday at 1,447.12, a gain of 1.57 points, or 0.11%.

Buffett riding to Countrywide's rescue?

Early morning trading was abuzz with rumors that Buffett was about to take a stake in America's largest home lender, Countrywide Financial.

The story originally appeared in the Wall Street Journal's online edition Monday. The report did not say how much of the Calabasas, Calif.-based financial institution Buffett was eyeing, leading to speculation about his actual intentions.

But he did say that the downturn many financial and home-related stocks had taken in recent weeks as a result of the subprime mortgage mess and attendant credit worries did provide some investment opportunities on CNBC television last week.

The Berkshire Hathaway founder doesn't talk about future investments, according to one sellside analyst, who said rumored investments rarely turned out to be true.

"He gets involved in a lot of value names," the analyst said. "People are just grasping onto that."

Another analyst added that the uncertainty surrounding Countrywide and other mortgage lenders might scare off value investors like Buffett, at least in the near term. "Countrywide's business model is going to be a whole lot different going forward. I don't know how you model that for a value investor," he said.

On the convertibles side, however, there does appear to be value to be had, a portfolio manager said. "I'm not saying it's not worth it. I think the bonds are attractive. There's a lot of risk. [But] there's no hedge there if you no what I mean," he said.

Countrywide's two convertibles didn't move much on the Buffett speculation, as skepticism appears to have ruled the day in that market. The mortgage giant's Libor plus 350 basis point series A convertible senior debentures due April 15, 2037 were spotted at the end of the day at 87 versus a closing stock price of $21.79. They finished Monday at 87 versus a closing stock price of $19.81.

Countrywide's Libor plus 225 bps series B convertible senior debentures due April 15, 2037 closed Tuesday at 84.5 versus a $21.79 stock price. They finished Monday at 84.75 versus a stock price of $19.81.

Stock investors were far more bullish on the Buffett prospects, as Countrywide stock (NYSE: CFC) picked up $1.98, or 9.99%, on Tuesday.

In other home-related convertibles trading, WCI Communities'4% convertible senior subordinated unsecured notes due Aug. 5, 2023 closed at 86.30 versus a closing stock price of $7.95. They finished Monday at 84.75 versus a stock price of $7.95.

The Bonita Springs, Fla.-based homebuilder and real estate services company's stock (NYSE: WCI) was unchanged on Tuesday. The company placed Icahn and two of his nominees on its board Monday afternoon. Icahn had wanted to replace the entire board with 10 of his own appointees.

Boston Properties' 2.875% exchangeable senior notes due Feb. 15, 2037 closed at 108.88 versus a closing stock price of $101.01. They finished Monday at 108.375 versus a stock price of $100.93.

The Boston-based real estate investment trust (NYSE: BXP) gained 8 cents, or a symmetrical 0.08%, on Tuesday.

Wild Oats deal delayed, convertibles rise

Despite a federal judge delaying the buyout of Wild Oats Markets by organic food behemoth Whole Foods Markets late Thursday afternoon, the Boulder, Colo.-based natural foods seller's 3.25% convertible cash-to-zero senior debentures due May 15, 2034 continued their upswing on Tuesday. The Wild Oats convertibles closed the day at 111.13 versus a closing stock price of $17.97. They finished Monday at 110.375 versus a stock price of $17.80.

Wild Oats stock (Nasdaq: OATS) closed Tuesday up 17 cents, or 0.96%.

In other merger-related convertibles trading, RARE Hospitality's 2.5% convertible senior notes due Nov. 15, 2026 edged up Tuesday, closing at 105.38 versus a closing stock price of $37.56. The Atlanta-based restaurant operator's convertibles finished Monday at 105.125 versus a $37.37 stock price.

RARE Hospitality stock (Nasdaq: RARE) picked up 19 cents, or 0.51%, on Tuesday.

Darden Restaurants Inc. of Orlando, Fla., announced that it was taking over RARE on Thursday.

Two techs trade

Two technology-related convertibles of note traded Tuesday.

Sunnyvale, Calif.-based semiconductor producer Advanced Micro Devices saw its 6% convertible senior notes due May 1, 2015 close at 82.88 versus a closing stock price of $12.17. They closed Monday at 82.25 versus a stock price of $12.10.

AMD stock (NYSE: AMD) closed up 7 cents, or 0.58%, on Tuesday.

Linear Technology Corp., a Milpitas, Calif.-based producer of linear integrated circuits, had both of its outstanding convertibles move slightly higher on Tuesday.

The company's 3% series A convertible senior notes due May 1, 2027 finished the trading day at 98.25 versus a closing stock price of $34.99. They had finished the day Monday at 98 versus a $34.82 share price.

Linear Technology's 3.125% series B convertible senior notes due May 1, 2027 closed Tuesday at 99 versus a stock price of $34.99. They finished Monday at 98.75 versus a $34.82 stock price.

Linear Technology stock (Nasdaq: LLTC) gained 17 cents, or 0.49%, on Tuesday.

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