Convertibles pull back but new deal activity spurs trading

By Ronda Fears

St. Louis, Mo., Oct. 4 - Convertibles drew back some Thursday, traders said, but trading spiked as new deal activity picked up sharply. The market was lower partly due to the Dow industrials failing to gain with the Nasdaq, traders said, but mostly due to heavy selling as $900 million of new paper was put into circulation Thursday and another $425 million was set to price after the close.

"It felt good to be so busy today," said a convertible trader at one of the major investment banks based in New York. "It was okay even that most of what was going on was selling, because we know there's some new paper in circulation."

Heavy selling was seen in the tech and telecom sectors, traders said, but those areas gained on whole as the underlying stocks climbed. Media names were also getting a lift from the stocks, but traders said there was very little buying in the secondary market outside of new issues on Thursday.

The Nasdaq added 16.63, or 1.05%, to 1597.44 but the Dow Jones Industrial Average declined 62.90, or 0.69%, to 9060.88.

"Everyone was pretty focused on the new deals," traders said. "No one was really shopping in the secondary market today."

There was a lot of trading related to the new deals, however, because the demand outpaced the deal sizes so greatly. Many investors who bought the paper flipped it for profits as interest continued in the secondary market, traders said.

Electronic Data Systems Corp.'s deal gained 1.625 points from issue price and Province Healthcare Co.'s deal added 2 points from par. Both priced at the aggressive end of price talk, and the EDS deal was upsized by around 50% to $752 million from $500 million.

The gray market also was active and indicated strong demand on two deals coming up after the bell from Brinker International Corp. and Apogent Technologies Inc. Brinker's revived deal, with sweetened pricing guidance to boost the yield, was said to be trading 2 points over issue price.

Brinker common shares closed off 17c to $23.38.

"We could see some of the healthcare group and the contingent conversion zeros issued over the last few months gain some buying interest," said a convertible dealer.

"The interest is building for the CoCos (contingent convertibles), and people are looking for areas like healthcare that are somewhat cushioned from the economic troubles of these times."

Merrill Lynch convertible analysts also noted that many of the zero-coupon convertibles issued over the past couple of years had put options that will be approaching soon. The Merrill analysts said $21.6 billion of convertibles become putable over the next 12 months, and more than half of those currently carry positive yield-to-puts.

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