CenterPoint drops 2 points on unlikely asset sale to Reliant; JetBlue dives 7.5 on warning

By Ronda Fears

Nashville, Dec. 5 - It was a day without direction, convertibles traders said Friday, although Blue Chip stocks slipped on weak job growth data and technology stocks sank as Intel Corp.'s outlook cast a pall on the recovery in the chip sector.

"There was plenty going on; we were really busy for a Friday, but it's hard to pin down a big headline type thing that was going on," said the head convertible trader at one of the top convertible shops.

"Hedge guys are still doing fine, because they are skeptics, and most still have a heavy hedge on, but some of the outright positions were feeling some pain today in areas like airlines, chips. Crossover high-yield clients seem to be pulling some money away from converts; they have had a nice slate of new deals to strap on, I suppose.

"Not that money is getting pulled out of the convertible asset class in any big way. The crossover high-yield group is not that big in convertibles, especially when it comes to new deals. There's still plenty of new money in converts, and demand is as good as it's ever been."

Demand seems to be fine, so say sources in virtually every corner of the market.

Capital markets sources say there is a healthy pipeline of deals ready for this month to satisfy some of the market's appetite.

While, analysts said in November there were more convertible issues called away or redeemed than new issues brought to market - for the second month running - research out of the big investment banks shows net growth to the convertible market is upward of $23 billion through the end of November.

Thus a source of anxiety among buyside sources is whether pricing power will remain with them or swing fully back to issuers.

Lehman Brothers shows new issues in November improved for buyers, with cheapness averaging 2.07% versus 1.34% in October.

New paper traded heavily again Friday, but traders said there still were no impressive movements.

Genzyme Corp.'s new 1.25% issue slipped to 99.625 bid, 100.125 offered while the stock lost 59 cents, or 1.27%, to $45.97. Dominion Resources Inc.'s new 2.125% issue still was sitting at 100.25 bid, 100.5 offered with the stock adding 5 cents, or 0.08%, to $60.80. Fairmont Hotels & Resorts Inc. edged up 0.375 point to 105 bid, 106 offered as the stock slipped 2 cents, or 0.07%, to 26.79. And, the new CMS Energy Corp. convertible was at 51.5 bid, 52 offered with the stock unchanged at $7.76.

In the trading trenches Friday, traders were more upbeat in the morning and seemed to trail off - as did volume and price levels - in the afternoon, which is a typical event on Fridays. But most of their comments had to do with price declines, although several convertible issues that dropped dollar points are still doing very well on swap.

"All the story names were moving, if there was any news out," one dealer said.

CenterPoint Energy Inc. was one name mentioned moving on headlines. Fixed-income players were said to be stepping away from the issuer as Reliant Resources Inc. announced that it is unlikely to exercise its option to purchase CenterPoint's 81% stake in Texas Genco Holdings Inc.

Investors and the credit rating agencies wanted to see CenterPoint cash in on that asset sale, another sellside trader said, noting that Standard & Poor's cut CenterPoint's outlook to negative from stable. Now the sale is very tenuous and it could produce less proceeds than originally thought, he added.

CenterPoint's 3.75% convertible due 2025 dropped 2 points on the development, the trader said, pegging the issue at 105.625 bid, 105.875 offered. The stock lost 40 cents, or 4.03%, to $9.52.

Reliant was firming most of the day, the trader said, but in the late afternoon reversed course and also started to lose ground as holders began to get nervous about the company's cash picture.

Standard & Poor's said Reliant's announcement is neutral to near-term credit, noting the company expects to have about $917 million in cash escrow to purchase the shares of Texas Genco following the sale of its European business. Under the terms of its bank credit facilities Reliant is not required to prepay its bank term loans until Sept. 15, 2004, S&P said, so it is uncertain whether Reliant would use the cash to prepay debt or negotiate to use the cash for other purposes, including possible acquisitions.

Corning Inc. was another to lose ground Friday after the company announced more jobs cuts and charges along with the possibility of a charge related to the Samsung Corning enterprise, both amounting to $170 million to $180 million.

But a dealer said there was a lot of buying interest building for Corning at cheaper levels based on the prospect of it exiting the television business altogether by virtue of the Samsung investment.

Corning's 3.5% convertible due 2008 was down by nearly 3 points early in the day, the dealer said, but recovered to a 2-point drop at 124.75 bid. The 7% mandatory convertible reacted similarly. Corning shares closed down 32 cents, or 2.95%, to $10.53.

JetBlue Airways Inc. fell on its warning, and one dealer also noted that Merrill Lynch cut its earnings per share estimate for the December quarter as a result of the airline's weak revenues.

"Airlines have been very busy all week, mostly with people bailing out, taking profits while they can," the trader said.

"Holiday travel is still not taking off, flying, like it did before 9-11," he added, referring to many travelers deterred from flying because of stricter, more time consuming security precautions at airports.

JetBlue said late Thursday its operating margin in the fourth quarter would be in the range of 13% to 14%, lower than the previous range of 15% to 17%, because extra capacity is bumping up costs along with higher fuel prices.

JetBlue shares plunged $5.52, or 17.59%, to $25.86. Most of the other airlines were lower in sympathy by around 3% to 3.5%, although only Southwest Airlines Co. recently had any negative headlines, also reporting Thursday that rising costs would likely eat into the bottom line.

The JetBlue 3.5% convertible due 2033 fell 7.5 points to 104 bid, 104.5 offered.

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