Countrywide stirs drink; Prudential up on rating; Cephalon sinks on drug concerns

By Evan Weinberger

New York, Sept. 13 - Countrywide Financial Corp. has been the straw stirring the drinks in recent weeks, and Thursday was no different, as its convertibles and stocks traded up on news that it had secured another $12 billion in credit.

Advanced Micro Devices Inc., Prudential Financial Inc. and Cephalon Inc. all traded Thursday, but as has been the case since the beginning of September, not in any significant volume. "At the end of the day, you'll look at the blotter and you'll see a lot of trading going on, but you look closer [and] there's not a lot of volume," one analyst said.

Much of the trading in recent weeks has been in hedge fund managers rounding up their positions in issues they like and trimming back in issues they don't, the analyst said. That explains the small volume trades spread over a wide swath of names.

News also tends to drive some trading, and most of the issues that changed hands Thursday had news pushing down the gas pedal. For the most part, the news came from analyst upgrades - or downgrades. But Cephalon is facing bigger troubles after one of its leading pain medicines was linked to at least three deaths.

The analyst said that investors are waiting for the Federal Reserve's announcement Sept. 18 to decide which way to go. But they shouldn't expect the announcement - whether it's a reduction in the Federal Funds rate, as people hope, or a reduction in the discount rate as has been the subject of some recent speculation - to change the economy's fundamentals. "It's all short-term psychological stuff," the analyst said of a potential drop in the Federal Funds rate.

A drop in the discount rate, he said, would be intended to inspire banks to lend. Whether they will or not is a different question. "Banks are still worried about who they're lending to, because they're not sure all the skeletons are out of the closet," the analyst added.

The credit fears pervading the markets continued their blocking action on new issues, as there were none brought to market Thursday. Several companies have announced plans to price new convertibles this month, but none have come to market as of yet.

Stock markets rallied Thursday, supported by the Countrywide news, reports of a deal coming together in negotiations between the United Auto Workers and two of Detroit's big three and a smaller-than-expected rise in new jobless claims.

The Dow Jones Industrial Average erupted for a 133.23 point, or an even 1%, gain and a close of 13,424.88.

The Nasdaq and the Standard & Poor's 500 also moved up, although not quite as much. The Nasdaq gained 8.99 points, or 0.35%, for a close of 2,601.06. The S&P 500 added 12.39 points, or 0.84%, to close at 1,483.95.

Countrywide gets credit, gains investors

Countrywide, the Calabasas, Calif.-based mortgage lender, announced Thursday that it had access to a further $12 billion from existing and new credit facilities. According to one analyst, the $12 billion will in all likelihood be spread among various sources, flattening out risk and showing increased confidence in America's largest home lender. But no further details were available at press time.

A trader called other Countrywide details - including its tighter lending criteria and $94 billion in assets held by the company's commercial assets - "very positive."

Investors agreed with the trader's assessment, as both Countrywide's stock and convertibles were up on the news.

Countrywide's Libor minus 350 basis points series A convertible senior debentures due April 15, 2037 closed at 90.75 versus a closing stock price of $18.93. They finished Wednesday at 89.64 versus a stock price of $16.62.

The company's Libor minus 225 bps series B convertible senior debentures due April 15, 2037 closed Thursday at 88 versus a stock price of $18.93. They closed Wednesday at 86.55 versus a stock price of $16.62.

Countrywide stock (NYSE: CFC) surged $2.31, or 13.9%, on Thursday.

Rising convertibles for Prudential

Prudential, the Newark, N.J.-based insurance company, saw its stock and convertibles trade higher Thursday after a Credit Suisse analyst upped his rating of the company.

The analyst, Thomas Gallagher, raised his rating of Prudential to "outperform" from "neutral" based on his finding that the company was not at serious risk despite having significant exposure to subprime debt. Like most insurers, Prudential invests the money from its premiums in stocks, bonds and other securities. Prudential recently disclosed that it had about $8.5 billion of its assets tied up in subprime debt.

The reassuring words from Credit Suisse sent Prudential's Libor minus 240 bps convertible senior notes due Dec. 12, 2036 up to 100.5 versus a stock price of $91.07. They closed Wednesday at 99.70 versus a stock price of $88.13.

Prudential stock (NYSE: PRU) picked up $2.94, or 3.34%, on Thursday.

AMD rating steady, convertibles up

Advanced Micro Devices didn't get quite as ringing an endorsement, but it didn't get bad news either. A UBS analyst maintained his "neutral" rating for the Sunnyvale, Calif.-based semiconductor producer.

On that tepid endorsement, AMD's 6% convertible senior notes due May 1, 2015 closed at 87.35 versus a closing stock price of $12.73. They finished Wednesday at 86.1 versus a stock price of $12.83.

AMD stock (NYSE: AMD) had a less fruitful day than the convertibles, slipping 10 cents, or 0.78%.

Cephalon investors step back

Cephalon probably has a lot more to worry about than tumbling stock prices and stumbling convertibles. The Frazer, Pa.-based pharmaceutical maker sent out letters to doctors Monday saying that Fentora, a painkiller primarily for cancer patients, was linked to at least three deaths when inappropriately prescribed. The Food and Drug Administration disclosed those letters Thursday.

Cephalon's 0% convertible senior subordinated notes tranche B due June 15, 2033 closed at 135.32 versus a closing stock price of $72.55. An opening bid on the convertibles Thursday was 138.657 versus a stock price of $76.54.

Cephalon stock (Nasdaq: CEPH) fell $3.99, or 5.21%, on Thursday.

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