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January 14, 2004

MORGAN
JOSEPH

The Convertible Market Fourth-Quarter Review


The Disclosure section may be found on the last page of this report.

The Year Ended Quiet But Whos Complaining?

Our very unscientific poll of the investment community revealed that the majority of investors did not
anticipate the market to recover as strongly as it did this year. Despite the backup in treasury rates by
as much as 100 basis points, the stock market powered ahead with the Nasdaq Composite leading the
way with a 51.2% return. The bigger cap indices the Dow Jones Industrials (DJIA) and the S&P 500
did not generate results nearly as robust, but they were nonetheless very impressive with gains of
28.1% and 28.4%, respectively (including dividends).
The fourth quarter was considerably more subdued, with the Nasdaq, DJIA and S&P 500 indices
producing gains of only 1.1%, 5.5% and 3.9%, respectively; but such a breathing spell is
understandable.

EQUITY R ESEARCH

By comparison, our universe of convertibles1 generated a total return of 31.1% for the full year (on a
total-return, equal-weighted basis), as compared with a searing gain of 62.2% for its underlying stocks.
For the December quarter, our universe of converts squeaked by with only a 1.2% gain versus 3.5% for
its related common stocks.
The strength in economic activity certainly helped the performance of convertibles, as the prospect of
credit improvement boosted confidence, and consequently, convertible valuation. The favorable
environment for issuing convertibles has also been exploited by a great many companies that have refinanced both outstanding and high yield debt on usually very attractive terms. This, in turn, has led to
some significant balance sheet improvement.
Indeed, the new issue market remained vibrant, with $6.1 billion in new issues coming in December,
rounding out the total fourth-quarter amount of $14.2 billion. For the full year, we calculate a final
output of 280 issues amounting to $87.1 billion in new capital raised.

The Outlook for New Issuance Remains Positive


With stock prices at very high recovered levels and interest rates still historically low, the landscape
still appears to be extremely inviting for new convertible issuance. Our only hesitation comes by way
of a moderate decline in the implied volatility of the market.

Volatility A Key Dynamic

CONVERTIBLE R ESEARCH
Richard Nelson
212-218-3702

RNELSON @ MORGANJOSEPH. COM

One of the critical ingredients/judgments required in making a convertible investment decision is the
one that requires a determination of the volatility of an underlying stock. In what has always been a
quirk of modeling techniques, the higher the volatility of a stock, the more valuable the call option
component of a convertible will be. This often means that the riskier a convertible investment
situation is, the more valuable it must be. Common sense says otherwise, but who are we to argue with
historical volatility data and modeling convention? In any event, it is worth noting that over the past
year, the average implied volatility of S&P 500 call options has fallen to 15.7% from 27.9%. Less
dramatic has been the decline in the actual 60-day volatility of the Nasdaq Composite, which has fallen
from 20.4% to 18.7%, a decline that is nonetheless not insignificant.

CONVERTIBLE
SALES &TRADING
Matthew DiBiase
585-899-6021
MDIBIASE @ MORGANJOSEPH. COM
1

Michael Racaniello
585-899-6022

MRACANIELLO@ MORGANJOSEPH. COM

Our convertible performance numbers include interest and dividend income and are based on an equal weighting of all
convertibles that are of at least $25 million in size, carry a price in excess of 10% of par value, and whose underlying
stock price is at least $1 at the time of the initial pricing period. 685 issues met this criteria.

The Convertible Market Fourth-Quarter Review

January 14, 2004

Interest Rates A Good Six Month Recovery, But What Now?


Since mid -summer, when treasury rates had increased about 100 points since the
beginning of the year, we have seen a steady and welcome recovery of about 50
basis points. At this stage, however, it is hard to imagine that rates will go much
lower, if at all, especially given the pickup in economic activity and the substantial
decline in the value of the dollar.
We believe that the convertible market will continue to do well, and that the benefits
of a declining interest rate environment will be replaced by a broad and steady
improvement in credit standing and company profitability.

The Full Year A Broad-Based Advance


It was remarkable how ferocious most technology issues recovered during the course
of the year. In this quarterly review, we focus on the semiconductor sector, which
has indeed been virtually unrestrained in its recovery, but a good percentage of the
telecommunication companies also staged healthy recoveries, as did some of the
more dynamic healthcare companies. Given that so many company stocks had fallen
to single-digit levels, their ensuing recoveries generated, almost by default, some
fairly high percentage gains.
It is actually difficult to find a sector that did not perform well the weak individual
performers generally encountering problems unique to themselves. Even Ford (F $16.18 - NYSE) and General Motors (GM - $53.79 - NYSE) managed to stage
healthy advances during the course of the year. Both companies have convertible
alternatives available that might be of interest to the longer-term investor who would
like some added income and safety versus the underlying common shares.
Table 1: Auto Company Convertibles
Cpn/
Div

Issuer
Ford Motor t
General Motors
General Motors t
General Motors t

$
$
$
$

3.25
1.56
1.13
1.31

Maturity
01/15/2032
07/15/2033
03/06/2032
03/06/2032

Convertible
Price* % Yld % YTM
57.00
32.75
27.00
27.50

5.7
4.8
4.1
4.8

5.51
4.36
4.02
4.60

Common
Price*
% Yld $ Div
16.41
53.86
53.86
53.86

2.4
3.7
3.7
3.7

0.40
2.00
2.00
2.00

Conversion
Ratio
Prem %
2.825
0.525
0.356
0.385

23
16
29
33

Call Date
01/15/2007
07/20/2010
03/06/2007
03/06/2009

Size
$mm
5000
4300
1150
2650

t trust preferred

*Prices as of January 12, 2004


Source: Morgan Joseph & Co. Inc.

The Semiconductor Sector


It was a banner year for the semiconductor sector, with the Philadelphia
Semiconductor Index (SOXX - $541.92) rising 75.7% for the year, with quite a few
companies rising from rock-bottom levels. One of the beneficial side effects of such
a recovery in equity prices is the perceived relief in credit status, which contributed
to a very high return rate amongst the semiconductor convertibles. By our
reckoning, our universe of semiconductor companies generated a total return of
47.5% (equal weighted) for the year, propelled by a 125.2% rise in its underlying
stocks. Although the divergence between convertible and common appears quite
large, it is not unusual to see such discrepancies when their underlying stocks start
from low single-digit prices, well below their respective conversion prices.
Naturally, the strong advance in semiconductor stock prices is apt to make investors
increasingly wary of jumping on the band wagon (do we hear echoes of 2000?). The
accompanying table on semiconductor related convertibles details the scope of
convertible alternatives in this sector. Relative to their underlying stocks, however,
they present, in varying degrees, much lower investment risk.

The Convertible Market Fourth-Quarter Review

January 14, 2004

We would note one unusual aberration. In the wake of Conexant Systems


impending merger with GlobespanVirata, Inc. (GSPN - $7.38 - NASDAQ) (in
which the Conexant name will survive) the Conexant Systems 4 % due 2006 Cv
Deb (OTC - 102) and the Conexant Systems 4% due 2007 Cv Deb (OTC - 97) are
trading at very high levels relative to their credit ratings (CCC+). Granted, the
companys pending merger with Globespan will produce a bigger company in terms
of revenues, but in terms of income generation, the pro forma operating loss for the
twelve months prior to September 30, 2003 remains negative, going from a loss of
$102.5 million to a loss of $46.7 million before the inclusion of intangible writeoffs and special charges.
Long-term debt for the combined entity will rise to $711.8 million from $581.8
million (thanks to Globespans $130 million convertible); and tangible net worth will
increase from $97.4 million to $286.8 million. As such, the companys debt-tocapital ratio will actually improve to 71.3% from 85.7%.
Based on just the September 2003 quarter results, Conexants pro forma EBITDA
interest coverage improves to about 2.0x from about 1.5x. Even so, there has been
no word from S&P regarding any change in its CCC+ rating of the companys debt.
If one were to presume the continuation of a CCC+ rating and assign a generous
volatility of 55% to the common stock and a 550-basis -point spread to the implied
investment value calculation, the following valuations for all three convertibles
results:
Table 2: Conexant / GlobespanVirata Convertible Comparisons
Assumptions:
Volatility:
Implied Trsry Spread:

55%
550bp

Issuer
Conexant
Conexant
GlobespanVirata
Est IV
Est FV

Cpn
/Div

Maturity

4.00
4.25
5.25

2/1/2007
5/1/2006
5/15/2006

Convertible
%
%
Price*
Yld
YTM
97.000
102.000
101.000

4.1
4.2
5.2

Estimated Investment (Bond) Value


Estimated Fair Value

5.1
3.3
4.8

Conversion
%
Ratio
Prem
23.567
110.193
37.499

593
56
282

Com
Price*

Call
Date/
Price

Size
$MM

Est
IV

Est.
FV

%
Overvld /
Undervld

5.94
5.94
7.05

102.3
101.8
5/04p

515
67
130

87.8
94.3
96.1

88.1
102.0
97.3

10.1
0.0
3.8

p 130% provisional call protection

*Prices as of January 12, 2004


Source: Morgan Joseph & Co. Inc.

It would appear that the companys $439 million in cash and marketable securities
are being heavily weighted in the thinking behind the trading prices of these
debentures.
As one can see, the small $67 million Conexant 4 % debenture appears the most
reasonably valued. This small issue is first on the redemption schedule, the maturity
of which evidently is viewed by the market as not being a problem.
Next in line is the Globespan 5 % debenture, which also looks to be in good shape
as far as a redemption is concerned and what is likely to be a still-large cash balance.
Our curiosity is piqued, however, when we look at the Conexant 4% of 2007. Even
though we are using the same 550-basis -point spread to the treasury to calculate its
investment value, and applying the same 55% volatility, we would have expected its
over-valued condition to roughly resemble that of the Globespan 5 %. In point of
fact, there is nearly a five-point difference. Our reading of the prospectuses indicates
that this merger should not trigger any change in control provisions, which might be
suggesting that the market is simply having a tougher time finding issues that yield
in excess of 5% to a very short maturity and is willing to reach for those issues.

The Convertible Market Fourth-Quarter Review

January 14, 2004

Table 3: Semiconductor Company Convertibles


S&P

Issuer

Cpn/ Div

Maturity

Convertible
Price*
% Yld
% YTM

Price*

Common
% Yld

$ Div

Conversion
Ratio
Prem %

Call Date

Size
$mm

CCC
CCC
CCC+
CCC+
NA

Advanced Micro Devices


Advanced Micro Devices
Amkor Tech
Amkor Tech. Inc.
Asyst Technology

4.50
4.75
5.00
5.75
5.75

12/01/2007
02/01/2022
03/15/2007
06/01/2006
07/03/2008

220.00
103.00
99.75
106.50
130.00

2.0
4.6
5.0
5.4
4.4

- 16.41
4.51
5.08
2.90
- 0.83

15.77
15.77
20.43
20.43
18.42

0.0
0.0
0.0
0.0
0.0

0.00
0.00
0.00
0.00
0.00

135.685
42.772
17.440
28.571
65.872

2.8
52.7
179.9
82.4
7.1

12/04/2005h
02/05/2006
102.86
06/04/2004
07/03/2004

403
500
259
250
86

NA
NR
NA
CCC+
NR

Atmel Corp
Atmel Corp.
Axcelis Tech
Conexant Syst
Conexant Systems

0.00
0.00
4.25
4.00
4.25

04/15/2018
05/23/2021
01/15/2007
02/01/2007
05/01/2006

46.25
44.25
97.00
97.00
102.00

0.0
0.0
4.3
4.1
4.1

5.49
4.75
5.35
5.08
3.33

6.74
6.74
11.75
5.94
5.94

0.0
0.0
0.0
0.0
0.0

0.00
0.00
0.00
0.00
0.00

55.932
22.983
50.000
23.567
110.193

22.6
185.6
65.1
592.9
55.8

44.32
05/23/2006
01/15/2005
102.29
101.82

340
512
125
515
67

NA
BBBB-

Credence Systems
Cymer Inc.
Cypress Semi
Cypress Semiconductor
DuPont Photmask

1.50
3.50
3.75
1.25
1.25

05/15/2008
02/15/2009
07/01/2005
06/15/2008
05/05/2008

152.00
116.00
100.33
145.25
119.00

0.9
3.0
3.7
0.8
1.0

- 8.24
0.32
3.51
- 7.26
- 2.87

14.57
49.38
23.30
23.30
24.07

0.0
0.0
0.0
0.0
0.0

0.00
0.00
0.00
0.00
0.00

88.417
20.000
15.988
55.172
39.070

17.9
17.4
169.3
12.9
26.5

05/15/2008
02/15/2005
100.94
06/15/2006c

180
250
69
600
125

AANA
B
NA
NA

DuPont Photomask
Emcore Corp
Fairchild Semi
GlobespanVirata
Hutchinson Tech

0.00
5.00
5.00
5.25
2.25

07/24/2004
05/15/2006
11/01/2008
05/15/2006
03/15/2010

98.75
95.00
107.00
100.50
145.00

0.0
5.2
4.6
5.2
1.5

2.46
7.37
3.40
5.02
- 4.10

24.07
6.70
26.49
7.05
36.96

0.0
0.0
0.0
0.0
0.0

0.00
0.00
0.00
0.00
0.00

9.411
20.507
33.330
37.499
33.512

335.9
591.4
21.1
280.1
17.0

05/19/2004C
11/05/2004
05/20/2004f
03/15/2008

100
175
200
130
150

B
NA
NR
CCC+
B

Int'l Rectifier
Kulicke & Soffa
Kulicke & Soffa
Kulicke & Soffa
Lam Research

4.25
0.50
4.75
5.25
4.00

07/15/2007
11/30/2008
12/15/2006
08/15/2006
06/01/2006

112.50
98.00
101.88
103.50
116.50

3.7
0.5
4.6
5.0
3.4

0.63
0.92
4.06
3.81
- 2.68

53.25
15.47
15.47
15.47
35.40

0.0
0.0
0.0
0.0
0.0

0.00
0.00
0.00
0.00
0.00

13.525
49.188
43.669
50.640
22.257

56.2
28.7
50.8
32.1
47.8

102.43
11/30/2008
102.04
08/19/2004c
06/05/2004

550
185
175
125
300

BBBB
B
CCC+
B-

Lbty Med-MOT
LSI Logic
LSI Logic
LTX Corp.
Micron Tech

3.50
4.00
4.00
4.25
2.50

01/15/2031
11/01/2006
05/16/2010
08/15/2006
02/01/2010

67.78
98.00
116.00
97.00
144.00

5.1
4.0
3.4
4.3
1.7

5.90
4.77
1.36
5.51
- 3.90

16.20
10.90
10.90
17.26
15.28

0.9
0.0
0.0
0.0
0.0

0.16
0.00
0.00
0.00
0.00

36.819
37.970
74.516
34.435
84.832

13.6
01/15/2006
136.7
11/06/2004
42.8
63.2 08/19/2004m
11.0
02/06/2006

600
490
350
150
633

B
B
NA
B
NA

Photronics
Photronics Inc
PMC-Sierra
Quantum Corp.
Skyworks Solutions

2.25
4.75
3.75
4.38
4.75

04/15/2008
12/15/2006
08/15/2006
08/01/2010
11/15/2007

154.00
99.38
104.50
113.00
130.00

1.4
4.7
3.5
3.8
3.6

- 8.14
4.98
1.95
2.23
- 2.64

20.99
20.99
22.65
3.86
10.25

0.0
0.0
0.0
0.0
0.0

0.00
0.00
0.00
0.00
0.00

62.932
27.027
23.566
229.885
110.491

16.5
75.1
95.7
27.3
14.7

04/15/2008
12/17/2004
08/15/2004n
08/05/2008
11/20/2005

150
200
275
160
230

BBB+
B+
NA
NR
NR

STMicroelectronics NV
Teradyne Inc
Transwitch Corp.
TriQuint Semi
Vitesse Semi

0.00
3.75
5.45
4.00
4.00

09/22/2009
10/15/2006
09/30/2007
03/01/2007
03/15/2005

93.00
122.00
101.75
99.25
98.00

0.0
3.0
5.3
4.0
4.0

1.28
- 3.78
4.93
4.26
5.80

29.90
27.74
3.16
8.80
7.04

0.2
0.0
0.0
0.0
0.0

0.06
0.00
0.00
0.00
0.00

26.292
38.462
182.710
14.749
8.914

18.3
14.3
76.2
664.6
NM

09/22/2004
10/15/2004
09/30/2005
102.00
101.00

919
400
98
269
195

*Prices as of January 12, 2004


Source: Morgan Joseph & Co. Inc.

The Convertible Market Fourth-Quarter Review

January 14, 2004

Table 4: Semiconductor Company Convertibles with Puts


Issuer

Put

Put

Yld*

Date

Price

/Put

Atmel Corp. 0-21

05/23/06

49.45

4.78

Atmel Corp 0-16

04/15/08

58.13

5.45

STMicroelectronics 9-09

09/22/04

88.59

nmf

Adv Micro Devices 4.75-22

02/01/09

100.00

4.09

*Yield as of January 12, 2004


Source: Morgan Joseph & Co. Inc.

Gold and Silver The Shine is Back


A combination of a declining dollar, strong economic demand in China, a general
economic recovery elsewhere, and the notion that interest rates are likely to start
moving back up have all contributed to a stellar rise in the prices of gold and silver
over the past year. Over the past six months alone, the price of gold has appreciated
over $80/oz to currently hover at about $420/oz. Silver has followed a similar
trajectory, rising to $6.23/oz from about $4.60 (+ 35.4%).
Table 5: Gold Prices

Prices as of January 12, 2004


Source: Kitco

As for the dollar, its severe decline this year conjures up thoughts of a compressed
inflationary spring that, at some point, will uncoil. Such a scenario would reinforce
the appeal of precious metals companies.
The following table shows the
performance of the dollar relative to the euro over the past year.

The Convertible Market Fourth-Quarter Review

January 14, 2004

Table 6: Performance of $ Relative to

Prices as of January 7, 2004


Source: Yahoo!

Although the world of convertibles has a scarce sampling of issues that are linked to
gold and silver companies, it does not hurt to see where those issues currently stand.
For the more conservative investor still drawn to the notion that the appreciation in
precious metals prices is not yet over, investing via a convertible rather than the
much riskier common stock might make more sense. Of course, when faced with a
Freeport Copper & Gold 7% due 2011 Cv Deb (OTC 161, 20.8% conversion
premium) that is trading well into the money, the downside protection normally
associated with a convertible is greatly diminished.
What is interesting is that after such a long period of relative financial drought for
many precious metals companies, sustained high-price levels for gold and silver have
opened a window that should allow many of these companies to finally repair and/or
build up their balance sheets. It is interesting that Freeport Copper and Gold (FCX $38.69 - NYSE) recently raised its quarterly common stock dividend substantially to
$0.20 from $0.09, the lower rate only having been re-established earlier in 2003 after
a five-year hiatus.
Coeur dAlene Mining Corp. (CDE - $6.02 - NYSE), which is principally involved
in silver mining, has taken advantage of this window by issuing a $160 million
convertible debenture with a coupon rate of 1 % and a conversion premium of
24%. Given that the company already had $86 million in cash on the balance sheet,
this financing will certainly provide added breathing room and the stock price
actually responded favorably.
Table 7: Gold and Silver Related Convertibles
S&P
NA
NA
BBBB+

Issuer

Cpn/ Div

Agnico Eagle
4.50
Coeur d'Alene p1
1.25
Barrick Gold
3.00
Freeport C & G
7.00
Placer Dome
2.75
p1 putable on 1/15/2011 at 100.

Convertible
Price* % Yld % YTM

Maturity
02/15/2012
1/15/2024
01/29/2021
02/11/2011
10/15/2023

*Prices as of January 12, 2004


Source: Morgan Joseph & Co. Inc.

115.00
109.50
78.00
161.00
134.50

3.9
1.1
3.8
4.3
2.0

2.44
0.74
4.92
-1.24
0.85

Common
Price*
% Yld $ Div
13.05
6.40
22.35
42.90
18.29

0.2
0.0
0.9
1.8
0.5

0.03
0.00
0.22
0.36
0.10

Conversion
Ratio
Prem %
71.429
131.579
32.258
32.293
47.790

23.3
30.0
8.1
16.2
53.8

Call Date
02/15/2006
1/182011
01/29/2006
02/10/2011
10/20/2010

Size
$mm
144
150
275
575
230

The Convertible Market Fourth-Quarter Review

January 14, 2004

Low Premium Convertibles


The bullish advance in stock prices has lifted many converts to levels where their
respective premiums have contracted markedly. A year ago, a table of low premium
convertibles barely filled half a page. Our selection is now considerably expanded,
even after we tightened our premium parameters. In the current table, we have
limited our universe to those convertibles that have premiums of less than 25% (not
30%), offer call protection of at least a year, and are at least $100 million in size.
We also decided to exclude zero coupon convertibles. Equity investors who have
grown more defensive towards the market in general might find merit in swapping
some of their stocks into their lower premium convertible counterparts in order to
ride out any market consolidation.

The Convertible Market Fourth-Quarter Review

January 14, 2004

Table 8: Low Premium Convertibles


Conversion Premium <= 25%
Call Protection >= 1 year
Issue Size >= $100 mil

S&P

Issuer

Cpn
/Div

Maturity

Convertible
%
%
Price*
Yld
YTM

Conversion
%
Ratio
Prem

Common
%
Price*
Yld

Put
Date

Put
Price

NA
BBNA
A

Actuant Corp.
Acxiom Corp
Agnico Eagle r
Airborne Inc.

2.00
3.75
4.50
5.75

11/15/2023
02/15/2009
02/15/2012
04/01/2007

115.71
114.50
115.00
118.75

1.73
3.28
3.91
4.84

1.12
0.83
2.44
- 0.09

25.056
54.788
71.429
42.760

24.8
10.4
23.3
24.1

37.00
18.92
13.05
22.37

0.00
0.00
0.23
0.72

11/15/10
02/15/07

100.00
100.00

NA
CCC
BBB
A-

Alkermes Inc.
American Tower
Bunge Ltd ()
Carnival Cruise

2.50
3.25
3.75
2.00

09/01/2023
08/01/2010
11/15/2022
04/15/2021

114.00
124.00
126.25
122.50

2.19
2.62
2.97
1.63

1.66
- 0.37
2.06
0.62

72.202
81.808
31.114
25.547

11.8
17.0
20.0
16.8

14.12
12.95
33.80
41.04

0.00
0.00
1.30
1.22

09/01/08

100.00

BBBBB
NA
BNA

Centerpoint Energy
Charles River
CMS Energy
Cymer Inc.
Documentum Inc.

3.75
3.50
2.25
3.50
4.50

05/15/2023
02/01/2022
NA
02/15/2009
04/01/2007

111.00
103.81
56.00
116.00
114.00

3.38
3.37
4.02
3.02
3.95

3.00
3.22
NA
0.32
0.12

86.356
25.726
5.054
20.000
33.307

24.7
14.6
23.3
17.4
22.0

10.30
35.20
8.98
49.38
28.05

3.88
0.00
0.00
0.00
0.00

NA

Elan ()
Ford Motor t
General Cable
Getty Images
Guitar Center

6.50
3.25
2.88
0.50
4.00

11/11/2008
01/15/2032
NA
06/09/2023
07/15/2013

118.00
57.00
50.00
102.85
118.30

5.51
5.70
5.75
0.49
3.38

2.51
5.51
NA
0.35
1.89

134.771
2.825
4.998
16.372
28.918

10.1
22.9
19.3
23.1
21.5

7.95
16.41
8.38
51.02
33.67

0.00
2.44
0.00
0.00
0.00

HCC Insurance
HCC Insurance
Indymac Cap I
Lowes Companies
Manor Care

2.00
1.30
3.00
0.86
2.13

09/01/2021
04/01/2023
11/14/2031
10/19/2021
04/15/2023

111.49
112.00
57.00
110.00
123.50

1.79
1.16
5.26
0.78
1.72

1.27
0.64
5.06
0.28
0.81

31.250
29.438
1.597
17.212
32.134

13.9
21.5
19.6
24.0
15.9

31.30
31.30
29.82
51.51
33.15

New Plan Excel


NY Community Banc
Odyssey Re Hldgs
Omnicare t,r
Pep Boys

3.75
3.00
4.38
2.00
4.25

06/01/2023
11/01/2051
06/15/2022
06/15/2033
06/01/2007

116.00
62.50
127.25
63.00
116.00

3.23
4.80
3.44
3.18
3.66

2.69
4.69
2.52
2.71
- 0.45

40.000
1.404
46.993
1.225
44.648

16.6
16.9
16.1
18.6
14.9

NA
B
B+
A
A
A
BBB
BBB
BBB#N/A
BB-

Yld
/Put

Call
Date

- 0.2 11/15/10
- 0.8 02/15/05
0.0 02/15/06
0.0 04/01/05

Size
$MM
125
175
144
150

11/15/07
04/15/05

- 0.4 09/06/06p
0.0 08/01/08
100.00 - 2.7 11/22/05
100.00 - 13.9 04/15/08

125
210
250
600

05/15/08
02/01/08

100.00
100.00

575
185
225
250
125

1.1
2.5
0.0
0.0
0.0

05/20/08
02/05/05
12/01/08
02/15/05
04/05/05

0.0 12/02/06p
0.0 01/15/07
0.0 11/24/08
- 0.1 06/13/08
- 0.0 07/15/06

400
5000
104
265
100

06/09/08
07/15/08

100.00
100.00

0.96
0.96
2.68
0.23
1.51

09/01/04
04/01/09
10/19/06
04/15/05

100.00 - 14.9 09/01/06


100.00 - 0.9 04/04/09
0.0 11/14/06
86.10 - 7.8 10/19/06
100.00 - 14.4 04/15/10

173
125
200
581
100

24.87
38.06
23.31
43.35
22.61

6.63
2.63
0.54
0.21
1.19

06/01/10

100.00

115
300
110
300
150

06/22/05

1.1 06/09/08
0.0 11/04/07p
100.00 - 12.3 06/22/05
0.0 06/15/09
0.0 06/01/05

NA

Powerwave Tech

1.25

07/15/2008

116.00

1.08

- 2.12

95.329

24.0

9.81

0.00

0.0

NA
B

Rouse Co.
Skyworks Solutions
Sunrise Assisted Lvg
Wash Mutual

3.00
4.75
5.25
5.38

NA
11/15/2007
02/01/2009
NA

61.50
130.00
126.00
60.00

4.88
3.65
4.17
8.96

NA
- 2.64
0.08
NA

1.312
110.491
27.902
1.208

0.6
14.7
19.7
24.3

46.58
10.25
37.72
39.95

3.61
0.00
0.00
4.11

0.0
0.0 11/20/05
0.0 02/05/06
0.0 05/01/06

200
230
125
1150

WebMD
3.25
p provisional call protection
() Eurodollar convertible

04/01/2007

120.00

2.71

- 2.68

107.956

9.3

10.17

0.00

0.0 04/05/05

300

NA

*Prices as of January 12, 2004


Source: Morgan Joseph & Co. Inc.

130

The Convertible Market Fourth-Quarter Review

January 14, 2004

Table 9: Convertible New Issues Fourth Quarter 2003


Issuance
Date

Issuer

Issue
Size
$mm

Cpn/
Div

Mat.
Date

OID
Accr.

Conv.
Ratio

%
Conv.
Prem

Issue
Price*

Yield

Common Com. Com.


Symbol Price* Div.

Call
Date

Lead
Mgr.

10/01/23
10/15/23
10/15/10
10/15/33
10/15/23
10/15/23
11/01/33
10/15/33
10/15/23
11/11/08
11/01/23
11/15/23
11/15/23
01/01/24
11/15/23
11/15/23
12/01/33
08/16/10
11/15/13
11/30/08
11/25/23
11/25/23
11/15/33
12/15/23
12/15/10
12/15/08
12/01/23
12/15/23
12/15/23
12/01/23
12/15/23
12/15/33
01/15/14
12/15/23
01/15/24
12/15/33
01/15/24
12/15/23
12/15/33
01/15/14
12/15/23
01/01/24
12/31/33
12/22/23

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

4.50%
3.25%
2.50%
3.38%
2.75%
3.13%
2.75%
5.00%
2.75%
6.50%
4.88%
2.00%
4.75%
5.00%
1.75%
1.38%
1.85%
3.00%
4.00%
0.50%
3.38%
4.00%
3.13%
2.88%
4.88%
5.50%
1.25%
2.13%
3.00%
3.75%
0.25%
1.00%
4.75%
1.50%
0.00%
0.75%
2.88%
1.17%
0.00%
1.75%
5.00%
2.75%
1.75%
0.75%

89.799
55.897
269.906
32.237
47.790
23.319
134.192
1.040
38.952
134.771
60.408
25.056
153.846
93.897
53.526
42.425
14.407
31.634
31.623
39.188
21.739
73.357
14.196
73.314
185.094
231.482
14.037
13.587
37.215
26.540
23.148
64.725
66.667
45.058
16.559
32.243
78.064
82.035
30.221
28.521
85.034
34.143
44.719
85.441

45.0%
25.0%
30.0%
47.0%
55.0%
42.0%
38.0%
35.0%
49.0%
49.9%
24.0%
35.0%
38.0%
35.0%
32.5%
27.0%
58.0%
40.0%
40.0%
27.0%
50.7%
42.0%
35.0%
50.0%
29.3%
24.0%
47.5%
22.0%
30.0%
45.0%
60.0%
40.6%
48.1%
32.5%
57.5%
28.0%
40.0%
45.0%
42.0%
37.5%
27.0%
30.0%
31.0%
40.0%

PWR
IRN
FNSR
EK
PDG
MW
BEV
GREY
URI
ELN
FLYR
ATU
CPN
CMRG
ACF
RSYS
AXP
VRX
VRX
KLIC
YELL
MCH
LFG
CBR
LGF
IO
GENZ
D
CCRD
FHR
ELX
AKAM
HC
SRNA
WYE
AFFX
CNP
MHR
AOT
KROL
FLE
MNT
AG
ADPT

7.68
14.31
2.85
21.10
13.50
30.20
5.40
712.00
17.23
4.95
13.35
29.56
4.71
7.89
14.10
18.56
43.93
22.58
22.58
16.00
30.52
9.60
49.66
9.09
4.18
3.48
48.30
60.33
60.33
26.02
43.20
10.99
10.13
16.75
38.34
32.24
9.15
8.41
23.30
25.50
9.26
22.53
17.07
8.36

5.000
2.250
1.469

Perpetual

100 5.00%
50 4.50%
25 5.88%

6.096
5.054
1.061

37.5%
30.0%
22.0%

CHK
CMS
SCT

11.93
7.61
19.32

0.14 11/15/06 p B0.00 #######


na
0.20
BB

B3
na C
Ba1

0.000
0.000
0.000
1.418

11/15/10
12/15/08
12/15/10
01/15/34

na
na
na
na

na
na
na
na

na
na
BB+
na

na
Ba2
na
na

P S&P Mdy's

Put
Price

Put
Date

100
100
100
100
100
100
100

10/01/08
10/15/08
10/15/07
10/15/10
10/15/13
10/15/08
11/01/10

Convertible Debentures
07-Oct-03
08-Oct-03
09-Oct-03
10-Oct-03
10-Oct-03
15-Oct-03
15-Oct-03
23-Oct-03
28-Oct-03
30-Oct-03
03-Nov-03
04-Nov-03
10-Nov-03
11-Nov-03
12-Nov-03
14-Nov-03
17-Nov-03
17-Nov-03
17-Nov-03
22-Nov-03
22-Nov-03
22-Nov-03
24-Nov-03
25-Nov-03
26-Nov-03
02-Dec-03
02-Dec-03
04-Dec-03
04-Dec-03
04-Dec-03
09-Dec-03
09-Dec-03
09-Dec-03
09-Dec-03
10-Dec-03
10-Dec-03
11-Dec-03
12-Dec-03
12-Dec-03
18-Dec-03
18-Dec-03
18-Dec-03
18-Dec-03
18-Dec-03

Quanta Services
Idine Rewards
Finisar Corp.
Eastman Kodak
Placer Dome
Mens' Warehouse
Beverly Enterprises
Grey Global
United Rentals
Elan Corp. PLC
Navigant Int'l
Actuant Corp.
Calpine Corp.
Casual Male Retail
AmeriCredit
Radisys Corp.
American Express
Valeant Pharm
Valeant Pharm
Kulicke & Soffa
Yellow Corp.
Millenium Chemicals
LandAmerica
Ciber
Lions Gate
Input / Output
Genzyme Corp.
Dominion Resources
Concord Comm's
Fairmont Hotels
Emulex Corp.
Akamai Tech
Hanover Compressor
Serena Software
Wyeth
Affymetrix
Centerpoint Energy
Magnum Hunter
Apogent Tech
Kroll Inc.
Fleetwood Ent's
Mentor Corp.
Agco Corp.
Adaptec

Totals:

44

225
4.500
60
3.250
130
2.500
575
3.375
230
2.750
110
3.125
100
2.750
125
5.000
125
2.750
400
6.500
60
4.875
125
2.000
600
4.750
85
5.000
200
1.750
75
1.375
1800
1.850
240
3.000
240
4.000
185
0.500
130
3.375
125
4.000
100
3.125
150
2.875
50
4.875
50
5.500
600
1.250
200
2.125
75
3.000
270
3.750
450
0.250
175
1.000
125
4.750
190
1.500
1020 Lbr -50
100
0.750
225
2.875
100 Libor
345 Lbr -125
175
1.750
80
5.000
125
2.750
175
1.750
225
0.750

0.00
0.00
0.00
1.00
0.00
0.00
0.00
4.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.40
0.31
0.31
0.00
0.00
0.00
0.00
0.00
0.00
0.00
0.00
2.58
0.00
0.00
0.00
0.00
0.00
0.00
0.92
0.00
0.40
0.00
0.00
0.00
0.00
0.00
0.00
0.00

10/01/08
10/15/08
10/15/07
10/15/10
10/20/10
10/20/08
11/05/10
10/15/13
10/15/10
10/15/10
11/06/10
11/15/10
11/15/09
01/06/07
11/15/08
11/15/08
12/01/06
08/16/10
05/20/11
11/30/08
11/30/12
11/15/10
11/15/10
12/15/10
12/15/06
12/15/08
12/01/08
12/20/06
12/15/08
12/15/08
12/15/08
12/15/10
01/15/11
12/15/08
07/20/09
12/15/08
01/15/07
12/15/08
03/15/10
01/15/09
12/15/08
01/01/09
12/31/10
12/22/08

na
na
na
na
na
na
ML
BBB- Baa3
BBB+ Baa2
na
na
na
na
na
na
B+
B2
pna
na
na
na
na
na
CCC+ Caa1
GS
na
na
na
na
na
na
A+
na
ML
B
na
GS
B
na
GS
na
na
DB
BBB Ba2
DB
BB- B1
BAS
na
na
na
na WACH
p na
na
SGC
na
na
MS
BBB na
na
na
CSFB
na
na
na
na
p na
na
CSFB
na
na
p B
B3
CSFB
p na
na
A
na
na
na
BBB- Ba1
na
na
BBB- Ba1
B
B1
GS
na
na
na
na
BB- na
MS
Bna

100

10/15/10

100
100
100
100
100
100
100

11/01/10
11/15/10
11/15/09
01/01/09
11/15/08
11/15/08
12/01/06

100
100
100
100

11/25/12
11/15/10
11/15/10
12/15/08

100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100

12/01/08
12/15/06
12/15/08
01/20/09
12/15/06
12/15/10
01/15/14
12/15/08
07/15/09
12/15/08
01/15/07
12/15/08
12/15/08
01/15/09
12/15/08
01/01/09
12/31/10
12/22/08

100

11/15/08

$10,950

Convertible Preferreds
12-Nov-03
26-Nov-03
12-Dec-03
Totals:

Chesapeake Energy
CMS Energy
Scottish Re

150
225
125

$500

Zero Coupon/OID Convertible Debentures


28-Oct-03
09-Dec-03
09-Dec-03
23-Dec-03
Totals:

JDS Uniphase
Sepracor
Sepracor
Roper
4

400
200
200
506.3

100
100
100
39.502

0.00%
0.00%
0.00%
3.59%

0.00% 202.429
0.00% 31.355
0.00% 33.518
na
6.211

37.6%
24.0%
16.0%
32.5%

JDSU
SEPR
SEPR
ROP

3.59
25.72
25.72
48.00

0.00
0.00
0.00
0.39

25
25
50
50

5.88%
2.00%
7.00%
5.38%

Min.
Max.
Ratio Ratio
0.528
0.655
0.496
0.669
0.831
1.030
3.036
3.704

24.0%
13.1%
24.0%
22.0%

PMI
VLO
AHC
IPG

38.20
39.25
48.55
13.50

0.15
0.48
1.20
0.00

11/15/08
12/15/08
12/15/10
01/15/09

MS
MS
39.502 01/15/09

$1,306

Mandatory Converting Preferreds

28-Oct-03
28-Oct-03
22-Nov-03
16-Dec-03
Totals:
Grand Total:

PMI Group
Valero Energy
Amerada Hess
Interpublic

345
211.5
600
325

$1,482

55

$14,238

1.469 11/15/2006
0.500 7/1/2006
3.500 12/1/2006
2.688 12/15/2006

BAS
SSB
GS
C

p provisional call protection

*Prices as of respective dates of issuance.


Source: Morgan Joseph & Co. Inc.

The Convertible Market Fourth-Quarter Review

January 14, 2004

This page intentionally left blank .

10

The Convertible Market Fourth-Quarter Review

January 14, 2004

This page intentionally left blank.

11

Equity Research Team


ANALYST

TELEPHONE

E-MAIL

CAROLE CRANMER
DIRECTOR OF R ESEARCH

212.218.3752

CCRANMER @MORGANJOSEPH .COM

DEVLIN LANDER
VICE PRESIDENT

212.218.3759

DLANDER @MORGANJOSEPH .COM

RICHARD C. NELSON
M ANAGING DIRECTOR

212.218.3702

RNELSON @MORGANJOSEPH .COM

RICHARD S. PAGET, CFA


ANALYST

212.218.3894

RPAGET@MORGANJOSEPH .COM

BAHRAM PAHLAVI
R ESEARCH ASSOCIATE

212.218.3989

BPAHLAVI @MORGANJOSEPH .COM

RICHARD F. ROSSI
M ANAGING DIRECTOR

212.218.3741

RROSSI @MORGANJOSEPH .COM

PRODUCTION COORDINATOR

TELEPHONE

E-MAIL

MEG OCONNOR

212.218.3288

MOCONNOR@MORGANJOSEPH .COM

LOCATIONS

TELEPHONE

FACSIMILE

N EW YORK
600 FIFTH AVENUE, 19TH FLOOR
NEW Y ORK, NY 10020

212.218.3700

212.218.3718

N ASHVILLE
150 FOURTH A VENUE NORTH , SUITE 1050
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615.238.2300

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TRADING D EPARTMENT
1173 PITTSFORD-V ICTOR ROAD , SUITE 120
PITTSFORD , NY 14534

877.237.6542

585.899.6029

WWW .MORGANJOSEPH.COM

I, Richard Nelson, the author of this research report, certify that the views expressed in this report accurately reflect my
personal views about the subject securities and issuers, and no part of my compensation was, is, or will be directly or
indirectly tied to the specific recommendations or views contained in this research report.
Research analyst compensation is dependent, in part, upon investment banking revenues received by Morgan Joseph &
Co. Inc.
Morgan Joseph & Co. Inc. expects to receive or intends to seek compensation for investment banking services from the
subject company within the next 3 months.
Meaning of Ratings:

A) Buy (1) means Reasonable out-performance relative to the market over 12-18 months.
B) Hold (2) means Market-type risk adjusted performance; potential source of funds.
C) Sell (3) means Expected to under-perform the market.

Of the securities currently subject to research coverage by Morgan Joseph & Co. Inc., the percentage rated as a Buy is
38%; the percentage rated as a Hold is 62%; and the percentage rated as a Sell is 0%.
In the previous 12 months, Morgan Joseph & Co. Inc. has provided investment banking services to 17% of the companies
we currently rate as Buy; to 20% of the companies we currently rate as Hold; and to 0% of the companies we currently
rate as Sell.
The information contained herein is based upon sources believed to be reliable but is not guaranteed by us and is not
considered to be all inclusive. It is not to be construed as an offer or the solicitation of an offer to sell or buy the securities
mentioned herein. Morgan Joseph & Co. Inc., its affiliates, shareholders, officers, staff, and/or members of their families,
may have a position in the securities mentioned herein, and, before or after your receipt of this report, may make or
recommend purchases and/or sales for their own accounts or for the accounts of other customers of the Firm from time to
time in the open market or otherwise. Opinions expressed are our present opinions only and are subject to change without
notice. Morgan Joseph & Co. Inc. is under no obligation to provide updates to the opinions or information provided herein.
Additional information is available upon request.
Copyright 2004 by Morgan Joseph & Co. Inc.