Convertibles selling accelerates; Evergreen Solar gets crushed; MGM, Kodak weaken further

By Rebecca Melvin

New York, May 20 - The convertible bond market saw selling accelerate on Thursday along with a slide in the broader markets and leading to the point of traders needing to sell bonds to raise cash, market players said.

"Today's focus is blind fear," a New York-based sellside trader said. The riskier names were definitely doing worse than better credits, although it seemed as though any decent bid was hit.

"But there were no bids for anything illiquid," he said.

Traders described the session as pretty active, although there are definitely wait-and-see attitudes as well, and many are sitting on the sidelines, sources said.

The situation in Europe and unrelenting worries over economic recovery in the United States and globally were cited for the downdraft. Meanwhile, new jobs data didn't help matters.

The Labor Department said new claims for unemployment benefits rose by 25,000 to 471,000, their largest in three months. That came as a surprise to investors, who were expecting a slight drop in new claims to 440,000.

Equities take a fall

The Dow Jones Industrial Average skidded 376.36 points, or 3.6%, to 10,068.01. The S&P 500 index fell 43.46, or 3.9% to 1,071.59; and the Nasdaq Composite index fell 94.36, or 4.11%, to 2,204.01.

Interest rates moved lower, too, as investors sought the relative safety of Treasuries. The yield on the benchmark 10-year Treasury note fell to 3.26% from 3.37% late Wednesday.

The three major equity indices breached their 200-day moving averages by 1 p.m. ET, and the Dow has fallen for nine of the last 12 days. The Dow dropped 115 points on Tuesday and 67 points on Wednesday.

Meanwhile, the regulatory reform bill overcame a major procedural obstacle in the Senate Thursday as lawmakers voted 60 to 40 to limit debate and move the legislation toward final passage.

Evergreen Solar Inc. saw its 4% convertibles slump to 34.5 on Thursday, down from pricing in the mid-40s about a week ago.

That drop occurred early, and although a solar equity index, the SOLRX Ardour Solar Energy index, was down 4% in early trade, it reversed course and swung into the green by the close.

The solar convertibles didn't mirror recovery in the equities, however.

"I haven't seen them this afternoon," a Connecticut-based sellside desk analyst said of the Evergreen 4% convertibles.

"People are in a wait-and-see mode," he said, regarding whether market players might be tempted to jump in and buy at lower prices.

"There is still concern about the euro and subsidies and all that," the analyst said about the solar convertibles.

In line with the de-risking trade, MGM Mirage traded down again, slipping into the upper 80s from par a week ago.

Cemex SAB de CV was also hard hit, as that convertible paper traded down to 100.5 versus a share price of $10.10, compared to 110 versus a share price of $11.50 a week ago.

Massey Energy Co.'s 3.25% convertibles due 2015 traded down a point to 79.5.

Eastman Kodak Co. extended its losses as well, with the Kodak 7% convertibles due 2017 changing hands at par versus a share price of $5.30, compared to 105 versus a share price of $5.50 on Wednesday and 111 versus a share price of $6.00 on Tuesday, according to a sellside analyst.

Evergreen Solar crushed

Evergreen Solar's 4% convertibles due 2013 traded at 34.5 on Thursday compared to trades in the mid 40s about a week ago, a trader said.

"ESLR seems to be getting crushed," the Connecticut-based trader said.

Evergreen's 13% convertibles due 2015, which priced in April, weren't seen in trade.

Shares of the Marlboro, Mass.-based maker of solar power panels ended down 4 cents, or 4%, to $0.92 on Thursday.

In April, when Evergreen Solar priced the new convertible issue, the 4% paper printed at 66.125, which was the company's tender offer price for the paper, but the vast majority of the notes traded in the 55 bid, 56 offered range. At that time shares were at $1.19.

"There wasn't much liquidity and guys have been looking to take exposure down on solar credits as a whole given the expectation European subsidies for the sector will be dramatically reduced as part of the austerity measures being put in place," a Connecticut-based sellside trader said.

Evergreen Solar issued the $165 million of 13% convertibles, and those that played in that deal were allowed to tender their Evergreen Solar 4% notes.

About half of the proceeds, or $85 million, was earmarked to buy back the 4% notes, and about half was going to add to liquidity.

Mentioned in this article:

Cemex SAB de CV NYSE: CV

Eastman Kodak Co. NYSE: EK

Evergreen Solar Inc. Nasdaq: ESLR

MGM Mirage NYSE: MGM

Massey Energy Co. NYSE: MEE

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