BGC Partners flat on debut; RadioShack higher on Verizon link up; Kodak extends slide

By Rebecca Melvin

New York, July 26 - News-specific trading, particularly earnings news, drove much of the day's action in the convertible market Tuesday. Those moves were up and down, but mostly down.

Outside of earnings, BGC Partners Inc.'s newly priced 4.5% convertibles traded up a little outright but were flat on a dollar-neutral basis, a syndicate source said.

BGC priced an upsized $135 million of five-year convertibles late Monday at the midpoint of price talk.

RadioShack Corp.'s convertibles added about 1.5 points outright with the underlying shares catapulting 20% on news that the Fort Worth, Texas-based mobile and electronics retailer is dropping its wireless partnership with T-Mobile in favor of Verizon Wireless, the nation's No. 1 service provider. The surge in its stock and bonds came despite RadioShack's second-quarter earnings miss.

Eastman Kodak Co. extended its slide lower Tuesday after the Rochester, N.Y.-based photography company reported a wider-than-expected loss and said it burned through more than $300 million in cash during the last quarter.

NuVasive Inc., which priced an upsized $350 million of 2.75% convertibles a month ago, saw that new paper slip below par on Tuesday after the San Diego-based medical devices maker edged estimates but lowered its 2011 earnings-per-share forecast. The NuVasive 2.75% convertibles fell to 99.5 from about 102.

Clearwire Corp.'s convertibles traded Tuesday at 80 with the shares dipping down to $2.80, compared to Monday's 81 versus an underlying share price of $3.00.

In the primary market, Accuray Inc. launched a $75 million offering of convertible senior notes that was talked to yield 3.5% to 4% with an initial conversion premium of 20% to 25% and was expected to price after the market close Tuesday.

The Accuray deal is small, and for that reason there was not a lot of buzz surrounding the name on Tuesday as many convertible players won't get involved because of the liquidity issue that such paper poses.

There have been many small deals hitting the convertibles tape of late, deals for $75 million and $80 million and as little as $50 million.

"I think that's what we have to look forward to, a lot of smaller cap names that have to come to market. There are some larger cap names sprinkled in like Micron [Technology Inc.] last week, but for the most part the investment-grade companies have been well served by the straight bond market," a syndicate source said.

There's been more talk recently of the possibility that interest rates may be on the rise, and if that happens then the convertible bond market has the potential to be one of the biggest beneficiaries of higher rates.

"It's because the lower-rate environment has made the high-yield market and large capital investment grade attractive and until those markets begin to deteriorate, so that the convert market looks attractive in comparison, we won't see any change," the source said.

"People are waiting for interest rates to go up. More recently high yield hasn't been doing well," a New York-based trader said.

The big question though is when will rates begin to rise: "They've been saying that rates are going to go up since the end of the [credit] crisis," a New York-based trader said.

Overall, volume in the convertible secondary market was average to better, but traders complained that it still doesn't feel that active.

"It takes an awful lot to get something to trade. There's no negotiation anymore. No one is motivated to do anything," the trader said.

BGC adds outright

BGC Partner's newly issued 4.5% convertibles traded up to 101 in the secondary market with their underlying shares higher after the New York-based inter-dealer broker priced an upsized $135 million deal at the midpoint of talked terms.

"They were flat dollar neutral," a syndicate source said.

A trader said of BGC Partners in early afternoon trading, "I haven't heard them lately. The stock is helping this deal out. The premarket on this deal was only issue to plus 0.5 [point]."

Traders said the issue didn't see a lot of action since the deal - even upsized to $135 million - was small for many players.

There is also a $25 million greenshoe.

The deal was initially expected to be a $125 million base with an $18.75 million greenshoe.

The deal came at the midpoint of talk, which was 4.25% to 4.75% for the coupon and 17.5% to 22.5% for the initial conversion premium.

Standard & Poor's assigned a BBB- senior unsecured debt rating to BGC's $125 million senior unsecured convertible debt due 2016.

The rating agency also affirmed the BBB long-term counterparty credit rating on Cantor Fitzgerald LP and the BBB- counterparty credit rating on BGC.

Although financial results have remained relatively stable and the firm's capitalization supports the current rating, S&P said it is concerned that Cantor's capital management has become more aggressive.

The agency said it is particularly concerned about the 7% shrinkage in partner capital directly available to support the rated entity and its wholly owned brokerage operations since 2008.

Consolidated equity and leverage have been relatively flat, but most of the capital growth has been at BCG Partners, which Cantor consolidates in its financials, S&P said.

The convertibles were sold under Rule 144A via joint bookrunners Bank of America Merrill Lynch, CantorFitzgerald & Co. and Deutsche Bank Securities LLC.

The convertibles are non-callable with no puts.

RadioShack up on Verizon deal

RadioShack's 2.5% convertibles of 2013 traded up to 101 versus an underlying share price of $15.50 on Tuesday, compared to a level of 99.5 versus an underlying share price of $13.00 on Monday.

RadioShack's shares surged $2.60, or 20%, at $15.69 in ultra-heavy volume.

"They missed on earnings but [the] equity market apparently likes the switch to Verizon wireless products," a New York-based sellside desk analyst said.

The paper trades on a "really light delta, and I would suspect a lot of outrights own them now," a second sellsider said.

Kodak stumbles again

Kodak's 7% convertibles due 2017 traded down to about 60. One sellsider had a trade at 60.25 versus an underlying share price of $2.25. Last week the paper traded at 65.5 versus a share price of $2.40.

One market was 59.5 bid, 60.5 offered during the day.

The Rochester, N.Y.-based photography company's stock wavered early but ended up 6 cents, or 2.6%, at $2.39.

"These things were basically 60. These have come in pretty hard. They were 63 to 64 or 65 yesterday, and they're down even though the stock hasn't moved that much. On July 18, they were 70 to 73."

Kodak posted a second-quarter loss of $179 million, or 67 cents a share, compared with a loss of $168 million, or 63 cents a share, a year earlier. Sales fell 4.5% to $1.49 billion.

Raw materials and pricing problems caused gross margin to drop to 14.2% from 19.5%.

In addition, Kodak reduced its year-end cash-balance projection by $100 million to a range of $1.6 billion to $1.7 billion.

Accuray to price

Accuray's $75 million Rule 144A offering is being sold via bookrunner UBS Securities LLC and was talked at a 3.5% to 4% yield with an initial conversion premium of 20% to 25%.

The notes will be non-callable for three years, then provisionally callable subject to shares being 130% of the conversion price. There is no contingent conversion.

Proceeds are intended for general corporate purposes, including investing strategically in expanding business and new product initiatives.

Sunnyvale, Calif.-based Accuray is a developer of robotic radiosurgery for the treatment of tumors.

Mentioned in this article:

Accuray Inc. Nasdaq: ARAY

BGC Partners Inc. Nasdaq: BGCP

Clearwire Corp. Nasdaq: CLWR

Eastman Kodak Co. NYSE: EK

NuVasive Inc. Nasdaq: NUVA

RadioShack Corp. NYSE: RSH

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