Ciena up on quarterly results; convertibles activity slows; Virgin Media, Hologic better

By Rebecca Melvin

New York, Sept. 1 - Ciena Corp.'s convertibles moved up on both an outright and a hedged basis in active trade Thursday even as trading action in the general convertible bond market was tapering off ahead of the long holiday weekend to observe Labor Day.

The Linthicum, Md.-based optical networking gear maker reported a narrower loss that was better than expected, and its volatile securities rallied on the news.

The Ciena 4% convertibles due 2015 were called higher by a point on a dollar-neutral basis, using a delta hedge of about 55%, as the underlying shares rallied 20%.

Elsewhere, Intel Inc., a fellow technology convert issuer, was active in trade, but that one, a polar opposite from Ciena in terms of volatility, was looking little changed to slightly lower.

Virgin Media Inc. saw its 6.5% convertibles due 2017 trade at 156.7 versus an underlying share price of $25.29 on Thursday, which was viewed as up 0.25 point from Monday's level, according to a Chicago-based trader.

Meanwhile, the 2% convertibles of Hologic Inc., a Bedford, Mass.-based medical diagnostic and surgical products company, traded slightly lower on Thursday compared to Wednesday but were still up about a point from last week, the trader said.

The Hologic 2% convertibles due 2037 pushed as high as 94.625 on Wednesday before trading at 94.5 early Thursday. "Those were a point lower last Friday," the trader said.

Overall, the market was described as quiet, however. "With [Wednesday] being month-end and [Thursday] being Friday-eve to a long weekend, the convert market seems relatively quiet," a West Coast-based sellsider said.

A New York-based trader said it was "extremely quiet," and a third source said, "This will be a huge nothing day and tomorrow will be worse."

On Thursday bonds seemed to have "caught a bid going into the close," a trader said, but volumes were light.

Equities fell after initially reacting positively to the ISM Manufacturing Index for August, which slipped to 50.6 from 50.9 but was better than what analysts had been expecting.

For Friday, all eyes will be on the government's monthly non-farm payrolls report to be released ahead of the market open. There is uncertainty surrounding that report, even though the ADP employment report came in relatively strong when it was released earlier this week.

On Thursday, the Dow Jones industrial average fell 120 points, or 1%, to 11,493.57; the S&P 500 stock index dropped 14.5 points, or 1.2%, to 1,204.42; and the Nasdaq Stock Market moved lower by 33.4 points, or 1.3%, to 2,546.04.

Convertibles down again

Convertibles posted another down month in August with returns that were generally in line with equities and below fixed income, according to Citigroup's convertibles sales and trading team.

Outright investors were hit harder than convertible arb players during the month, Citi said.

The asset class lost about 6%, according to the convert CWB ETF, but convert arb lost a more moderate 1.5%, according to Hedge Fund Research, which produces indices and analysis of hedge fund performance.

Both strategies ended the month significantly above their mid-month lows, however, Citi noted.

In July, convertibles declined between 0% and 3% depending on the index, and again the asset class performed in line with equities but lagged fixed income.

In June, convertibles posted their first significant negative return for the year, declining 1% to 3%, depending on the index, according to the Citi convertibles trading desk.

In July there were 13 new convertibles issued as opposed to August's zero tally.

Ciena adds on hedge

Ciena's 4% convertibles due 2015 traded up to 105.5 versus an underlying share price of $14.50 compared to 99.25 versus a share price of $12.62 on Wednesday.

On a 55% hedge, they are up about a point.

Ciena's 3.75% convertibles due 2018 - and its most recently issued convertible - traded at 101.5 compared to 93.5 on Wednesday

Ciena's 0.25% convertibles due 2013 traded at 98 and were at 97.5 on Wednesday.

Shares of the Linthicum, Md.-based networking equipment and software company surged $2.47, or 20%, to $14.71 in very heavy trade on Thursday.

The networking equipment company reported a fiscal third-quarter loss for the period ended July 31 of $31.5 million, or 33 cents a share, compared with a year-earlier loss of $109.9 million, or $1.18 a share.

Excluding items such as acquisition and integration costs, the company reported earnings of 8 cents a share versus a loss of 9 cents a share a year earlier.

Analysts expected a loss of 8 cents a share.

Revenue rose 12% to $435.3 million, which was at the low end of what the company predicted and slightly below analysts' estimates at the time. Revenue was boosted by sales growth in high-margin products. Gross margin improved to 42.5% from 37%.

Looking ahead, Ciena forecasts revenue for the current quarter at $440 million to $460 million, falling short of the $474 million average estimate of analysts.

When the company released its fiscal second-quarter results in June, shares fell 16% in heavy volume on a disappointing loss and lower revenue than analysts had expected.

Mentioned in this article:

Ciena Corp. Nasdaq: CIEN

Hologic Inc. Nasdaq: HOLX

Intel Inc. Nasdaq: INTC

Virgin Media Inc. Nasdaq: VMED

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