Kodak convertibles pounded on loan drawdown; Clearwire falls; Horizon tender extended

By Stephanie N. Rotondo

Portland, Ore., Sept. 26 - The convertible bond market was subdued Monday and on the mixed side, market sources reported.

"The convert world can be bifurcated into two categories," one source explained. On the one side, there are "real companies, real credits" that are "doing what they re suppose to." Such credits, he said, were performing well.

On the other side, there are "marginal credits, credits with refinancing risk and longer-dated maturities. They just continue to move lower."

Such was the case for one marginal credit, Eastman Kodak Co. The company's convertible debt was "down a lot," a trader said, following news the company had drawn down its credit facility. The news by itself might not have caused such a ruckus if it weren't for the fact that Kodak has been trying to turn itself around.

Another example of a marginal credit that was weakening was Clearwire Corp.

"People just don't really seem to want to have to deal with those [weaker credits]," a source said.

Meanwhile, there wasn't much action in Horizon Lines Inc.'s convertibles, even as the company extended its exchange offer for the debt. However, a trader said that as the company has already received more than 99% of the securities, he was not sure what the company was aiming to accomplish.

Kodak gets beat down

Eastman Kodak's 7% convertible notes due 2017 were "down a lot," a trader said, after the company said it had drawn $160 million from its revolving credit facility.

He placed the convertibles issue at around 47.5, down from levels near 60 about a week ago, he said.

"I've seen this name for years now," said one market source, who noted that he did not follow the name closely. He remarked that the company has been trying to turn itself around and "enter the digital world" for the last decade or so.

"It just doesn't seem to work," he said.

Around midday, another trader saw the convertibles trading at 48 versus a stock price of $1.80.

Kodak's stock fell 64 cents, or 26.89%, to $1.74 on Monday.

Kodak is working on licensing out its patents in order to increase cash flows. In an e-mail sent to Bloomberg, a company spokesperson attempted to make light of the credit facility draw.

The revolver "has been a part of Kodak's cash- management tool kit for quite some time," wrote Christopher Veronda, a spokesman for Kodak, in an e-mailed statement. "The purpose of the revolving credit facility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations."

Kodak is based in Rochester, N.Y.

Clearwire softens

Clearwire was another marginal credit that was getting beat down, according to traders.

One trader quoted the 8.25% exchangeable notes due 2040 at 49.5 bid, 50 offered.

Another market source said the issue was "trading lower," moving into a 49.5 bid early. Last week, he said, the issue was trading closer to the high-50s/low-60s.

"They've got a lot of debt," he said. "It's a complex capital structure."

A third source saw the issue trading around 51 at midday, versus a stock price of $2.35.

Clearwire partners with Sprint Nextel Corp. and in fact relies heavily on the telecommunications provider to keep it afloat. Sprint has reportedly been looking for investors to help it buy up the remaining equity that it does not already own.

On Monday, another possibility opened up - a merger with Dish Network Corp.

Dish recently acquired spectrum that it cannot currently use. As such, the company's chief executive said that it was considering teaming up or buying a wireless carrier, even potentially Sprint or Clearwire.

Horizon extends exchange

Charlotte, N.C.-based ocean freight company Horizon Lines extended its exchange offer for its 4.25% convertible senior notes due 2012 until Sept. 27.

The extension came even as the company said it had already received 99.3% of the notes in question. The move baffled one market source.

"I don't understand the reason for the extension," the source said. When the exchange was originally announced, he said, the company had already claimed they had about 98% of convertible noteholders on board. "They were over the threshold they wanted."

"Is somebody playing games with them? I don't know," he said. "Maybe there was a problem with somebody getting the bonds in on time." Either way, he said, "it makes no sense. None of these deals ever get [full participation]. To not have $200-some [thousand] bonds, it doesn't make sense to me to make it a big deal."

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Eastman Kodak Co. NYSE: EK

Horizon Lines Inc. NYSE: HRZ

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