Kodak extends losses even as stock rises; AMD slips, shares plunge; Cemex trades in line

By Rebecca Melvin

New York, Sept. 29 - The convertible bond market was mixed to weaker Thursday amid a dearth of general activity ahead of month-end and as the Jewish new year's holiday, Rosh Hashana, remained underway, leaving many trading desks lightly manned, market sources said.

"Today was a bit heavy, likely due to low liquidity," a New York-based sellside analyst said.

With market tone and performance feeling pretty heavy for the last several weeks and with performance across funds likely to be less than stellar for the month, players "still seem to be in a holding pattern, trying to figure out where some names are for month-end pricing," a New York-based sellsider said.

Many players were sticking with "better quality, shorter duration paper as much as possible," the sellsider said. Amgen Inc. and Medtronic Inc. were among the most actives on Thursday.

Meanwhile, there were sellers of Eastman Kodak Co., which was down another 2 to 3 points, extending a slide that began on Monday after the Rochester, N.Y.-based digital photography company said it had partially drawn down its revolving credit facility. Losses in the company's convertibles on Thursday came despite higher shares.

Advanced Micro Devices Inc. slipped slightly, but the moves in the convertibles were barely perceptible compared to the slide in the shares of the Sunnyvale, Calif.-based semiconductor company after it preannounced to the downside, saying that third-quarter sales and profitability will be less than previously forecast due to manufacturing problems.

The convertibles of Cemex SAB de CV, the cement maker based in Garza Garcia, Mexico, traded mostly "in line" with the underlying shares, which drifted lower along with the broader markets after early strength.

Speaking early to investors via teleconference, Cemex's chief executive said that the company planned anticipated asset sales to get its financial house in order and that it would meet upcoming debt covenants in December.

Primary cools

Once again there were no new issues launched or priced during the session. The lack of new issuance has been an ongoing trend since mid-summer, and one that has contributed to the market doldrums in the past few weeks, sources say.

Sentiment is wobbly, and it is difficult to say which way it will move going forward, sources said.

"The performance numbers out there, while not great, are not the type (or at least I hope) to force people to pull money out," a New York-based sellsider said. "What concerns me is is this the new market norm? Are we going to be stuck with a stock market that is range bound and low interest rates? If so, the convert market could be rocky for quite a while, especially with no new issuance."

Stocks jumped out of the gate amid a refreshingly positive weekly initial jobless claims report that was better than expected, showing a drop in the week ended Sept. 24 to 391,000. That was much better than the drop to 420,000 expected by economists. In addition, the Department of Commerce increased its final gross domestic product reading to 1.3% from 1%. And economists had only anticipated an upward revision to 1.2%.

Meanwhile Rosh Hashana runs through Friday, which meant that some trading desks were not fully manned. One analyst, referring to his trading desk, said, "There weren't many people there."

Kodak slides further

Kodak's 7% convertible notes due 2017 traded at 37 bid, 38 offered Thursday, compared to 40 bid, 41 offered on Wednesday.

"Kodak started off heavy and moved lower. There was selling pressure over the course of the day," a New York-based sellsider said, suggesting that the price was down about 2 points on the day.

It was one of the more active names of the day, the sellsider said.

A second sellsider said, "It looks like everyone is jumping on the negative bandwagon."

Kodak shares jumped, however. Equity investors were heartened by word that investor Investment Partners Asset Management wrote to the company's board to ask it to take steps toward a sale.

The holder of shares and convertibles criticized Kodak's management and called on large shareholders to use their rights to push for changes.

These headlines followed on Monday's news that the company had drawn $160 million from its revolving credit facility, which caused Kodak shares to hit a 38-year low as investors questioned the company's cash flow issues and ability to do business.

AMD slips slightly

AMD's 6% convertibles due 2015 traded at 98.75, which was down a point outright, according to a New York-based trader.

Later, a pricing source said that the 6% convertibles were down by 0.75 point on the day.

The AMD 5.75% convertibles due 2012 were little changed and not really traded at 101.5. One pricing source said after the close that the 5.75% convertibles were down by about 0.25 point.

AMD shares fell 84 cents, or 14%, to $5.31 on Thursday.

Not too much of the AMD convertibles traded. They traded "small," a pricing source said.

But shares skidded after AMD lowered its sales forecast for the third quarter, following in the footsteps of Freescale Semiconductor, Gimme Credit analyst Dave Novosel pointed out.

"Fortunately the estimate is still meaningfully positive rather than significantly negative as was the case with Freescale," Novosel said.

For one thing, the company said that the forecast cut was due to manufacturing issues and not lower demand. In addition, the company now expects sales to increase sequentially in the 4% to 6% range compared to its previous guidance of a 10% gain.

"That suggests year-over-year growth in the 2% to 2.5% range," Gimme Credit's Novosel wrote in a note published Thursday. "The good news/bad news is that the shortfall is not demand related. Advanced Micro is having production problems with respect to the manufacturing of its latest processors. Globalfoundries, which was formerly part of the company but now supplies chips, is 'throwing substantial resources at improving yields,' according to AMD management."

"Good news in the sense that there is potential for robust sales. Bad news in that the company is not executing as well as it should. But execution can be improved; demand - not so much," Novosel said.

AMD also warned that gross margins would be 44% to 45% instead of the previous target of 47%. This may affect free cash flow, but it should not be by a significant amount and better compared to prior periods, Novosel pointed out.

Revenue growth is slowing after recovering from a difficult 2009. Gross margins are increasing because of the shift in mix toward newer products, and management is directing free cash flow, which is now positive, toward debt reduction, resulting in lower leverage, Novosel wrote.

Cemex active, in line

Cemex's 4.875% convertibles due 2015, the older tranche of Cemex convertibles, was quoted at 53 versus an underlying share price of $3.60 on Thursday, compared to 55 bid, 56 offered prior to the CEO's comments made during an investor conference early in the day.

Cemex's newer 3.25% tranche A convertibles due 2016, which priced this past March, was also quoted at 55 bid, 56 offered.

Cemex shares ended 3 cents lower $3.43 on Thursday.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Cemex SAB de CV NYSE: CX

Eastman Kodak Co. NYSE: EK

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