Clearwire loses 2.5 points on hedge; CompuCredit takes a leg lower; Equinix under pressure

By Rebecca Melvin

New York, April 27 - The convertible bond market, which has seen light trading volumes for several weeks, remained quiet on Wednesday as April's sparse new issuance trend persisted and as many traders paused to weigh the Federal Market Open Committee's decision to stand pat on monetary policy.

Equities rallied on the posture struck by the FOMC policy statement and Federal Reserve chairman Ben Bernanke, who fielded questions in an unprecedented news conference following the committee's regular two-day meeting. Convertibles weren't immediately affected, however, as they move in relation to a number of different moving parts, of which only one is stocks.

"He helped stocks because he didn't say anything that people disliked. The threshold is lower: as long as something isn't said that people don't want to hear, stocks go up," a New York-based sellside trader commented.

In convertibles, Clearwire Corp.'s high-coupon paper dropped about 2.5 points on a hedged basis with shares under heavy pressure. There was no company-specific news, but Sprint Nextel Corp., with which Clearwire is closely linked, was slated to report earnings early Thursday, and consensus estimates are for a loss from the Overland Park, Kan.-based wireline and wireless giant.

CompuCredit Holdings Corp.'s convertibles took a sharp turn lower, trading as low as 46 from a previous level of about 50 as underlying shares traded off but then recovered losses to end unchanged.

Equinix Inc. also saw its convertibles under pressure as the underlying shares fell sharply but regained ground by the close.

Equinix convertible holders are concerned about the bonds' takeout matrix in light of the Savvis Inc. takeout, a New York-based sellside trader said.

"They were issued very cheap in 2009 and thus don't have a very protective takeout profile," the trader said. "The Savvis deal is bound to scare some people: good for the common, not so good for these bonds."

The trader was referring to CenturyLink Inc.'s planned acquisition of Savvis for $2.5 billion in cash and stock.

Anemic issuance

With April nearly spent, a cursory roundup of new issuance shows a much lower volume than in March when about $9 billion of new paper priced, including mandatories.

The bond offerings for April included Hercules Technology Growth Capital Inc.'s $75 million deal and Fifth Street Finance Corp.'s $150 million one.

As the convertible bond market keeps shrinking due to maturities, calls and other redemptions, the impact of a month of new issuance levels as anemic as April's is punishing, market sources said.

"The composition of the universe is changing dramatically. Over the last couple of years, it's lost a lot of investment-grade issues, and these $500 million, $1 billion and $2 billion issues would contribute all the time to volume," a New York-based sellside trader said.

"It was no work, no thinking for someone to buy them, and now they are being replaced with these unranked $60 million to $75 million deals that aren't going to trade," he said.

Because of the size it takes 15 deals to replace them, he said.

"A lot of guys aren't going to be involved in those deals, and that's hurting volume. I don't see where the next Wyeth, the next PNC, the next Prudential is going to come from," he said.

This trader predicted that until equities look like they will be leveling out, would-be issuers won't tap this market.

Meanwhile, the FOMC's decision to keep the Federal Fund rate near zero was also seen having a negative affect on new convertible issuance because the low rates encourage issuers to use the straight bond market.

Clearwire sheds points

Clearwire's 8.25% convertibles due 2040 fell Wednesday to 107.75 versus a share price of $5.15, which compares to 114 versus a share price of $5.95 on April 14.

Shares of the Kirkland, Wash.-based wireless broadband services provider fell 28 cents, or 5.2%, to $5.06 in heavy volume Wednesday.

"People are starting to get nervous about the credit," a New York-based sellside trader said.

CompuCredit drops

CompuCredit's 5.875% convertible notes due 2035 traded at 46 and then at 48.5 and then at 45.95 on Wednesday, compared to last trades in the name at 50 and 50.25 on April 6.

Shares of the Atlanta-based credit card company traded down during the session but pared those losses to end nearly unchanged or down a penny at $4.21.

"The stock is way down in the last three or four days. It cracked on April 11 slipping from about $7 to $4; obviously that has had an impact," a New York-based sellside trader said.

It isn't a company that does as well as others in its sector, like American Express, the analyst said of the financial services and credit card company.

A sellside trader said that given the precipitous drop that the paper has taken, it's likely to move out of traditional convert holder hands and into distressed markets, representing just one more issue lost to the convert space.

"It's long-dated; it has no put or anything. It's difficult for guys to hold this," the sellsider said.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

CompuCredit Holdings Corp. Nasdaq: CCRT

Equinix Inc. Nasdaq: EQIX

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.