E*Trade rebounds; Countrywide Financial up; AMR continues to fly; Yahoo!, Intel lead techs

By Evan Weinberger

New York, Nov. 13 - E*Trade Financial Corp. rebounded Tuesday, a day after losing more than half of its value. Countrywide Financial Corp. convertibles were also up as the financial sector helped drive Wall Street's big gains Tuesday.

AMR Corp. convertibles were up big on falling oil prices and rising reservations.

Yahoo! Inc. and Intel Corp. were big gainers as well Tuesday as the tech sector rallied following nearly a week of dreary days.

And TJX Cos. Inc. rose on positive third-quarter earnings.

One new issue was set to price Tuesday after the market close. Affymetrix Inc. launched $250 million in unsecured senior convertible notes due Jan. 15, 2038 Tuesday before the market open. The convertibles are talked at a coupon of 3% to 3.5% and an initial conversion premium of 30% to 35%.

There is a $37.5 million over-allotment option on the registered transaction.

The convertibles are callable beginning Jan. 15, 2013 and there are puts on Jan. 15 in each of 2013, 2018 and 2028. The convertibles have dividend and takeover protections.

Affymetrix is a Santa Clara, Calif.-based genetic testing equipment manufacturer. The company plans to use the proceeds for general corporate purposes, including the potential repurchase of some or all of its outstanding 0.75% senior convertible notes due 2033.

And there is one that will be coming at some point in the future. Quebecor World Inc. plans to launch $100 million in senior unsecured convertible debentures as part of a wider offering to pay off the company's existing credit lines.

No bookrunner, timetable or talk was available on the Rule 144A offering.

Quebecor World will also issue $400 million in senior unsecured notes. Quebecor will also be offering C$250 million in equity shares, divided between public equity shares and multiple voting shares and subordinated voting shares for existing shareholders.

The proceeds of the senior notes and debentures will go toward repaying debt under the company's existing credit facilities. Part of the proceeds in the equity shares offering will also go toward repaying existing debt while the rest will be used to repurchase Quebecor's existing series 5 cumulative redeemable first preferred shares. Any remaining funds will be used for general corporate purposes.

Quebecor World is a Montreal-based marketing firm.

Stock markets went on a run Tuesday as falling oil prices and reports from two companies at opposite ends of the spectrum buoyed markets. Wal-Mart Stores Inc. reported better-than-expected third-quarter earnings, and Goldman Sachs Group Inc. said it would not have to write down significant losses on subprime mortgages. At the same time, Bank of America said it would have to write down $3 billion in bad subprime bets and was bracing for more.

News on housing was mixed, as the National Association of Realtors said pending home sales were up slightly in October, but the organization's expectations for 2008 were dim.

Good news ruled the day, as the Dow Jones Industrial Average made up for much of the previous couple of session's losses in one day. The index added 319.54 points, or 2.46%, for a close of 13,307.09.

The Nasdaq reversed field after several down days in a row, leaping 89.52 points, or 3.46%, for a close of 2,673.65.

The Standard & Poor's 500 got in on the act also, closing at 1,481.05, a jump of 41.87 points, or 2.91%, on the day.

Market watchers said the markets were due for a big gain, but that doesn't mean the economy is out of the woods. "I think that subprime, the visibility, people were just more comfortable with it," one trader said. "The market wants to come back, that doesn't mean that it will. I think we have a lot more to go down."

Affymetrix affirmed

The consensus surrounding the pending Affymetrix convertibles is that they look to be on the cheap side. "Looks like a decent deal - little over 2% cheap at the mids," one analyst said. "If you believe in the credit, it looks good for hedge funds."

The deal is talked at a 3% to 3.5% coupon and a 30% to 35% initial conversion premium.

Just because the convertibles modeled cheap doesn't mean that there were no concerns about them. Another analyst noted that the convertibles would be a big increase in debt for Affymetrix, but the company should be able to support the debt if EBITDA is in the $50 million per year range. "But AFFX has notoriously lumpy revenues, and some of that revenue, royalties, is going away after Q4," the analyst said. "If EBITDA doesn't stay flat or grow, I'd be concerned. There will be plenty of cash to start, but that could also go quickly if there are acquisitions."

A fund manager noted that Affymetrix was not heavily leveraged and that the company was the "usual biotech." In the end, he noted, "I like the name."

Leading up to pricing, Affymetrix stock (Nasdaq: AFFX) dropped $2.29, or 9.56%, to $21.67 on Tuesday.

E*Trade rebounds

New York-based online financial institution E*Trade managed a rebound just a day after the company's stock and convertibles lost more than half their value. The drop was based on a writedown on its $3 billion mortgage-backed collateralized debt obligations and securities portfolio and a Citigroup analyst floating the prospect of bankruptcy for the firm.

Assurances from E*Trade that it could handle up to a $1 billion writedown and talk of a potential buyout of the online investment house and savings bank sparked a rally Tuesday.

E*Trade's 6.125% common equity units due Nov. 18, 2008 (Nasdaq: ETFCP) closed Tuesday at $8.12, a gain of $2.12, or 35.29%.

Stock in E*Trade (Nasdaq: ETFC) regained much of what it lost Monday, closing at $5, a rise of $1.45, or 40.85%, on the day.

All wasn't well for E*Trade, however, as both Moody's Investors Service and Standard & Poor's cut their ratings on the firm Tuesday.

Countrywide up as subprime portfolio falls

Calabasas, Calif.-based Countrywide, America's largest mortgage lender, announced that its mortgage originations dropped 48% in October from the same point last year. At the same time, Countrywide said loan delinquency was up to 5.89% of outstanding mortgages in October 2007 versus 4.43% in October 2006.

The market took heart, however, because much of the drop in Countrywide's new issuance is attributed to a cut back in the subprime and adjustable-rate categories, the types of loans hammered in the subprime mortgage mess.

Countrywide's Libor minus 350 basis point series A convertible senior debentures due April 15, 2037 closed Tuesday at 86.3 versus a closing stock price of $13.72. They closed Monday at 84.49 versus a stock price of $13.19.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Tuesday at 81.5 versus a stock price of $13.72. They closed Monday at 80.3 versus a stock price of $13.19.

Countrywide stock (NYSE: CFC) was up 53 cents, or 4.02%, on the day.

Friendly skies for AMR

Falling oil prices continued to fuel airline stocks and convertibles Tuesday. And a report from the Air Transport Association Monday said that reservations for the Thanksgiving holiday were up 4% over last year. That may be a mixed blessing for anyone invested in an airline that has to fly to get their turkey.

Fort Worth, Texas-based AMR, the parent company of American Airlines, saw its 4.5% convertible senior notes due Feb. 15, 2024 close at 125.046 versus a closing stock price of $23.20 Tuesday. They closed Monday at 117.7 versus a stock price of $21.32.

AMR's 4.25% convertible senior notes due Sept. 23, 2023 closed Tuesday at 144.38 versus a closing stock price of $23.20 after finishing Monday at 132.962 versus a stock price of $21.32.

AMR stock (NYSE: AMR) was up $1.88, or 8.82%, on the day.

Yahoo, Intel other techs up

After taking a beating last week and into Monday, tech stocks rebounded Tuesday. And with them came several convertibles.

Among the big movers, Sunnyvale, Calif.-based internet services provider Yahoo! saw its zero-coupon convertible senior notes due April 1, 2008 close at 129.94 versus a closing stock price of $26.10 Tuesday. They finished trading Monday at 123.95 versus a stock price of $24.78.

Yahoo! stock (Nasdaq: YHOO) gained $1.32, or 5.33%, in trading Tuesday.

Santa Clara, Calif.-based chip producer Intel saw its 2.95% junior subordinated convertible notes due Dec. 15, 2035 close Tuesday at 106.54 versus a closing stock price of $26.14. They closed Monday at 104.76 versus a stock price of $25.29.

Intel stock (Nasdaq: INTC) gained 85 cents, or 3.36%, on the day.

TJX up on earnings

Framingham, Mass.-based discount clothing retailer TJX - the parent company of T.J. Maxx, Marshall's and A.J. Wright stores - reported an 8% increase in third-quarter earnings Tuesday. The company also lifted its earnings forecast for the fourth quarter.

The 54-cent-per-share increase in third-quarter earnings for TJX came in just shy of Thomson Financial's analysts' expectations of 55 cents per share, according to the Associated Press.

The rosy outlook for the fourth quarter - TJX expects to purchase more overflow inventory than originally planned - led to a rise in the company's convertibles and stock.

TJX's zero-coupon LYONs due 2021 closed Tuesday at 101.01 versus a closing stock price of $30.42. They closed Monday at 98.79 versus a stock price of $29.32.

TJX stock (NYSE: TJX) added $1.10, or 3.75%, to its total Tuesday.

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