Luminent rebounds; Countrywide holds steady; Intel, AMD rise against stock fall; EDO flies high

By Evan Weinberger

New York, Sept. 14 - Luminent Mortgage Capital Inc. saw its recently issued convertibles make a stunning comeback, one trader said, as the company has found its footing in the face of the subprime mortgage crunch. Countrywide Financial Corp. convertibles also traded Friday.

In other action, Advanced Micro Devices Inc. and Intel Corp. had relatively active convertibles Friday. And from the defense sector, EDO Corp. convertibles soared following a week of focus on the war in Iraq.

Activity in the markets was relatively light Friday, with hedge funds again fiddling around their margins and no massive moves. "It was somewhat active; it wasn't dead," one analyst said.

Two companies made the first tentative steps toward launching convertibles Friday before the market opens. Equinix Inc., a Foster City, Calif.-based network-neutral data centers and internet exchange services operator, announced plans to price $300 million in convertible subordinated notes due 2014. There is a $45 million greenshoe on the registered transaction.

The convertibles will be offered at the same time as 3.66 million shares of Equinix common stock. There's a 549,383 share greenshoe on the common stock. The proceeds will go toward financing Equinix's acquisition of IXEurope plc, a European datacenter operator, which was announced in June.

There was no price talk or exact maturity date available at press time.

USEC Inc., a uranium supplier for commercial nuclear energy plants, announced that it will bring $450 million in convertible senior notes due Oct. 1, 2014 to market. There is a $67.5 million greenshoe on the registered transaction.

Although there was no price talk available yet, the convertibles have contingent conversion subject to a 120% hurdle and a 98% floor. There are no calls, and the convertibles are putable beginning Aug. 1, 2014. There are change-of-control and fundamental change protections and a make-whole agreement.

The Bethesda, Md.-based company plans to use the proceeds to fund the development and deployment of the American Centrifuge project, which is developing new ways to produce energy in nuclear power plants, and general corporate purposes.

There have been a decent number of new convertibles announcements over the course of the week, but precious little price talk released. It could be that companies are waiting for the Federal Reserve meeting Tuesday, or they simply wanted to hold off on any price talk until after the Jewish holiday this week. Market conditions may have also played a roll.

"It is a difficult market to get deals done, so they might be taking their time in gauging interest," one analyst said.

Of course, it's also just as likely that each of the three new deals that were announced without much price talk - including General Cable Corp. earlier in the week - all have their own specific circumstances. That may be why none of them announced many of the important details. "I think it's just case specific," another analyst said. "I don't think it has anything to do with the Fed."

Whatever the reasoning, those convertibles are waiting, much like stock investors appeared to be doing Friday.

The Dow Jones Industrial Average, Nasdaq and Standard & Poor's 500 all remained essentially flat on the day. Trading didn't start that way, as a weak retail sales report, excluding car sales, for August and the bailout of Britain's largest mortgage lender by the Bank of England due to the subprime mess weighed on investors.

But stocks recovered to post meek gains.

The Dow gained 17.64 points, or 0.13%, to close at 13,442.52. The Nasdaq posted a 1.12 point, or 0.04%, pickup for a close of 2,602.18. And the S&P closed at 1,484.25, with a negligible 0.30 point, or 0.02%, addition.

Those dreams of a rate cut may be overblown. "We don't know for a fact that the Fed is going to cut, and if they do, what happens," said an analyst.

And a trader said there's not much the Fed can do given the current environment. A steep cut could spark intractable inflation, he said. With the dollar sinking to new lows seemingly every day, countries like China aren't going to want U.S. government debt. "You don't have room to move here," he said.

Luminent stages comeback

San Francisco-based real estate investment trust Luminent was laid low in the fast-motion subprime mortgage crisis. But the company paid back a $1 billion credit line - and has no further outstanding lines of credit - on Tuesday. That followed an Aug. 20 agreement to sell a controlling stake in the company to private investors represented by a San Juan, Puerto Rico-based holding company.

Of course, Wednesday brought word that Luminent faces a class action lawsuit from investors.

Even with that, the stock and Luminent's 8.125% convertible senior notes due June 1, 2027 made a big comeback over the course of the week. A trader said he saw a bid for the convertibles, which priced in June, Friday at 72.125 versus a closing stock price of $1.82, "which I'm sure is a little low."

"That's a deal that was trading in the 20s in the third week in August, now it's all the way back," he said.

The private investment in the company showed confidence and laid the groundwork for the comeback, the trader said. Smaller mortgage-lending companies that didn't go out of business are going to recover quicker than big ones because their books are easier to sift through, he added. "The smaller companies, if they're going to get cleaned up, it's going to happen now," he said.

Luminent stock (NYSE: LUM) gained 22 cents, or 13.75%, on Friday.

Staying in financials, Countrywide's convertibles held their ground. The Calabasas, Calif.-based home lender saw its Libor minus 350 basis points series A convertible senior debentures due April 15, 2037 close at 91 versus a closing stock price of $19.42. They closed Thursday at 90.75 versus a stock price of $18.93.

Countrywide's Libor minus 225 bps series B convertible senior debentures due April 15, 2037 closed at 87.75 versus a stock price of $19.42 Friday after finishing Thursday at 88 versus a stock price of $18.93.

Countrywide stock (NYSE: CFC) rose 49 cents, or 2.59%, on Friday.

Semiconductor convertibles move

Santa Clara, Calif.-based semiconductor behemoth Intel saw its 2.95% junior subordinated convertible notes due Dec. 15, 2035 make a small move up Friday. The convertibles closed at 101.50 versus a closing stock price of $24.93. They closed Thursday at 101 versus a stock price of $25.35.

The rise in convertibles came in the face of a significant fall in Intel stock (Nasdaq: INTC) of 42 cents, or 1.66%, on Friday.

Meanwhile, Intel's perpetual pursuer AMD saw its 6% convertible senior notes due May 1, 2015 also pick up about a half a point in the face of a stock loss.

The convertibles closed at 86.625 versus a closing stock price of $12.69 after closing Thursday at 86.1 versus a stock price of $12.73.

Sunnyvale, Calif.-based AMD saw its stock (NYSE: AMD) slip 4 cents, or 0.31%.

The tech sector is waiting for a ruling Monday in a European anti-trust suit against Microsoft Corp.

EDO convertibles fly high

Convertibles issued by New York-based aerospace and defense contractor EDO Corp. took off Friday. EDO's 4% convertible senior subordinated notes due Nov. 15, 2025 closed Friday at 160.156 versus a closing stock price of $51.51 in admittedly slim trading. They closed Thursday at 155.36 versus a stock price of $50.97.

EDO stock (NYSE: EDO) posted a respectable gain of 54 cents, or 1.06%, on Friday.

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