AIG active in trade, Johnson Controls adds again; Alpha Natural, SanDisk weaker; Alcoa to price

By Rebecca Melvin

New York, March 16 - Financials were better Monday, resuming their role as a central focus in the convertible bond market after a hiatus last week, when trading shifted away from that sector concurrently with a rise in equities.

"Friday it got busy; and it was busy this morning, but it's quiet now," a New York-based financials sellsider said Monday afternoon.

Market activity other than financials was described as light.

Citigroup Inc.'s 6.5% convertible preferred rose 2 or 3 points to 23.5 to 24 as Citigroup common stock surged in heavy volume.

Bank of America Corp.'s convertible preferreds traded up by 3 points, and Wells Fargo & Co. convertible preferreds were also better, although the Wells Fargo common stock ultimately slipped into negative territory after trading higher most of the day, as a rally in equities faded.

American International Group Inc.'s convertible preferreds were active in trade and higher along with their common shares. But it wasn't obvious why they were so strong given negative headlines about the company.

Johnson Controls Inc. mandatories and bonds continued to rise in busy trade after pricing last week.

Elsewhere, General Motors Corp. convertible bonds were in trade at higher levels, but Alpha Natural Resources Inc. and SanDisk Corp. were weaker in line with lower underlying shares.

Volume was "anemic," one sellsider said.

In equities, a surge in financial stocks fizzled out by session's end, snapping a winning streak that had stretched for four sessions.

In a "60 Minutes" interview aired Sunday, Federal Reserve chairman Ben Bernanke said that the U.S. recession will likely end this year but that a recovery would hinge on the health of financial markets.

He said that a sustained economic recovery could not be achieved without a recovery of the financial system.

In the primary market, aluminum producer Alcoa Inc. said after the close that it planned to price $250 million of convertibles together with common stock as part of a series of actions to bolster itself against weak demand during the economic downturn.

Financials move higher

Financial names have been getting better since last week, with the shift in sentiment traced to Citigroup's news last week that it was operating in the black for the first two months of the year.

New York-based Citigroup's 6.5% convertible preferred traded up to 24 and was later seen at 23.50, compared to 20.75 last week. Its common stock jumped 55 cents, or 31%, to $2.33.

Charlotte, N.C-based Bank of America's 7.25% convertible preferred rose about 3 points to 415 outright, while its common stock rose to as high at $6.95 before easing off that level, but still settling up 42 cents, or 7.3%, to $6.18.

San Francisco-based Wells Fargo saw its 7.5% convertible preferreds traded up to about 470 compared to 451 last week. But its common stock finished down 24 cents, or 1.7%, to $13.70.

Meanwhile the convertible preferreds of AIG were active and traded up to 5 or 5.25 versus a share price of $0.90, compared to about 4.5 previously.

AIG shares rallied sharply early in the session, and eased off their highs, but still settled up 66%.

Sources said it wasn't clear what was pulling up the name other than it was being swept higher with the overall financial sector.

President Barack Obama blasted the New York insurer, instructing Treasury secretary Timothy Geithner to try to block $165 million in bonuses to AIG executives.

New York attorney general Andrew Cuomo issued subpoenas to AIG on Monday seeking to know the names of employees who received bonuses.

Johnson Controls adds

"Post deal trading" continues to be busy in this name. The converts traded up significantly with a higher stock early in the day, before the equity retreat brought that stock down 1.7% to $9.64.

The Johnson Controls 11.5% mandatory preferreds traded as high as 54.30 versus a stock price of $10.00, according to a syndicate source, compared to 52.15 against a common stock price of $9.70 on Friday.

The Johnson Controls 6.5% convertible bonds due 2012 were seen in trade at 110 versus a stock price of $10.00, compared to 106.5 bid, 107.5 offered versus a $9.42 stock price on Friday.

"It continues to do very well; we did a lot of that," a syndicate source said.

Johnson Controls priced an upsized $750 million of the bonds and mandatories on March 10.

Alcoa eyes convertibles

Alcoa said it planned sale $250 million of five-year convertibles plus 150 million shares of common stock are part of a series of operational and financial actions the company is implementing to improve its cost structure and liquidity.

The convertibles were talked to yield 5.75% to 6.25% and an initial conversion premium of 15% to 20%.

The deal, which is being sold via joint bookrunners Morgan Stanley & Co. Inc. and Credit Suisse, was seen pricing after the close Wednesday.

The convertibles are non-callable with no puts.

Proceeds are expected to be used to repay outstanding debt under the company's senior unsecured 364-day revolving credit facility, with any remainder for general corporate purposes.

Mentioned in this article:

Alcoa Inc. NYSE: AA

American International Group Inc. NYSE: AIG

Bank of America Corp. NYSE: BAC

Citigroup Inc. NYSE: C

Johnson Controls Inc. NYSE: JCI

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