Convertibles weaker; Citrix Systems softer but seen stabilizing; Greenbrier drops outright

By Rebecca Melvin

New York, June 16 – Convertibles were weaker on Tuesday as credit continued to react to an impasse in the Greek debt situation and as equities turned positive ahead of a new Federal Reserve policy statement expected on Wednesday at the conclusion of the central bank’s two-day meeting.

Convertibles were weaker on the Greece situation with net outright sellers in the space, a New York-based trader said.

“Outrights are a big part of the market now and they drive a lot of the direction,” the trader said.

Citrix Systems Inc. extended losses but showed signs of stabilizing following last week’s news that Standard & Poor’s is removing its unsolicited rating on the Fort Lauderdale, Fla.-based cloud computing company.

The Citrix bonds were 105 versus a share price of $70.02, which was Monday’s market close, a New York-based trader said around midday.

That was down 0.25 point to 0.375 point on swap on the day, with a total contraction since the ratings news of about 3 points, the trader said.

The only other names in the convertibles space with unsolicited ratings that could fall precipitously if their ratings were removed are Illumina Inc. and Xilinx Inc., the trader said. Illumina has two bonds, and both are super rich, he said.

Elsewhere the market was described as weak but quiet. Microchip Technology Inc.’s convertibles were quoted at 101 versus an underling share price of $47.60, which was also Monday’s closing mark.

Greenbrier Cos. Inc.’s convertibles were sharply lower on an outright basis in tandem with a drop in the underlying shares of the Lake Oswego, Ore.-based railcar company after a downgrade by Stifel Financial to “hold” from “buy.” Stifel cited concerns that railcar demand may be hurt by a decline in oil prices.

Greenbrier’s 3.5% convertibles due 2018 were indicated down about 16 points to 141.59 from a previous level of 158. Shares fell $6.10, or 10%, to $53.47.

In the primary arena, Restoration Hardware Holdings Inc. was expected to price a $250 million deal of five-year convertibles that looked rich at the midpoint of talk, assuming a credit spread of Libor plus 300 basis points and a vol. of 30%.

Equities rebounded on Tuesday after two losing sessions. Market players are eyeing a Fed announcement Wednesday. Some will look for indicators that the Fed is gearing toward a September rate move, but others expect that the Greek debt situation will cause the central bank to hold off a little longer.

The Greek debt talks remained in a stalemate as the debt-strapped country signaled it won’t make further concessions in exchange for bailout funds needed to avoid default.

The Dow Jones industrial average gained 11.31 points, or 0.6%, to 17,904.48; the S&P 500 stock index rose 11.86 points, or 0.6%, to 2,096.29; and the Nasdaq stock market rose 25.58 points, or 0.5%, to 5,055.55.

Citrix begins to stabilize

Citrix Systems’ 0.5% convertibles due 2019 were quoted at 105 with the underlying shares at $70.02.

They were also seen changing hands at 104.858 with the underlying shares around $69.94.

“The all-in valuation change has been quite large,” a trader said.

But the natural short base has helped stem some of the slide, which could have been at least a couple of points greater.

“They have come in a lot. But in the last day, they are slowly, slowly stabilizing,” he said.

The bonds were being pulled lower by long-only sellers. It was thought that by the end of the week, these sellers would be wrung out and the bonds would start to rally.

Mentioned in this article:

Citrix Systems Inc. Nasdaq: CTXS

Greenbrier Cos. Inc. NYSE: GBX

Illumina Inc. Nasdaq: ILMN

Microchip Technology Inc. Nasdaq: MCHP

Restoration Hardware Inc. NYSE: RH

XILINX INC. Nasdaq: XLNX

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