Guitar Center trades to call; Carnival gains after guidance, stock buyback plan; Symmetricom falls outright

By Kenneth Lim

Boston, June 16 - The convertible bond market was quiet Friday with little news to spur trading as investors headed out for the weekend.

Guitar Center Inc.'s 4% convertible due 2013 came back to life and traded to the call announced Thursday.

Carnival Corp. gained slightly as the stock after the cruise operator reported its second-quarter results. Carnival attributed lower profits to fuel costs, but reaffirmed its guidance for the year and announced a new $1 billion share buyback program.

Meanwhile, Symmetricom Inc. fell in line with its stock, but onlookers were puzzled about what caused the stock to slide almost 5%.

Symantec Corp.'s 0.75% convertible due 2011 also was down slightly and in line with a slide in the stock. The convertible, which was priced June 12, traded at 100.25 versus a stock price of $15.67. Symantec stock (Nasdaq: SYMC) ended at $15.68, down by 1.2% or 19 cents.

Activity was muted across the convertible market on Friday, market sources said. New York-based insurer Alleghany Corp.'s proposed $260 million of three-year mandatory convertible preferred stock, which is expected to price Monday after the market closes, also did not turn up in the gray market.

"It's so quiet," a Connecticut-based convertible bond trader said. "I didn't even see a quote today."

But a sell-side convertible bond trader said the market saw better sells as volatility ticked down on recent equity gains.

"There's been a run-up in the stock market," the trader said. "When stocks come in they come in a lot harder than when they move up. Volatility is higher when stocks are coming down than when they are inching up...When stocks start going up, the volatility in the stock comes in, and when the volatility comes in, it makes the optionality of the convert less attractive."

The trader said the CBOE volatility index was north of 22 points a couple of days ago, and has seen lost about five to seven points.

"Guys were betting that volatility would go up, and now they start selling these names," the trader said.

Guitar Center trades to call

Guitar Center's 4% convertibles due 2013 were bid up about 0.125 point Friday after the company called the notes late Thursday.

The convertibles were quoted at 138.625 bid, 138.875 offered against a stock price of $47.83 on Friday.

"I think it's interesting that people are trading the converts even though they've been called," a sellsider said.

Guitar Center said late Thursday that it will redeem the convertibles, which were issued at par of $1,000 in 2003, on July 15 for $1,016 apiece plus accrued and unpaid interest. Holders of the notes may choose to convert the securities into Guitar Center shares at $34.58 per share. Guitar Center stock (Nasdaq: GTRC) closed at $48.06 on Friday, up by 0.5% or 24 cents.

Westlake Village, Calif.-based Guitar Center is a retailer of musical instruments and equipment.

A convertible bond trader said the market for the convertible was a "standard trade" with one month to go before the call is enforced.

"If the stock drops enough then you let them call it and cover your short at lower prices," the trader said. "If the stock rallies you just convert it."

Carnival gains on guidance, buyback

Carnival Corp.'s 2% convertible was improved about two points outright after the stock rose on reaffirmed guidance and a $1 billion stock buyback.

The convertible changed hands at about 109.5 against a stock price of $38.75 on Friday. Carnival stock (NYSE: CCL) rose 5.29% or $2.02 on Friday to close at $40.19.

"They were up after the results came out," a sell-side convertible trader said.

Carnival said Friday that its second-quarter profit declined 2% to $380 million, or 46 cents per share, from $388 million, or 47 cents per share, in the year-ago period. Revenue increased 6% to $2.66 billion, but a 43% surge in fuel costs ate into margins, the cruise operator said.

Miami, Fla.-based Carnival also said it continues to expect earnings of $2.65 to $2.75 per share for 2006, with third-quarter profit forecast between $1.45 and $1.47 per share. The company also approved a new $1 billion stock buyback program after it completed most of an earlier $1 billion stock repurchase plan.

Symmetricom slides outright with stock

Symmetricom's 3.25% convertible due 2025 slid about two points outright on Friday in line with a 4.6% drop in the stock.

The convertible traded at about 90.5 bid, 91 offered against a $7.20 stock price. Symmetricom stock (Nasdaq: SYMM) closed at $7.26, down 35 cents.

"Some of those traded today," a sell-side convertible bond trader said. "but we were not a part of that, I was a little disappointed."

The stock, which did not trade below $7.35 earlier in the week, took a dive on Friday, but the trader was puzzled as to what caused the slide.

"I have no idea why, I'm still trying to figure it out," the trader said.

Symmetricom is a San Jose, Calif.-based supplier of precision timing equipment.

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