GM trades mixed; Amylin extends gains; but Katrina contributes to quiet market, traders say

By Rebecca Melvin

Princeton, N.J., Aug. 29 - The convertibles of General Motors Corp. ended mixed on Monday, with a surge of volume in the automaker's 4.5% convertible bond. Elsewhere, a few biotechnology names gained on interest ahead of drug news expected later in the week.

Nevertheless, much of the session was marked by Hurricane Katrina, which may have contributed more to market inactivity than to buying or selling related to concerns over damage estimates, traders said.

Summer vacation season was the main reason for market inactivity, but Katrina also played a role, they said.

"It didn't do much," a New York sellside trader said of the blockbuster storm. "People were watching the stocks in the morning; but it was quiet in converts. I think net-net, damage came in on the lower end of early estimates, and net-net, credit was unchanged on the day."

Contrary to forecasts, Hurricane Katrina made landfall slightly east of New Orleans, sparing that city some of the devastation originally promised. Also, the storm weakened throughout the session.

In energy names, which were likely to be most affected by Hurricane Katrina's destruction in the Gulf of Mexico, the convertibles of exploration and production companies like Devon Energy Corp. and Amerada Hess Corp. added slightly in light trade. But one sellside analyst said trading in Devon was just as likely a "coincidence" as it was due to the storm.

Drillers, such as Transocean Inc. and Diamond Offshore Drilling Inc., were flat to lower on potential infrastructure damage, while the convertibles of oil-services names like Halliburton Co. and Schlumberger Ltd. were essentially unchanged in thin trade.

Airlines were also lower on the back of higher oil prices, but little was seen trading in that group.

Meanwhile, the convertible paper of Providian Financial Corp. was higher ahead of the credit card company's shareholder vote on a planned merger with Washington Mutual Inc. Pep Boys - Manny, Moe & Jack rose on an upgrade. And Lowe's & Cos. Inc. was firm to slightly higher amid expectations that storm damage could lift sales for the home improvement retailer.

GM's 4.5s edge up, volume heavy

The convertibles of GM ended mixed, with the 4.5% paper edging up in active trade; while the 5.25s added and the 6.25s ended were lower, both in thin trade.

Activity was spurred by news reports in The Wall Street Journal regarding Delphi Corp., GM and the United Auto Workers union, a New York-based sellside trader said.

It is expected that Delphi, the largest U.S. auto parts supplier, will face further delays in terms of getting help from GM, its former parent and biggest customer, to get its current cost structure woes under control.

On Friday UAW president Ron Gettelfinger said GM would have to be part of any bailout agreement for Delphi. Meanwhile, Delphi has said it would consider filing for bankruptcy if the UAW and GM fail to move quickly to help it lower its U.S. factory wages and health care expenses.

GM hasn't yet revealed its position in these matters, but the automaker will hold an analysts' meeting Tuesday when questions regarding union discussions and a potential deal with Delphi will have to be fielded.

GM's 4.5% $25 bonds edged up just 0.01 point to 24.13, with 520,700 shares trading hands, or more than double the three-month average daily volume of 251,202.

The Detroit, Mich., automaker's 6.25% convertible closed up 0.14, or 0.7%, to 21.62, in extremely light volume, and the GM 5.25% convertible shed 0.04 point to 18.91, also in light volume. Meanwhile, GM shares came off 10 cents on the day, or 0.29%, to settle at $34.04.

Amylin, MGI Pharma rise

The convertibles and stock of San Diego, Calif.-based Amylin Pharmaceuticals Inc. jumped again Monday, extending gains it achieved last week on takeover chatter and positive preliminary results of one of its promising drug's mid-stage clinical trial.

Eli Lilly & Co., which is one of its partners in developing the drug, a long-acting Type 2 diabetes treatment, is expected to take over Amylin.

On Monday, Amylin 2.5% convertible was at 107.5 bid, 108 offered, compared to 105 on Thursday.

Amylin's 2.25% issue traded at 109.75 on Monday, compared to 109 on Thursday, when it had climbed 3 points.

Amylin shares closed Monday up $1.89, or 6.14%, at $32.66.

"There has been interest in Amylin and MOGN. Drug news is expected on Thursday, and that will be a good volatility catalyst, moving it up or down," a sellside trader in New York said.

MOGN is the ticker for MGI Pharma Inc., which was among the session's gainers, indicated up about 1 point to 73.8 bid, 74.8 offered, versus a closing stock price of $26.59, which was up 2.4% on the day.

Investors eye Devon reserves

Devon Energy's issues linked to ChevronTexaco Corp. were among energy issues fetching bids on the gain in oil prices on Monday.

Oklahoma City-based Devon saw its 4.9% convertibles due 2008 trade at 117 early, versus a stock price of $59.60.

Devon, the largest U.S.-based independent oil company, has about 90% of its reserves and production in North America. As an exploration and production company, it was one of the few energy names that fared well in light of possible supply disruptions caused by Hurricane Katrina. "This is because reserves on its balance sheet would be worth more then," a sellside analyst said.

The convertible, exchangeable for shares in Chevron, more closely tracks the price of Chevron rather than that of Devon Energy because it is priced well over par.

"If it was trading under par, it would trade more like a bond based on Devon," the analyst said.

Chevron shares ended up 13 cents at $59.51.

Many other energy names were flat or slightly lower. Transocean's 1.5% convertible due 2021 traded flat at 104.4. Its shares closed up seven cents to $56.32.

Diamond Offshore's 1.5% convertible due 2031 traded Monday at 121, down 1.25 points from 122.25 on Friday. Diamond Offshore shares lost 14 cents, or 0.25%, to $55.15.

Upcoming vote spurs Providian

Providian's 2.75% convertibles due 2016 gained as much as a point to 127.83 on bets made in the event that the $6.5 billion takeover by Washington Mutual Inc. doesn't take place as previously agreed.

Washington Mutual, the largest saving and loan in the United States, agreed to buy the California-based credit card company in June. But shareholders are slated to vote on the deal on Wednesday, and there have been rumblings that it's not the best deal for the shareholders.

Opponents contend that Providian is worth more than the asking price, which represented just a 4% premium over its closing stock price around the time of the June 6 announcement.

Pep Boys upgrade attracts interest

The convertibles of Pep Boys - Manny, Moe & Jack traded flat to higher after Wachovia Capital Markets upgraded the shares to "market perform" from "underperform."

"There was slightly more buyer interest," a sellside trader said.

Despite a year-old turnaround plan that may be faltering, the Philadelphia-based company's strong real estate portfolio "limits further downside risk," a Wachovia analyst said.

Investors willing to buy at this level "are receiving a call option on the fundamental business at little or no cost," the analyst said.

Earlier this month, the automotive services and retail chain reported that its second-quarter profit fell sharply and missed Wall Street estimates as revenue from the company's service side trailed off.

Pep Boy's 4.25% convertible due 2007 traded at about 97. Its shares closed up 66 cents, or 5.5%, to $12.68.

Lowe's adds on potential hurricane sales

The convertibles of Lowe's were firm to slightly higher as investors bet that sales for the home-improvement retailer would rise on both preparations for and the aftermath of Hurricane Katrina.

On Monday, the 0.861% convertible traded at 110.6, following its underlying stock. Lowe's shares closed up Monday by $1.42, or 2.25%, to $64.60.

The Lowe's convertibles were active in trade last week, performing either among the top 10 or worst 10, depending on the day, and in a range of about 109 to 111 for the 0.861% issue, according to Merrill Lynch convertibles data.

The Lowe's convertibles are "well in the money, and they are callable, so they are not going to get too far away from parity," a New York-based sellside analyst said.

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