Kodak flat dollar neutral; Clearwire lower outright; Novellus slips; broader markets gain

By Rebecca Melvin

New York, Aug. 26 -The convertible bond market was mostly quiet Friday, sources said, with talk about Hurricane Irene and the direct hit she was projected to make with the U.S. East Coast this weekend dominating conversation.

"Lots of talk about the big storm coming," a New York-based sellside desk analyst said. "Not much panic....We're mostly just keeping our fingers crossed that this winds up being not that big a deal."

A second source said there was nothing going on in the convertible bond market and many market players in New York, New Jersey and Connecticut weren't even in their offices but instead were out preparing for the storm.

Eastman Kodak Co.'s convertibles, which have been a feature of trade all week, were flat on a dollar-neutral basis Friday, with shares higher on the day but lower on the week as questions about the future of the Rochester, N.Y.-based digital photography company remain unanswered.

"Some people have these on as light as a 50, some on a 60, and some as high as 100," a New York-based sellside analyst said Friday of the percentage of delta, indicating that opinions on what will ultimately happen to the company are mixed.

Clearwire Corp. moved lower in step with its underlying shares after a report Thursday that the loss-making Kirkland, Wash.-based mobile broadband network provider had discussed restructuring options with Blackstone Group.

Clearwire didn't confirm the report, but during a conference call Aug. 3, chief executive John Stanton said that the company was discussing with outside parties various alternatives, including a strategic equity investment, the sale of assets and a form of debt financing.

Novellus Systems Inc. was mentioned in trade and looked a little weaker, with the 2.625% convertibles due 2041 of the San Jose, Calif.-based circuit maker, which priced on May 4, trading at 84.75 versus an underlying share price of $26.75 on Friday, compared to a print on Monday at 85 versus the same share price. The price slipped by 0.25 point dollar neutral.

Meanwhile, Itron Inc.'s $38.8 million outstanding of 2.5% convertible senior notes due 2026 were called at 100.05, with the Liberty Lake, Wash.-based utility meter maker saying the redemption will be funded by the company's cash on hand and liquidity under its revolving credit facility.

Overall, pricing action was baffling on Friday, with stock market indices snapping a four-week losing streak and credit markets including Treasuries as well as gold and oil all higher.

The gains represented a rebound from early trading but were on thin volume.

"People are just looking for excuses to be optimistic," one New York-based trader said.

Monetary easing eyed

A New York-based sellside analyst said, "to be honest what people are really focusing on is the change of the FOMC meeting next month to two days from one, indicating that the Fed will really be exploring options for quantitative easing."

Federal Reserve chairman Ben Bernanke delivered his much anticipated speech from the annual gathering of central bankers and economists at the Fed's Jackson Hole Summit in Jackson Hole, Wyo.

The chairman didn't throw any immediate lifelines, and equities fell initially. But later in the session, stocks turned around and rallied, albeit on light volume.

The Federal Open Market Committee was originally scheduled for a one-day meeting in September. Making it a two-day session makes it more likely than before than the Fed may embark on another round of easing.

Bernanke said the Fed will continue to look at whether it should take additional short-term steps to jumpstart the economy but pointed out that its powers are limited, and responsibility for significant economic policies rest primarily with the U.S. Congress.

"Buying Treasuries and printing money is not good for the dollar; that's why the dollar is getting smoked and the euro is up [and] the yen is up," an analyst said.

Also the government bond market was up, credit was up, stocks were up and gold was up.

"When you get a rally in risk assets like this and in government bonds, quantitative easing is really the only thing that can be behind it," the analyst said.

Friday morning before the speech the Commerce Department reported that gross domestic product grew only 1% in the second quarter, weaker than previously estimated.

With the labor market, consumer spending, manufacturing and housing all having weak readings in the past few weeks, fears of a double-dip recession have increased.

No new issues for week

The convertibles primary market was once again devoid of new issuance in the past week, which was dominated by name-specific trading driven by headline situations.

The equity markets meanwhile whipped around from gains to losses through the week, but ended with gains.

Without a strong rally in stocks or a rise in interest rates, there may be no action in the U.S. convertible primary market this month, which would be the first time since December 2008 that the market has gone a month without a new issue, Citigroup's sales and trading desk said in commentary published Friday.

Kodak flat

Kodak's 7% convertible due 2017 traded at 65 to 65.5 versus a share price of $2.70, which was flat on a dollar-neutral basis. It has been moving with the stock from the low 60s to the high 60s, with a high mark notched this week of 67.

Kodak's shares jumped 20 cents, or 7.5%, on the day to end up at $2.87.

"Equity has been bouncing around on low volume. I have no idea why it rallied," a sellsider said of Kodak and the market in general.

"It hasn't done much, it's mostly the stock action," a second sellsider said of Kodak.

Clearwire lower

Clearwire's 8.25% convertibles were seen at 65 bid, 68 offered versus an underlying share price of $2.85 on Friday. That compared to 70.5 versus a share price of $3.05 on Monday.

Clearwire's shares fell 29 cents, or 9.7%, on the day to $2.70.

The stock has been volatile amid speculation about the prospects for the company. The latest report on restructuring comes on the heels of speculation about a potential buyout by Sprint last week.

Mentioned in this article

Clearwire Corp. Nasdaq: CLWR

Eastman Kodak Co. NYSE: EK

Itron Inc. Nasdaq: ITRI

Novellus Systems Inc. Nasdaq: NVLS

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