Convertibles little changed: NatCity, Amgen active but off week's highs; bank convertibles mixed

By Rebecca Melvin

New York, Jan. 9 - The convertible bond market was treading water on Friday after having moved mostly lower Thursday and following a rally earlier in the week, convertibles players said.

"Overall, it was pretty quiet. The real moves happened yesterday," a New York-based sellside trader said. "Payroll came in not as bad as people thought. The better names traded off this week while the dicier names moved up, and everything was basically trading at the same levels today."

Early Friday, the Department of Labor's employment report - which was bad, but not unexpected - showed the economy lost 524,000 jobs in December, bringing 2008's total job losses to 2.6 million.

The unemployment rate rose to 7.2% last month from 6.7% in November and was higher than economists' forecasts of 7%.

Among volume leaders in convertibles were National City Corp., which is now PNC Financial Services Group Inc. paper, and Amgen Inc. Both were active in trade much of the week. Rarely heard Interpublic Group of Companies Inc. was also a volume leader Friday, a New York-based sellside trader said.

Also among financials, KeyCorp convertible preferreds were a little better, but Bank of America Corp.'s were a little lower, and Wells Fargo & Co. was little changed, a third New York-based sellside trader said.

He described bank names as "holding in" after having weakened midweek when Oppenheimer & Co. banking analyst Meredith Whitney downgraded the sector, saying that U.S. banks will have to raise new capital in 2009 as a sharp increase in credit-rating downgrades on mortgage-related securities lead to further stresses on bank capital.

"From July 2007 to date, over $5 trillion worth of securities have been downgraded, but our concern here is that the pace of downgrades has only accelerated through 2008," Whitney wrote in a research note.

Elsewhere, Best Buy Co. Inc. was lower in line with shares after the consumer electronics retail chain narrowed its fiscal 2009 outlook, saying adjusted earnings for the fiscal year ending next month are expected to be between $2.50 and $2.70 per share, compared to its previously projected earnings of $2.30 to $2.90 per share.

Hologic Inc. lost some ground gained earlier in the week after the Bedford, Mass.-based medical device maker was downgraded by Needham & Co. to "hold" from "buy."

Primary market remains shut

Although there were glimmers of life in other credit markets, including high yield with its Cablevision deal that came on Thursday, the convertible primary market remained closed, as it has been since the first half of September.

Why are other markets reviving and not convertibles? One source said it has to do with equity prices right now.

High-yield issuers would rather not give up their stock to get financing. And as for investment grade, deals could probably get done fairly easily but not at prices attractive to issuers.

"There are better quality companies that could do a convertible very quickly. But they are hesitant because they don't need the cash, they don't like their stock price, and the cost at 4% to 5%, as opposed to 0.5% to 1%, isn't that appealing. So it's going to take longer," a New York-based convertibles trading director said.

Amgen, NatCity churn

Amgen's 0.125% convertibles due 2011, or the A paper, settled at about 95.6 on Friday versus a share price of $57.78. The A paper had traded at 97 versus a share price of $58.34 on a 30 delta on Tuesday, and again at 97 versus a stock price of $58.25 on a 40 delta that same day.

Amgen's 0.375% convertibles due 2013, the Bs, settled Friday at 94.5 versus a share price of $57.78, compared to 95.619 versus a share price of $58.05 on Tuesday.

Shares of the Thousand Oaks, Calif.-based biotechnology giant opened lower Friday and remained at about the same level through the session, to close down $1.48, or 2.5%, at $57.78 in light volume.

Amgen was among the big, more liquid names that succumbed to profit taking midweek after gapping up in previous sessions.

"They're red-lining," a New York-based sellside trader commented of the larger, high-quality names.

He explained that he meant that they have been lined off, or isolated, and the high pricing that they've been awarded probably means that they will continue to be set aside.

"Stuff ran up so fast," that anything that was interesting isn't really interesting anymore, he said.

National City's 4% convertibles due February 2011 climbed more than 5 points to 95 bid, 97 offered, accounting for almost 10% of Thursday's total market volume.

On Friday, the issue sold off to 93.5 bid, 94 offered. There had been odd lots as low as 91.25, but most of the trades were in the 93 to 95 range, a sellsider said.

"I saw a $5 million bond print at 95 this morning, but they were stronger yesterday," a sellsider said.

"PNCs aren't interesting except that you have some yield there. It's been a leading volume thing for a couple of days. But it's like PRU. It's yield plays; nothing else is involved here: it's not ever going to be hedged," a sellsider said.

Interpublic, Hologic slip

Interpublic's 4.25% convertible senior note due 2023 slipped in active trade Friday, but sources queried didn't know why the name, which is rarely heard in trade, was active.

The Interpublic 4.25s moved down to 64.50 from a previous level of about 69. Shares of the New York-based advertising firm settled down 24 cents, or 5.6%, to $4.08.

Hologic's 2% convertibles due 2037, which last year at this time were well above par, were at 61.625 versus a share price of $10.90 on Friday, compared to 64 versus a share price of $12.50 on Tuesday.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Bank of America Corp. NYSE: BAC

Best Buy Co. Inc. NYSE: BBY

Interpublic Group of Cos. Inc. NYSE: IPG

KeyCorp NYSE: KEY

National City Corp. NYSE: PNC

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