Convertibles thinly traded; NetApp steady after Monday's slip; DryShips extends gains

By Rebecca Melvin

New York, Nov. 27 - Trading in the convertible bond market Tuesday was dominated by a handful of investment-grade, or higher quality, names, which were mostly higher with underlying shares early in the day and didn't appear to move down with lower equity markets before the close, market players said.

Once again, Gilead Sciences Inc., Intel Inc. and Transocean Ltd. were active - as they were Monday - and Net App Inc. joined them as an actively traded name.

DryShips Inc. extended gains for a fourth straight day, edging closer to levels seen prior to the poor quarterly results of the Athens-based dry bulk ship and tanker operator that torpedoed the shares and bonds when reported Nov. 14.

XPO Logistics Inc. saw its 4.5% convertibles higher in active trade, with the low-premium name moving in step with shares of the Greenwich, Conn.-based trucking concern, which have bounded higher in the past week.

Knight Capital Group Inc.'s convertibles also moved up again by about 1.75 points to 94 on a 5% jump in the underlying shares of the Jersey City, N.J.-based electronic trading firm.

But BroadSoft Inc.'s convertibles were quiet despite an 8% surge in the underlying shares of the Gaithersburg, Md.-based communications software company.

Several economic reports hit the tape in line or better than expected. The S&P/Case-Shiller home price index showed home prices rose in September for the eighth straight month, with the composite index of 20 metropolitan areas gaining 0.4% on a seasonally adjusted basis, which was in line with forecasts.

The latest reading of consumer confidence was better than expected, with the Conference Board reporting its index rose to 73.7 from 73.1 in the previous month, and compared to a 73.0 reading anticipated by surveyed economists.

Durable goods orders were unchanged in October, compared to a 9.2% increase in September, according to the U.S. Commerce Department, and better than a dip in core capital goods orders that economists were expecting.

Despite the generally positive data, equity markets turned lower in late-day trading. Senate majority leader Harry Reid (D-Nev.) commented Tuesday afternoon on a lack of progress being made by lawmakers to come up with a deal to avert the fiscal cliff.

NetApp in line

NetApp's 1.75% convertibles due June 1, 2013 traded on Tuesday at 109.5 versus an underlying share price of $31.60, which looked about in line compared to Monday's levels, which were weaker.

On Monday, the paper traded on swap at 108.625 versus a share price of $31.00. Trades were also done at $30.91 earlier, and both on a 50% delta, according to a New York-based trader.

Shares of the Sunnyvale, Calif.-based data storage company ended down 5 cents at $31.31 in light volume.

A trader said the NetApp convertibles were "off" on Monday and in line on Tuesday.

XPO moving up with shares

XPO Logistics' 4.5% convertibles due 2017 traded at 113.95 on Tuesday, which was higher with the underlying shares, which gained 54 cents, or 3.3%, to $16.92 on Tuesday.

Shares of the trucking concern have gained more than 20% in the last seven trading sessions.

"And it's still not expensive," a West Coast-based trader said. The premium has contracted, making it a lot more equity sensitive, but with parity at 103 and the five-year bond, which is only a few months old, trading at 115, the paper is still pretty cheap.

"There is probably not a great borrow." The trader said. But with the low premium the bonds will keep pace with at least 80% to 90% of the stock's moves.

XPO priced an upsized $125 million of the notes - accounting for about a third of its market share - in September. When it was priced, the premium on the notes was 27.5%.

Mentioned in this article:

BroadSoft Inc. Nasdaq: BSFT

DryShips Inc. Nasdaq: DRYS

Gilead Sciences Inc. Nasdaq: GILD

Intel Inc. Nasdaq: INTC

Knight Capital Group Inc. NYSE: KCG

NetApp Inc. Nasdaq: NTAP

Transocean Ltd. NYSE: RIG

XPO Logistics Inc. NYSE: XPO

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