LifePoint advances; tech names, AMD, Micron strong on Intel earnings; CIT converts diverge

By Rebecca Melvin

New York, July 17 - The convertible bond market continued to move upward Friday amid a combination of factors that spurred buyers.

"We're seeing things jump up 1 or 2 points on a dollar neutral basis. In the convert market, we call it a lift-a-thon: all the offers are being lifted," a New York-based sellside analyst said.

Volume, which was pretty light Monday with a big spread between bid and offer prices, picked up on Tuesday. It was light again on Wednesday, but buyers finally relented and prices started gapping up later in the week as equities continued to climb. Equities gained 7% on the week

Technical, fundamental and liquidity factors are also playing a role, as are prime broker lending facilities that have supposedly gotten better, which allows better terms for hedge funds and greater value.

"There are a lot of moving parts," the sellside analyst said.

LifePoint Hospitals Inc. bonds were better Friday, despite the stock pulling lower. "It's a symbol of what you're seeing," the analyst said.

Elsewhere, a number of convert names in the technology sector were also strengthening on the back of Intel Corp.'s earnings news released earlier in the week, which bodes well for sector fundamentals.

Advanced Micro Devices Inc. "was cheap for a long time, and stubbornly staying where it was, but once you applied the catalyst of the Intel news, that paper is up 5 points to 8 points," the sellsider said.

The Advanced Micro 6% convertibles are up 4 points from a few days ago on an absolute basis.

Micron Technology Inc. and SanDisk Corp. were also up significantly.

Meanwhile, CIT Group Inc.'s convertible preferred and convertible mandatory shares moved in opposite directions, with the preferreds a little higher on talk of possible lending to alleviate the company's liquidity crisis, while the mandatories slipped lower.

In the international primary market, British Airways plc priced an upsized £350 million of convertible bonds to yield 5.8% with an initial conversion premium of 37.6%, according to a syndicate source.

Investors like the British Airways deal, which priced at about the midpoint of talk on the coupon and at the aggressive end of talk on the premium, the syndicate source said.

"The stock was up at one point by 7%; the credit default swaps tightened by about 75 basis points to 710 bps, and a 2016 euro bond tightened by 4 or 5 points, indicated at 81 at the end of the day," the syndicate source said.

"June was so active that investors were expecting some deals in July," the syndicate source said, adding that this one was well flagged for institutional investors in the United Kingdom and Europe.

LifePoint better, stock slips

LifePoint's 3.25% convertibles due 2025 traded at 84.5 versus a share price of $26.16 on Friday, compared to earlier trades at 82.5 and 82.625 versus the same stock price, $26.16.

Shares ended lower by 55 cents, or 2%.

"The bid-offers are a point, or a point and a half wide, and it hangs there, and then all of a sudden it goes up. People give up, and then it gaps up," the sellsider said.

Buyers have started to chase some issues, and that's where pricing has jumped up, the sellsider said.

LifePoint is a B rated company but it has a good balance sheet and it has some liquidity, the sellsider said of the Brentwood, Tenn.-based rural hospital owner and operator.

"You have to do your homework on some of these names," the sellsider said.

Tech names get a breath of life

Advanced Micro's 6% convertibles traded between 51 and 54.5 on Friday, which was steady from trades earlier in the week. Shares of the Sunnyvale, Calif.-based semiconductor company added 8 cents, or 2%, to $4.

The paper is stronger on the Intel news, a sellsider said, as is Micron Technology's 1.875% convertibles due 2014, which ended Friday at about 66, which was up from about the 60 level a few days ago.

SanDisk's 1% convertibles due 2013 ended at about 69, which was up 1.125 point from Thursday.

Shares of the Milpitas, Calif.-based NAND-based flash storage maker added 36 cents, or 2%, to $18.03.

These names are "up big on the back of improvement in the tech sector," a sellsider said. "Nothing changed on their end. Maybe the sector is opening up. Everything is a reference sort of thing, based on fundamental improvement with the sector."

On Wednesday, Intel reported second-quarter revenue of $8.02 billion and profit margins that were much stronger than in the first quarter.

Intel also projected that revenue would expand further in the current period, with additional improvements in profit margins. The results showed PC sales are recovering.

On Friday, Intel completed its acquisition of Wind River Systems Inc.

CIT mostly swoons, but preferreds edge higher

CIT's 8.75% perpetual convertible preferred shares, or the C shares, were up a little Friday at 2.98, which was higher by 1.39; while CIT's 7.75% mandatory convertibles due 2015 moved in the opposite direction, down 0.3 to 9.20.

The moves came amid reports that the New York-based lender to small- and mid-size businesses was in talks with potential lenders as it continued to fight to forestall bankruptcy.

During the week, if investors thought the worst was going to happen - namely the fourth-largest bankruptcy in U.S. history - the preferreds would move down and the mandatories would hold up.

But if it looked like something good was going to happen, then the mandatories would weaken since its prospects are better in a bankruptcy due to its position the capital structure, than in another scenario, and the preferreds would hold up, a sellside analyst said.

On Friday, CIT common stock surged 70% to 70 cents in heavy volume, after being slaughtered on Thursday.

The CIT convertible preferreds were also crushed Thursday, falling to about 2 from more than 10 on Wednesday on news that talks with government regulators failed to produce a funding plan, which was likely to have included bolstering its balance sheet by issuing low-interest, federally backed bonds under the government's Temporary Liquidity Guarantee Program.

On Monday, the CIT preferred paper, which has a par of 50, traded at 9.23 and 9.5, which was down 1.3 points and 1.1 points, respectively, from the previous Friday and down from 23.6 on June 9.

The mandatories, or the Z paper, which have a par value of 25, were at 7.51 on Monday; and the CIT common stock ended that session at $1.35.

CIT has $10 billion of debt maturing through 2010 and hasn't tapped the corporate bond markets to raise funds since last year.

CIT had already received $2.3 billion under the U.S. government's Troubled Asset Relief Program in December. But the government essentially said it was willing to write that fuinding off when it ceased talks with the liquidity strapped lender.

Independent research firm CreditSights said in a report that it did not view CIT as a systemic institution, but as a major middle-market lender. The reluctance to put up more funding to avoid a bankruptcy filing needed to be weighted "against macro concerns of returning to a fourth quarter 2008 stressed funding environment, where unsecured markets froze up and where some money markets broke the buck," CreditSights analysts Adam Steer and David Hendler wrote in a report.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

British Airways plc LSE: BAY

CIT Group Inc. NYSE: CIT

LifePoint Hospitals Inc. Nasdaq: LPNT

Micron Technology Inc. NYSE: MU

SanDisk Corp. Nasdaq: SNDK

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