Convertibles firm; THQ adds on delayed bid procedures; Alcatel-Lucent preferred up again

By Rebecca Melvin

New York, Jan. 7 - The convertible bond market was fairly quiet on Monday, but firmer despite lower equities, after the S&P 500 stock index notched a five-year high on Friday and ahead of Tuesday's earnings season kick off.

Among names in trade, THQ Inc. in the distressed arena moved up by a point or more to 16.375 in active trade after a federal bankruptcy judge on Friday rejected proposed debtor-in-possession financing and bid procedures tied to a planned $60 million asset sale.

THQ reached a deal with creditors and its bidder on bid procedures and DIP loan terms on Monday, but it wasn't clear if the latest headlines moved the paper.

Also trading was AMR Corp., which is no longer looking like a distressed issue, having retaken 90 on Friday and pushing even closer to par on Monday to as high as 94.25. There was news concerning the two pilot unions, US Airways Group Inc.'s and AMR's, agreeing to the possible format for a merger, a trader said.

Alcatel-Lucent SA's convertible preferreds extended gains on Monday, continuing their sharp climb higher since mid-December when the French telecom-equipment maker secured $2.1 billion in needed funding.

Meanwhile, NetApp Inc. also continued to trade actively, and that paper was lower outright, but appeared better on a dollar-neutral, or hedged, basis on Monday, a New York-based trader said.

Overall, the convertibles market has been deemed strong since last week, although "it feels a little choppy," a Connecticut-based trader said.

A second trader said the market looks to be "definitely improving on a valuation basis."

Short-dated credits were better to buy, and other paper like Micron Technology Inc.'s was getting better.

THQ gains

THQ's 5% convertibles due 2014 traded up to 16.375 on Monday, which was up 1.375 points, as the underlying shares of the bankrupt video game publisher surged 21% to $0.35 in the over-the-counter market.

Delayed auction bidding procedures was viewed as positive for the convertibles at this point, a Connecticut-based trader said regarding the improved convertible bond price.

On Friday, judge Mary F. Walrath found unconvincing THQ's argument that its efforts to secure a $50 million to $100 million capital infusion or an equity sale in the past year could substitute for the fulsome and robust auction required under the bankruptcy code.

At the same time, she said she didn't "buy" the argument of official committee of unsecured creditors that the DIP facility and bid procedures were structured to thwart any other potential bidder and deliver the company to stalking-horse bidder Clearlake Capital Group, LP affiliate Space Investors LLC.

But testimony from Warner Brothers Entertainment, among others, convinced her that a Jan. 9 auction would not be in the best interest of the debtor's estate.

On Monday, a revised, longer bankruptcy sale process and loan was approved by the bankruptcy judge after an agreement was reached between the company, its creditors and bidder.

Potential buyers will have to submit bids by Jan. 22 and the company will hold an auction later that day to determine the best offer for the assets. THQ will seek court approval of the sale at a hearing scheduled Jan. 23, with closing expected Jan. 24.

THQ filed for bankruptcy protection before Christmas when the convertibles slumped to 11 bid, 12 offered.

In December 2011, the THQ 5% convertibles dropped from the upper 80s to the upper 70s on a downgrade in which the analyst cited the video game publisher's likelihood of missing guidance due to underperformance of its uDraw video game.

Alcatel Lucent adds outright

Alcatel-Lucent's 7.75% convertible preferreds traded actively Monday up to 90.375 from about 87.75 to 88 on Friday. That price was shorthand for $938, based on its $1,000 face value.

The preferred has jumped to the 90 mark from about 65 since mid-December, a Connecticut-based trader pointed out.

Alcatel-Lucent shares gained 9 cents, or 5.5%, to $1.73 in active trade.

The "Lucent preferreds" have been one of the bigger movers among convertible preferreds, the trader said.

He referred to the paper by the original issuer, but that company was later acquired by Alcatel.

There was no direct news that could be tied to the rise for the Alcatel preferreds on Monday. Goldman Sachs took the company's shares off its conviction sell list but still has a sell rating on the shares.

"They got that financing, and the credit is improving, but they are not out of the woods yet," a New York-based trader said Monday.

NetApp up 0.25 point on swap

NetApp's 1.75% convertibles due 2013 were seen trading between 112.25 and 112.5 versus an underlying share price of $33.62 on Monday.

"Call it 112.5 versus $33.62," a trader said.

That was down about 0.5 point outright but higher by about 0.25 point on swap on the convertible paper.

Shares of the Sunnyvale, Calif.-based data storage company were down 84 cents, or 2.5%, at $33.24 at the end of the session Monday.

"With the weaker shares, NetApp convertibles were seen as firm on a dollar-neutral basis. It continues to amaze me why it trades where it does," a New York-based trader said.

"Given that it moves on about a 70% delta, it was about 0.25 point better on a swap basis, and looks a little frothy here," the trader said.

Mentioned in this article:

Alcatel-Lucent SA NYSE: ALU

AMR Corp. Pink Sheets: AAMRQ

NetApp Inc. Nasdaq: NTAP

THQ Inc. Pink Sheets: THQI

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