MGIC up; Suntech edges up in absence of bankruptcy filing; Saks 'crushed' on issuer call

By Rebecca Melvin

New York, March 15 - Convertible bond trading action was muted on Friday as market players defaulted to behavior typical of the latter bookend day of the week and as the Dow Jones industrial average snapped a 10-day winning streak. Equities pulled back slightly after disappointing consumer-confidence data.

"People get quiet on Mondays and Fridays; it's been this way since the onset of the new year," a New York-based trader said. "People are looking at the same sort of names like mortgage insurers, but they are more or less sidelined."

MGIC Investment Corp.'s 2% convertibles, which slipped below par when they debuted earlier this month, traded a little stronger on Friday, mostly in line with the underlying shares of the Milwaukee-based mortgage insurer amid no particular news, the trader said. The older MGIC 5% convertible was also seen stronger in trade but the new convertible of Radian Inc., another mortgage insurer, wasn't seen.

The MGIC convertibles were among the most actively traded issues of the day, but overall "it's very quiet," the trader said.

Suntech Power Holdings Co. Ltd.'s 3% convertibles traded higher by 2.5 to 3 points as investors viewed the absence of a bankruptcy filing on Friday as more or less positive despite the fact that the bonds came due with no redemption forthcoming from the issuer.

The China-based solar power company said late Thursday that it didn't plan to make the $541 million debt repayment and instead was working with holders on a consensual restructuring of the bonds.

The situation was uncertain however since not all of the bondholders had agreed to the restructuring and could in theory force the company to file for bankruptcy protection.

Saks Inc.'s 2% convertibles of 2024 fell about 3 points on Friday after the New York-based retailer said it is calling the $230 million issue of senior notes due March 15, 2024 at par. The issue fell to about 101.5 from 104.5.

The $1 billion Salesforce.com Inc. issue of 0.25% convertibles, which debuted in the convertibles market on Wednesday, was trading late Friday at 99.875, which was right around where they broke on Wednesday.

In all, there were five new deals in the market this past week, totaling $1.79 billion in new paper. But those issuers were not trading actively on Friday.

The Dow snapped its 10-day winning streak, ending the session down 25.03 points, or 0.2%, to 14,514.11. The S&P 500 stock index slipped 2.51 points, or 0.2%, at 1,560.72; and the Nasdaq Stock Market lost 9.86 points, or 0.3%, to 3,249.07.

In economic data, consumer sentiment dropped to its lowest level since December 2011. The Thomson Reuters/University of Michigan preliminary reading on the overall index on consumer sentiment dropped to 71.8 from 77.6 in February, which was below expectations for a reading of 78.

The consumer sentiment reading belied expectations in light of positive jobs data and other positive economic readings in recent days, and was likely fueled by negativity regarding federal economic policies and the government's inability to reach a compromise on budget and other issues, according to a Reuters report.

MGIC edges up in line

MGIC's 2% convertibles due 2020 traded up about 0.5 point to 101.75 versus an underlying share price of $4.95, according to a New York-based trader.

MGIC's older 5% convertibles due 2017 traded up to 100.25, which was also better by about 0.5 point.

MGIC shares ended lower by 4 cents, or 0.8%, at $4.91 but had spent about half the session in positive territory.

"They traded up a little bit with the shares higher," a trader said.

On their debut, the shares ended at the same price, $4.91, but that was off 12.6% at the time, and the new convertibles were then marked roughly 99.25 bid, 100.25 offered.

That outright number was contrary to gray market trades before final pricing, which had been significantly higher in the 105 range. But on a dollar-neutral basis, given the shares' decline on the debut, the new convertibles had actually expanded on a hedged, or dollar-neutral, basis.

The Milwaukee-based mortgage insurer priced $450 million of seven-year convertibles to yield 2% with a 35% initial conversion premium.

MGIC also priced 135 million shares of common stock at $5.15 per share concurrently with the convertibles.

Suntech edges higher

Suntech Power's 3% convertibles due on Friday - but not redeemed - traded around 32.5 bid, 34 offered early Friday. It wasn't as actively traded as it had been on Thursday when pricing was lower at 30.

Suntech Power shares did an about face, ending Friday's session higher by 3 cents, or 4.5%, at $0.70, but intraday they were as much as 30% higher. The shares had dropped 16 cents, or 19%, to $0.67 on Thursday.

The idea behind Friday's trade in Suntech was that no news was good news and the bonds were just a hair stronger amid a lack of color.

"Theoretically someone could force them to file, but it wouldn't be in their best interest to do so," a Connecticut-based trader said.

The trader put the market at 34 ish following trades earlier in the day at 32.5 bid, 34 offered. But it was "just a couple of trades."

The company said on March 11 that about 60% of bondholders had agreed to wait until May 15 before exercising their rights for repayment. But traders pointed to the fact that the prospectus didn't allow for such a delay without the consent of all holders.

Late Thursday, Suntech issued a release stating, "As previously disclosed, the company plans to continue to work with holders of the notes with a view of achieving a consensual restructuring."

Saks drops on call

Saks' 2% convertibles due 2024 traded down to about 101.5 from about 104.5 previously.

"It got crushed," a New York-based trader said.

Asked if investors were blindsided by the call, the trader said, "It depends on who you ask."

The company said it will redeem the whole issue at par and pay accrued interest up to the April 15 redemption date.

Mentioned in this article:

MGIC Investment Corp. NYSE: MTG

Radian Inc. NYSE: RDN

Salesforce.com Inc. NYSE: CRM

Saks Inc. NYSE: SKS

Suntech Power Holdings Co. Ltd. NYSE: STP

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