NetApp active, in line with shares; Intel trades ahead of earnings; Chemed flat to higher

By Rebecca Melvin

New York, April 16 - NetApp Inc.'s 1.75% convertible, which matures in June, was the most actively traded issue in the convertible bond market on Tuesday, and the paper was looking higher in line with a 3% gain in the underlying shares of the Sunnyvale, Calif.-based data storage company.

Prompting the volume was "dealer buying on call spread hedging," a New York-based trader said by way of color.

Factoring out the $81 million-plus of NetApp convertibles changing hands, the convertible market was not that actively traded. "It was slow to moderate," the trader said of the session.

Intel Corp.'s convertibles were trading actively and a bit higher in line with their underlying shares ahead of a quarterly revenue beat posted by the Santa Clara, Calif.-based chip giant after the market close. Earnings were in line with expectations, and guidance for second-quarter revenue was better than expected.

Elsewhere, Chemed Corp. was mentioned as an active trader and flat to higher on a hedged basis amid no particular news, market sources said.

Salix Pharmaceuticals Ltd. also traded fairly actively and in line with the shares of the Raleigh, N.C.-based pharmaceuticals and medical device maker.

RTI International Metals Inc.'s 1.625% convertibles, which debuted in the market on Friday, were not as active as the previous two sessions, but the notes, which saw both outright investors and hedge funds remain involved on Monday, were up 4.25 points on a dollar-neutral basis since the issue began trading, a New York-based convertibles analyst said.

Equities reversed course Tuesday, notching gains that erased more than half of their sharp slide on Monday despite negative news. The International Monetary Fund cut its global growth forecast and urged European policy makers to use aggressive monetary policy to help pull the euro area out of its tailspin.

The IMF forecast that the global economy will expand 3.3% this year, less than its 3.5% forecast in January, and following 3.2% growth in 2012. The latest forecast represents the fourth cut in the bank's expectation for this year's growth. The IMF sees the 17-country euro area shrinking 0.3%, compared with a 0.2% decline seen in January. The IMF also predicted France will contract in addition to Spain and Italy.

The Dow Jones industrial average rebounded 157.58 points, or 1%, to 14,756.78, following a 266- point slide on Monday. The S&P 500 stock index recovered 22.21 points, or 1.4%, to 1,574.57, after sliding 36.5 points, or 2.3%, on Monday; and the Nasdaq stock market rose 48.14 points, or 1.5%, after losing 78.46 points, or 2.4%, on Monday.

The convertibles market benefited from the volatility, a Connecticut-based trader said.

"I don't think there was much panic in the convert market especially since it was not credit-related volatility," the trader said.

"This kind of volatility is good especially because the market was not going down because something was blowing up. These commodity moves are a good type of volatility because people are able to realize volatility on their positions," the trader said.

Chemed flat to higher

Chemed's 1.875% convertibles due 2014 were seen at a level of 107.5 bid, 108 offered versus an underlying share price of $76.50 on Tuesday afternoon.

Trading on a 50% delta, the issue's pricing represented an increase of about 0.125 point on a dollar-neutral, or hedged, basis, a New York-based analyst said.

"Chemed was very active in trading today on no particular news," he said.

Shares of the Cincinnati-based provider of hospice care services and Roto Rooter opened up on Monday's close and ended the session higher by 73 cents, or nearly 1%, at $77.11 in active trade.

A second source said that a 0.125 point move wasn't particularly meaningful especially "within the context, as there is no true last fixed price in the convertibles."

Salix trades in line

Salix's 1.5% convertibles due 2019 traded at 105.625 versus an underlying share price of $49.20 on Tuesday, and shares were essentially flat, ending higher by just 8 cents at $49.13.

Salix's $690 million of 1.5% convertibles were priced in March 2012.

Salix's 2.75% convertibles due 2015 were not heard in trade.

Intel up a little in line

Intel's 2.95% convertibles due 2035 rose to 106.188, up 0.7, according to Trace data.

Intel's 3.25% convertibles due 2039 were up to 120.5.

Intel shares gained on the day to close up 54 cents, or 2.5%, at $21.92. Shares extended slightly in after-hours trading.

Intel's earnings for the three months ended March 31 fell to $12.61 billion, which was better than the $12.58 billion analysts were expecting. For the quarter, the company earned $2 billion, or 40 cents per share, which was in line with expectations.

For the current quarter, Intel sees revenue in the range of $12.4 billion to $13.4 billion, which is in line to better than the $12.86 billion analysts had been expecting.

For the full year, Intel reiterated a view for this year's revenue to rise by "low single digits" on a percentage basis. Analysts had been modeling full-year revenue at $53.54 billion.

The market is still soft for Intel products, president and chief executive Paul Otellini stated in a release, but the company managed to perform well as its innovates new products across multiple operating systems.

Mentioned in this article:

Chemed Corp. NYSE: CHE

Intel Corp. Nasdaq: INTC

NetApp Inc. Nasdaq: NTAP

RTI International Metals Inc. NYSE: RTI

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

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