AMD holds in despite slumping shares; SanDisk stays in line; Newell weaker; Ford contracts

By Rebecca Melvin

New York, Jan. 22 - Higher priced, high delta names in the convertibles market continued to succumb to selling pressure Friday, extending a trend that had persisted for the whole holiday-shortened week. Low delta, yield names were more resilient, in general, market players said.

Markets were closed on Monday in observance of Martin Luther King Jr. Day.

Low delta Advance Micro Devices Inc., which was active Friday on earnings news, saw its stock come off, but the convertible bonds held in pretty well, a Connecticut-based sellside trader.

SanDisk Corp., which is more equity sensitive, but not one of the higher-priced names, was relatively flat, moving in line with its underlying shares.

Newell Rubbermaid Inc. continued to be for sale; and Ford Motor Co. continued to edge lower on a hedged basis. The newer Ford 4.25% bonds were down about another 0.5 point with shares at the same price, which came on the back of a 4-point slide Thursday.

However, Steel Dynamics Inc., a high delta, in-the-money name, saw its bonds add 3 points Friday, even though the stock was flat and then ended lower.

"It did well on a dollar neutral basis," a New York-based sellside trader said.

"There are a lot of cross currents in the convertible space right now. You've got the high delta names getting crushed, and then there's the big, liquid issues trading more or less flat, and then you have the low delta names with no big changes, no real volumes," the sellsider said.

Volume declines

Market breadth in the convertibles space was reduced on Friday, compared to earlier in the week, as was overall volume.

Another New York-based sellside trader said that the "damage," or selling, should be limited by the fact that there is little new issuance to speak of and vol. is improving.

Those factors mean that supply remains tight and there is potential for prices to move up, so investors are hard pressed to sell in many instances.

The first sellsider said that the current downturn in the markets is an earnings, or equity, story; and should be isolated to that segment of the convertibles universe that is equity sensitive.

"It's all about earnings and is less to do about credit. Bond market spreads are pushing out, but most of the fall is coming from the stock side," the sellsider said. "It's not about global credit shock, it's not about contagion from sovereign credits like Greece. It's more about China hitting the brakes and more about banks, and about earnings-based multiples coming in."

U.S. stock indices slumped again on Friday, extending a three-day losing streak. The Dow Jones Industrial Average slid 216 points, or 2%, to 10,172.98; the S&P 500 index lost about 25 points, or 2.2%, to close at 1,091.76; and the Nasdaq Stock Market took a 60-point, or 2.7%, dive to 2,2055.29. Since last Friday, the Dow is down 4%.

The week brought only one new issue in the primary market. Lexington Realty Trust's newly priced 6% convertibles priced at the cheap end of talk and moved up to nearly 101 on their debut in the secondary market.

The $100 million of new paper from the New York-based real estate investment trust didn't comprise a healthy new issuance stream in most players' opinion. And whether a stock downturn could help spur issuers wasn't as likely as if stock prices moved higher, a sellsider said.

AMD holds in

AMD's 6% convertibles due 2015 were last seen around 91.25 bid, 91.75 offered, which was down only about 0.25 point to 0.5 point outright.

Meanwhile, shares of the Sunnyvale, Calif.-based chipmaker slumped $1.11, or 12.3%, to $7.88 however.

"They were moving a lot," a sellsider said of the convertibles.

The big down move in the stock came despite the company posting a narrower-than-expected loss on a stronger-than-expected surge in revenue for its latest fiscal quarter.

Late Thursday, AMD reported a fourth-quarter profit of $1.18 billion, or $1.52 a share, compared with a loss of $1.44 billion, or $2.36 a share, for the year-earlier period. Revenue was $1.65 billion, up 42% from the same quarter the previous year. On an adjusted basis, the company posted a loss of 8 cents a share.

Analysts had expected the company to report a loss of 17 cents a share on revenue of $1.49 billion.

Steel Dynamics adds, but Ford slips

Steel Dynamics' 5.125% convertibles due 2014 were seen closing around 123.5 bid, 124 offered, versus a share price $16.40.

That price was up about 3 points, against shares of the Fort Wayne, Ind.-based maker of steel products, which closed down 30 cents, or 1.8%.

About $3 million of the Steel Dynamics bonds traded in round lots. It traded even though market breadth was narrower at 101 compared to a wider variety of names that traded earlier in the week.

Trades in the name could be a play on commodities and the prospects for China and global recovery.

Investors are also weighing plays in coal names, particularly metallurgical coal, which is used for the production of steel, a Connecticut-based sellside analyst said.

St. Louis-based Peabody Energy Corp. mines coal in Australia and supplies China, the sellsider said. Massey Energy Co. also has a convertible. Its shares were down 6% on Friday.

Ford's 4.25% convertibles due 2016 traded at 136.5 versus a share price of $11.20 on Friday, which was down compared to 137 versus the same stock price on Thursday.

Shares of Dearborn, Mich.-based Ford closed down 66 cents, or 6%, at $10.52 in heavy volume.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Ford Motor Co. NYSE: F

Newell Rubbermaid Inc. NYSE: NWL

SanDisk Corp. Nasdaq: SNDK

Steel Dynamics Inc. Nasdaq: STLD

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