SanDisk slips further outright; Hornbeck sees trading spike; Medtronic firm with results

By Kenneth Lim

Boston, Aug. 24 - SanDisk Corp. continued to dominate convertibles trading on Tuesday amid weak activity as the market kept in line with sliding equities.

Hornbeck Offshore Services, Inc. caught the market's attention with an unusually high volume of trades. The market seemed uncertain about the driving force behind that activity, but speculation focused on possible relief from a drilling moratorium and yield-grabbing.

Medtronic, Inc. held steady despite a drop in the stock after the company lowered its forecast for the year.

Most of the trading on Tuesday was in the high-liquidity names that have dominated volumes for most of the summer. In keeping with that theme, Intel Corp. and Transocean Ltd. rounded out the usual suspects.

Overall activity was slow on a combination of lackluster underlying stocks and the summer doldrums.

"There are no volumes," the sellsider said. "It's summer time, that's what it does in summer. This has gone on forever, especially closer to the Labor Day weekend and guys trying to take their days off before the holiday."

The sellsider expects the slow volumes to persist until at least a week after Labor Day. Issuance is also not expected to pick up by Sept. 6.

"I don't think it's ever a consideration for companies to rush it out just to catch the holidays," the sellsider said. "They might want to rush it by the end of the year, but not by Labor Day."

SanDisk drops with stock

SanDisk remained one of the top actives on Tuesday, but its new 1.5% convertibles due 2017 fell 3 points to trade at 95.375 against a common stock price of $38.58.

"Those are the ones that are really, really busy," one sellsider said.

SanDisk, a Milpitas, Calif.-based flash memory company, saw its common stock slip 6.04% or $2.46 to close at $38.27.

There was no specific news that led to the drop in price, the sellsider said. The convertible was merely following the stock, which had another down session in line with the broader stock market.

"The stock was down a lot," the sellsider said.

The convertibles were unchanged on a dollar-neutral basis, but outright investors who bought the notes when it priced at par after the close on Aug. 19 are feeling the pain.

"Outright, you're getting hurt," the sellsider said.

Hornbeck gains

Hornbeck's 1.625% convertibles due 2026 were unusually active on Tuesday, gaining about a point to trade at about 83 versus a common stock price of $16.15.

"The only one was that was unusual were the 1.625% Hornbecks," a trader said. "I don't know what that's about. The stock was actually up today."

Hornbeck common stock closed at $15.96, up by 2.05%, or $0.32, on the day.

Hornbeck is a Covington, La.-based offshore support services provider for the oil and gas industry.

The convertible's spike in activity raised eyebrows, but a number of market sources could only speculate about what may have caused the increased interest.

One theory was that some in the market were betting that the current moratorium on offshore oil drilling imposed by the White House would be partially lifted, one buysider said. The moratorium, which ends Nov. 30, is being challenged by a number of companies, including Hornbeck.

In its earnings filing on July 29, Hornbeck said the government's appeal of an injunction on a previous moratorium would be heard Sept. 1.

Another theory is that some investors may have been seeking yield in buying up Hornbeck paper.

"There is also a yield grab ongoing, and HOS has a decent yield," the buysider said.

Medtronic holds firm

Medtronic's 1.5% convertibles due 2011 were trading at 100 at the close, while its 1.625% convertibles due 2013 were seen at 99.875. The convertibles were mostly unchanged on the day, while the common stock closed at $31.21, lower by 10.8% or $3.78.

Medtronic, a Minneapolis-based medical devices maker, on Tuesday reported quarterly earnings of 80 cents per share before items, in line with Street estimates. But the company cut its revenue outlook for the fiscal year to growth of 2% to 5%, down from the previous forecast of 5% to 8%.

The earnings forecast was cut to between $3.40 and $3.48 per share, from $3.45 to $3.55 per share.

Few names dominate

Most of the trading on Tuesday occurred in a handful of names, the trader said.

"Every day it's the usual suspects," the trader said.

Transocean's 1.5% series A convertible due 2037 gained ½ point to trade at 98.875 outright. The common stock rose 3.01% or $1.53 to close at $52.40.

Transocean is a Vernier, Switzerland-based offshore drilling contractor.

Intel's 2.95% convertible due 2035 was mostly flat on a hedged basis at 98.5 versus a common stock price of $18.60. The Santa Clara, Calif.-based chipmaker saw its common stock ease by 1.58% or $0.30 to close at $18.41.

Mentioned in this article

Hornbeck Offshore Services, Inc. NYSE: HOS

Intel Corp. Nasdaq: INTC

Medtronic, Inc. NYSE: MDT

SanDisk Corp. Nasdaq: SNDK

Transocean Ltd. NYSE: RIG

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.