Convertibles soften ahead of holiday weekend; L-3 steady with lower shares; CETV comes in

By Rebecca Melvin

New York, April 5 - Convertible bonds were soft on light volume on Thursday heading into the holiday weekend. Stock markets are closed Friday in observance of Good Friday, and bond markets have a recommended early close.

For the week, convertibles came in some, but traders said it was nothing unusual given low volume levels, and selling was less pronounced than in the previous two weeks.

"It's weaker, but the pain train slowed this week versus what we saw the previous two weeks," a New York-based convertibles sellsider said.

A second market source said, "Stuff was definitely down. But volumes are almost nothing heading into the holiday weekend."

One name in trade Thursday was L-3 Communications Holdings Inc., and those bonds were holding firm contrary to the broader convert market and as L-3 common stock sold off Thursday.

The three Gilead Sciences Inc. convertibles were down collectively for the week by about 0.25 point to 0.375 point on a dollar-neutral, or hedged, basis even though the underlying shares of the Foster City, Calif.-based biopharmaceutical company were up slightly on Thursday.

SanDisk Corp.'s 1.5% convertibles remained active in trade on Thursday and were steady to a little lower outright as shares slipped further after the Milpitas, Calif.-based memory chip maker cut guidance Wednesday.

Elsewhere, Central European Media Enterprises Ltd.'s 5% convertibles due 2015 came in a bit amid no specific news, with the underlying shares down 5.5%.

Alpha Natural Resources Inc.'s 3.25% convertibles were down 0.5 point to 89.75 with the underlying shares of the Abingdon, Va., coal producer down 4%.

"There was nothing particularly interesting," a sellsider said of the convertibles market. "It was an uneventful week." However, he said that market players are anticipating a potential calendar starting next week.

A second source said his firm had a couple of deals in the pipeline but nothing imminent.

The U.S. primary market was quiet for a second straight week, with the last new issue being the Cenveo Inc. $75 million of 7% convertibles that priced March 23.

Renewed concerns about European credit woes put a damper on U.S. markets this week. But despite the weight and the fact that valuations have come in a little bit for convertibles in the past few weeks, valuations were still considered fair, and not inspiring for potential players to buy.

"It's tough. There are pockets of interest, but if stocks rally and vol. comes in more, there's still a lot of stuff that gets hurt on the upside," a New York-based analyst said.

L-3 steady with shares lower

L-3's 3% convertibles due 2035 traded steady on Thursday at about 97.75, which was little changed to just marginally lower on Friday as the underlying shares fell, a sellsider said.

The bonds are pretty much in the same place with the stock down, he said.

Shares of the Broomfield, Colo.-based fiber communications services provider ended the session down 42 cents, or 5.5%, to $7.23.

"Guys set up on swap are selling to outright buyers, who are standing there paying the price without nuking down," a sellsider said during the session.

Swap players were sellers and collecting profits as their hedges were moving down, he explained.

The delta at which the L-3 bonds trade fell to the 5% to 10% range, from 10% to 20%, sources said.

Gilead slips on hedge

Gilead's three convertible bond issues were active in the past week and were collectively down on a hedged basis by about 0.375 point, according to one New York-based trader of the name.

A second source said the bonds were down between 0.215 point and 0.25 point.

Gilead's shorter-dated 0.625% convertibles due 2013, or the B convertibles, ended the day at 130.5 bid, 131 offered versus the closing share price of $47.76. Earlier they had slipped to 129.75, which was down from 132.375 earlier in the week.

Gilead's 1% convertibles due 2014, or the C convertibles, ended the session at about 120.5, which was down from 122 on Wednesday and down about 0.25 point on a dollar-neutral basis for the week, a New York-based analyst said.

Gilead's 1.625% convertibles due 2016, or the D convertibles, were down to 127.25 from 127.75.

The investment-grade name is held by a lot of outright players, but there is hedged interest in the name, the analyst said.

Central European comes in

Central European Media's 5% convertibles due 2015 traded at 81 bid, 81.25 offered on Thursday, down from 81.75 bid, 82 offered on Wednesday.

Shares of the broadcaster, which operates television channels in places such as Romania and the Czech Republic, fell 42 cents, or 5.5%, to $7.23.

There was no news on the company on Thursday, a New York-based trader said, "But European exposure will get ya every time."

An analyst noted that Central European Media has a big investor in Time Warner Inc., so market players see the American company providing a form of backstop to the European company on the downside.

"Time Warner will step in to offer support to protect its investment," the analyst said.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Central European Media Enterprises Ltd. Nasdaq: CETV

Gilead Sciences Inc. Nasdaq: GILD

L-3 Communications Holdings Inc. NYSE: LLL

SanDisk Corp. Nasdaq: SNDK

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