Yahoo! says Yippee; Intel up on earnings; SanDisk rides tech wave; Countrywide down; CIT coming to play

By Evan Weinberger

New York, Oct. 17 - Yahoo! Inc. and Intel Corp. led the way as tech stocks and convertibles had a positive day on positive earnings reports.

SanDisk Corp. was able to catch that passing wave and ride it up as well.

Countrywide Financial Corp., the leader in the struggling mortgage sector, took a beating as the costs of its layoffs emerged Wednesday. Sciele Pharma Inc. was also down.

Equity markets were mixed Wednesday, although they took winding roads to get to their destination for the day. The Nasdaq was up on the Yahoo!, Intel and International Business Machines Corp. earnings reports. The Dow Jones Industrial Average was down on a further slowdown in housing starts, modestly rising consumer prices and Standard & Poor's downgrading $23.25 billion in mortgage-backed securities.

The Dow lost 20.40 points, or 0.15%, to close at 13,892.54. It had been down more than 100 points earlier in the day.

The Nasdaq added 28.76 points, or 1.04%, to close at 2,792.67. And the S&P 500 gained 2.71 points, or 0.18%, for a 1,541.24 close.

The New Issues Fairy left $600 million in senior unsecured mandatory convertible units due Nov. 15, 2015 Wednesday before the market open, one day after a trader called for an increase in new issues. The mandatories from issuer CIT Group are talked at a coupon of 7.5% to 8% and an initial conversion premium of 17.5% to 22.5%.

There is a $90 million greenshoe. The mandatories are scheduled to price Wednesday after the market close.

Holders of the new CIT mandatories will be required to purchase CIT common stock by Nov. 17, 2010. The mandatories have call protection for life and there are no puts. There are standard takeover and dividend protections.

The mandatories will be issued in $25 units.

CIT is a New York-based commercial and consumer finance company. CIT plans to use the proceeds of the deal for general corporate purposes.

"It's good to see a new issue," one analyst said.

Yahoo! surges on modest expectations

Sunnyvale, Calif.-based internet services provider Yahoo! lost 5% in the third quarter of 2007 compared to the third quarter of 2006. That, however, was a big win in investors' eyes for the company's new/old chief executive officer, Jerry Yang. Wall Street analysts had expected third-quarter earnings to come in even worse, according to Thomson Financial.

Yahoo!'s stock and its convertibles moved up at broadband speed Wednesday after Tuesday night's announcement.

Yahoo!'s zero coupon convertible senior notes due April 1, 2008 closed Wednesday at 141.5 versus a closing stock price of $28.82. They closed Tuesday at 131.375 versus a stock price of $26.69.

Yahoo! stock (Nasdaq: YHOO) surged $2.13, or 7.98%, on Wednesday.

Intel earnings spark convertibles

After the market close Tuesday, the world's largest semiconductor maker, Intel, announced that its third-quarter profits climbed 43%. After a down day Tuesday in preparation of the earnings report, which beat Wall Street estimates, the stock and convertibles were both up Wednesday.

Intel's 2.95% junior subordinated convertible notes due Dec. 15, 2035 closed Wednesday at 105.5 versus a closing stock price of $26.72. They closed Tuesday at 102.375 versus a stock price of $25.48.

Santa Clara, Calif.-based Intel watched as its stock (Nasdaq: INTC) added $1.24, or 4.87%, on Wednesday.

SanDisk rides the wave

Milpitas, Calif.-based SanDisk doesn't report its earnings until Thursday after the close. That didn't stop its stock and convertibles from riding the positive wave generated by Intel and Yahoo!

The data storage producer's 1% convertible senior notes due May 15, 2013 closed at 89.1736 versus a closing stock price of $49.07. They closed Tuesday at 88.1263 versus a stock price of $47.

SanDisk stock (Nasdaq: SNDK) added $2.07, or 4.40%, on Wednesday.

Little sizzle in CIT deal

CIT Group announced its third-quarter earnings Tuesday after the market close, and the report wasn't what analysts had hoped. Due to $465.5 million in losses linked to mortgages, the company reported a loss of 24 cents per share, or a total $46.3 million loss for the quarter. Analysts had expected a rise of $1.24 per share. During last year's third quarter, CIT had a net income of $1.44 per share, or $290.8 million, for the quarter.

With the third-quarter losses as a backdrop, CIT announced the launch of 24,000,000 senior unsecured mandatory convertible units due Nov. 15, 2015. The units, which will be valued at $25 per share, will come to a total of $600 million. There's also a $90 million greenshoe.

With a coupon talked at 7.5% to 8% and an initial conversion premium of 17.5% to 22.5%, one analyst said he was looking for the convertibles to come in square in the center of the range. "Fair value, I think. It looks OK, at the mids," he said.

Analysts, traders and fund managers contacted by Prospect News all agreed that the CIT convertibles would be more attractive to outright investors than to those playing a hedge. Credit doesn't play a huge factor in mandatories, one of the analysts said.

Given the state of the financial services sector due to the mortgage meltdown, a fund manager said that he was going to wait and monitor the mandatories and CIT stock before doing anything. "Like many financials CIT has long-term upside but short-term uncertainty," the fund manager said. "It is quite possible that the stock has another leg down and a mandatory has little downside protection."

CIT stock (NYSE: CIT) tumbled $2.14, or 5.77%, to $34.98 Wednesday after its earnings announcement.

A trader said that CIT stock is where the action will be later. The trader said he'd "rather scoop up the common on today's sell-off - this company gets sold within a year to a money center bank."

CIT's mandatories are set to price Wednesday after the market close.

Countrywide smacked

Calabasas, Calif.-based Countrywide has been a sort of weathervane for mortgage lending-linked convertibles. The weather surrounding Countrywide was decidedly stormy Wednesday. America's largest mortgage lender announced that it will have to pay out between $125 million and $150 million related to its slashing of 12,000 jobs in early September.

Countrywide has been hammered in the subprime mortgage crisis, and the company's stocks and convertibles slumped again Wednesday.

Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Wednesday at 89.513 versus a closing stock price of $17.35. The convertibles closed Tuesday at 90.314 versus a stock price of $18.09.

The steeper loss came in Countrywide's Libor minus 225 bps series B convertible senior debentures due April 15, 2037, which finished Wednesday at 86.75 versus a stock price of $17.35. They closed Tuesday at 89.4072 versus a stock price of $18.09.

Countrywide stock (NYSE: CIT) sunk 74 cents, or 4.09%, on Wednesday.

After the market close, it emerged that the Securities and Exchange Commission is investigating Countrywide CEO Angelo Mozillo's sale of Countrywide stock.

Sciele slips

Atlanta-based pharmaceutical company Sciele Pharma saw its 2.625% convertible senior notes due May 15, 2027 slip to 113.952 versus a closing stock price of $27.48 Wednesday. The convertibles closed Tuesday at 114.705 versus a stock price of $27.77.

Sciele stock (Nasdaq: SCRX) slipped 29 cents, or 1.04%, on Wednesday.

An analyst said the Sciele convertibles have been active in recent weeks as investors take another look at warrant structures.

© 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.