Liquidity continues to lag in convertible space; SL Green busy post-earnings; SanDisk eyed

By Stephanie N. Rotondo

Seattle, Jan. 29 – The recent volatility in the stock market continued to weigh on activity in the convertible bond market on Friday, a trader said.

“Accounts are... the market has ‘shock and awe’d’ them,” the trader said. “Guys are just sitting around; they don’t know what to do. They are afraid to put their toe in the water.”

The trader added that many players have said they would be willing to wade in if things bounce back but “stuff isn’t really bouncing back.

“Customers are out of ideas,” he further noted. “They will trade a name if there is news out; otherwise, there is nothing to do.”

That theory seemed to have merit in regards to Friday trading, as SL Green Realty Corp. was busier than most following the release of the real estate investment trust’s earnings late Thursday.

A market source placed the 3% convertible notes due 2017 at 126.6 against a stock price of $97.11 toward the end of the day. Earlier in the session, a trader saw the notes trading at 124.75 versus a stock price of $95.93.

The stock closed at $96.61, up $3.19, or 3.41%.

For the fourth quarter, the company posted adjusted funds from operations of $1.62 per share. That was above Zacks Consensus estimate of $1.61 per share and up from $1.45 a share the year before.

Net rental revenue improved by 8.8% to $320 million. That figure, however, came below Zacks Consensus estimate of $353 million.

SanDisk rally continues

SanDisk Corp. meantime continued to be on the active side, a trend that has been in place all week. The paper was on the rise in the wake of the company’s earnings release on Wednesday and new reports indicating its takeover by Western Digital would be completed by the end of June.

The 0.5% convertible notes due 2020 traded up to nearly 103 at a stock price of $70.85, a gain of about 1.5 points. The 1.5% convertible notes due 2020 improved about 5 points to a 150 handle against an equity price of $71.34.

At mid-morning, the 1.5% convertible notes were pegged at 148.5 in early trading, while the 0.5% convertible notes due 2020 were seen at 102.25 against a stock price of $69.00.

A trader noted that the stock was up “$2 and change” early in the day.

The stock closed up $3.45, or 5.13%, at $70.70.

On Wednesday, SanDisk reported earnings of $135.5 million, or 65 cents a share, down from $201.9 million, or 86 cents per share, in the year-earlier period. Excluding restructuring and other items, earnings fell to $1.26 from $1.30. Revenue fell 11% to $1.54 billion.

Analysts expected earnings of 89 cents per share on revenue of $1.44 billion.

Last October, Western Digital agreed to buy SanDisk for $19 billion in cash and stock, or $86.50 per share, representing a premium of about 15% to SanDisk’s closing share price on Oct. 21. Credit Agricole said if Unisplendor reneges on its Western Digital deal, then the merger with SanDisk would require approval from Western Digital shareholders.

Mentioned in this article:

SanDisk Corp. Nasdaq: SNDK

SL Green Realty Corp. NYSE: SLG

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