BofA, WaMu up on bargain hunting, Citigroup slips; Sallie Mae up; Kellwood gives in, convertibles gain

By Evan Weinberger

New York, Jan. 28 - Bank of America Corp.'s new convertible preferreds were up Monday. The same is true for Washington Mutual Inc.'s convertible preferreds. Traders said investors were looking to get in those deals while they were cheap.

Citigroup's convertible preferreds slipped on the day.

SLM Corp. preferreds were up as the legal fight over the breakup of J.C. Flowers' takeover bid came to an end.

Yahoo! Inc. convertibles slipped in advance of its earnings report Tuesday.

And Kellwood Co. saw big gains as the company announced that it was halting a tender offer meant to stop a takeover bid by a private equity shop.

Trading was light Monday, market watchers said. "It was really dead," one trader said. "Not a lot of action going on in converts today."

A perfect storm of the State of the Union address scheduled for Monday night, the two-day Federal Reserve meeting set to begin Tuesday and the usual end-of-month bookkeeping combined to slow down trading, he added.

No new deals came to market Monday, and none were launched as of press time.

Chiquita Brands International Inc. announced early in the morning plans for convertible senior unsecured notes meant to pay down debt on an outstanding term loan, but no further details were available.

Word that new home sales dropped 26.4% in 2007 only served to feed rate cut hopes Monday and send stock markets higher.

The Dow Jones Industrial Average added 176.72 points, or 1.45%, to close at 12,383.89.

The Nasdaq picked up 23.71 points, or 1.02%, for a 2,349.91 close.

And the Standard & Poor's 500 closed at 1,353.96, an addition of 23.36 points, or 1.76%, on the day.

Bank preferreds move higher

Several convertible preferreds issued by commercial banks moved higher as investors sought value. "People [are] getting involved in some of these commercial banking type names because it's pretty cheap," a trader said.

Charlotte, N.C.-based Bank of America, which priced $6 billion in 7.25% non-cumulative perpetual convertible preferred stock, series L, on Friday, saw the preferreds continue to move up on their second day of trading.

The preferreds closed Monday at 1,061.85 versus a closing stock price of $41.20. They closed Friday at 1,037.97 versus a stock price of $39.48.

Bank of America stock (NYSE: BAC) gained $1.72, or 4.36%, on the day.

Seattle-based savings and loan Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred stock closed Monday at 1,020 versus a closing stock price of $17.01. They closed Friday at 980 versus a stock price of $16.12.

Washington Mutual (NYSE: WM) added 89 cents, or 5.52%, to its stock price Monday.

Citigroup slips

One preferred that slipped a bit was Citigroup's 6.5% perpetual non-cumulative convertible preferred stock.

The preferreds closed Monday at 52.25 versus a closing stock price of $27.65. They closed Friday at 52.625 versus a stock price of $26.64. The preferreds have a par value of 50.

Citigroup stock (NYSE: C) gained $1.01, or 3.79%, on the day.

Sallie Mae up on settlement

SLM, the Reston, Va.-based parent company of student lender Sallie Mae, finally settled its lawsuit against private equity firm J.C. Flowers Monday.

As part of the settlement for the case, which never made it before a judge, Sallie Mae received a $31 billion credit facility from a consortium of banks.

Sallie Mae had sued over the $900 million breakup fee buried in the details of the $25 billion, or $60 per share, agreement reached in April. The deal broke up in December.

"If somebody's reached too far they might not get as much as they hoped for," a market source said of the outcome for Sallie Mae.

Investors were pleased with the outcome, however.

Sallie Mae's 7.25% series C mandatory convertible preferred stock due Dec. 15, 2010 closed Monday at 1,050.62 versus a closing stock price of $20.45. They closed Friday at 1,026.70 versus a stock price of $19.88.

Sallie Mae stock (NYSE: SLM) picked up 57 cents, or 2.87%, on the day.

Yahoo! down ahead of earnings

Sunnyvale, Calif.-based internet services provider Yahoo! will announce its fourth-quarter earnings Tuesday after the close.

Analysts polled by Thomson Financial expect earnings of around 11 cents per share, or around $1.37 billion. That's in line with Yahoo's estimate of $1.31 billion to $1.45 billion.

The question, as always, will be Yahoo's guidance for the coming months.

Investors apparently are not confident that the company's restructuring will go as smoothly as hoped.

Yahoo's zero-coupon convertible senior notes due April 1, 2008 closed Monday at 109.49 versus a closing stock price of $20.78. They closed Friday at 111.485 versus a stock price of $21.94.

Yahoo stock (Nasdaq: YHOO) slid $1.16, or 5.29%, on the day.

Kellwood gives in, convertibles rise

When Sun Capital Securities Group, LLC offered $21 per share for St. Louis-based clothing manufacturer Kellwood on Jan. 16, the company geared up to fight back.

Kellwood announced a $60 million bond tender offer that was meant to raise enough capital to prevent an affiliate of Sun Capital from buying up the 75% of Kellwood stock needed for a takeover. Kellwood had intended to buy back 17% to 18% of outstanding shares.

Sun Capital had one hammer, however. It threatened to lower its purchase price to $19.50 per share if Kellwood didn't rescind its tender offer.

On Monday, Kellwood gave up the ghost and removed any and all impediments to Sun Capital getting the deal done. Kellwood rescinded the tender offer and said that the company would not take a position on the offer, allowing shareholders to make their own decision.

"While it is our strong preference to continue as an independent company, we believe that stockholders should be able to make their own decisions on a $21.00 per share cash offer that is not subject to due diligence or financing," Kellwood chairman, president and CEO Robert Skinner said in a statement.

The deal values Kellwood at $762 million, including debt.

Kellwood authorized Banc of America Securities and Morgan Stanley, its financial advisers, to look for other, higher offers.

Kellwood shareholders have until Feb. 12 to act on Sun Capital's tender offer.

Kellwood's 3.5% convertible senior notes due June 15, 2034 closed Monday at 94.548 versus a closing stock price of $20.30. They closed Friday at 88.53 versus a stock price of $17.10.

Kellwood stock (NYSE: KWD) leaped $3.20, or 18.71%, on the day.

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