Nortel active holds gains; Clearwire premium comes in after upgrade; RadioShack at 100.5

By Rebecca Melvin

New York, July 5 - Nortel Networks Corp.'s two convertible bond issues held gains notched Friday and traded actively in the 95 bid, 95.5 offered context on Tuesday, the first trading day of the week following the July 4 holiday.

The two Nortel bonds - which were heard trading on distressed desks, rather than on convertible desks - jumped from a prior level of 91 bid, 92 offered on news last week of a patent auction won by a whopping $4.5 billion cash bid from a group of technology companies led by the likes of Apple Inc. and Research in Motion Ltd. for Nortel's intellectual property assets, a portfolio of rights to wireless and internet technologies.

Clearwire Corp. traded higher outright but came in about a point on a premium-over-parity basis as the company's shares moved higher on an upgrade by Credit Suisse, a New York-based desk analyst said.

RadioShack Corp. traded at 100.5 outright. Shares of the Fort Worth-based consumer electronics retailer, which slide sharply earlier in the month, gained nearly 1% on Tuesday.

SM Energy Co. was on the radar screens of some traders Tuesday, but not heard in trade as shares of the Denver-based oil and gas company rose early amid higher oil prices.

Overall, the convertibles market was muted as many players extended the holiday weekend and remained away from their desks.

"A lot of people out today," the desk analyst said.

Equities were also fairly quiet in thin volume and following last week's blowout in which indexes notched their best week in two years. There was some downward pressure related to the move by Moody's Investors Service to downgrade Portugal's debt to "junk" status, putting a tiny dent in the U.S. stock market.

Moody's cut Portugal's long-term debt rating four notches, to Ba2, junk-bond territory, from Baa1. It also downgraded Portugal's short-term debt rating, to Not-Prime from Prime-2.

Meanwhile Standard & Poor's has been saying that a debt rollover of Greek debt, which has been discussed, would count as a selective default, which is better than a full default, but condemning nevertheless.

Amid persistently light volume and low liquidity, convertible arbitrage players "have been bottom feeding and dipping their toes in, while some outright investors have been taking profits as share prices rise," Citigroup's convertibles trading desk said in commentary published Friday.

"Higher beta names have generally outperformed, with names like Cemex SAB de CV up roughly 1.5 points dollar neutral [last] week, while the in-the-money vol. names have lagged," the Citi commentary said.

The Citi report also said "convertibles have been highly correlated to other risk assets, following the tone set by the macro environment. Though convertibles underperformed the broader rally ahead of the successful Greek vote on austerity measures, the asset class rallied in line with the move in the equity and credit markets since."

Nortel holds gains

Nortel Networks' 2.125% convertible senior notes due 2014 traded at 95.5 on Tuesday, which compared to 95.25 around midday on Friday.

Nortel Networks 1.75% convertible senior notes due 2012 traded at 95.375, which compared to 95.625 around midday on Friday at 12:18.

The convertibles had hit a high around 97-97.5.on Friday but ended up 4 or 5 points on the day.

News that made the whole complex better was word that the technology group led by Apple joining rivals RIM and Microsoft had outbid Google Inc. for the bankrupt Canadian telecommunications equipment makers' patents.

Google had made an original stalking horse bid on the patents of $900 million in April. The Nortel convertibles were active and in the 96 to 97 range, sources said.

Nortel's 10.75% notes due 2016 and 10.125% notes due 2013 jumped an even greater 10 points to 11 points on Friday to a 107-108 context from Thursday's closing levels around 96 bid, 97 offered.

After peaking round 107, a bond trader said that those bonds were "settling in" around 105 bid.

Clearwire premium in a point

Clearwire's 8.25% convertibles due 2040 gained outright Tuesday, trading up to 91.5 versus an underlying share price of $4.00. That compared to a Friday's 89 versus a share price of $3.75. In mid April, the convertibles had been at 114.

Shares of the Kirkland, Wash.-based wireless broadband services provider gained 9 cents, or 2.3%, to $3.91 in active trade. Earlier in the session the shares had been up about 5%.

The convertibles were in about a point on Monday to 35 points of premium over parity, which is how the bonds are supposed to behave when the shares rise. Conversely, the bonds should widen as shares move lower.

Credit Suisse raised its rating on the shares to "outperform" from "neutral," saying that the company's negotiations with Sprint-Nextel should add significant value for both Clearwire and Sprint.

Sprint owns 54% of Clearwire, which provides Sprint with its 4G cellphone service. There has been much speculation of late over whether Sprint would continue its arrangement with Clearwire, or seek another option for 4G. Clearwire is expected to require billions of dollars of funding to complete the buildout of its wireless network.

Mentioned in this article:

Clearwire Corp. Nasdaq: CLWR

Nortel Networks Corp. Pink Sheets: NRTLQ

RadioShack Corp. NYSE: RSH

SM Energy Co. NYSE: SM

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