Convertibles unsteady; Amgen, Omnicare lower; Cemex firms; Symmetricom buying 3.25% notes

By Rebecca Melvin

New York, May 21 - Some buyers stepped into the convertible bond market Friday after accelerated selling Thursday, but it was too early to tell if the market had regained its equilibrium or not after a damaging week that put stock markets in correction mode.

A late rally in equities Friday pulled the Dow Jones Industrial Average out of correction territory, leaving it down 9% from its peak.

Sources were divided on whether the convertibles market felt firmer.

Some said volume was light and purchasers "mainly picked in small amounts around the edges to add to existing positions."

Others felt the market was still pretty shaky. "People are getting ready to cash the liquid stuff, that's what it seems like to me," a New York-based sellside trader said.

Liquid stalwart Amgen Inc. was a name that lost some price footing, down 0.125 point to 0.25 point on Friday, and down about 0.5 point for the week.

Omnicare Inc. continued lower on Friday, as did NII Holdings Inc. But some names recovered slightly like Cemex SAB de CV, which was up 0.5 point outright in morning trade.

How the broader markets finished off Friday was being closely watched during the session, and was deemed crucial to how trading will go in the coming week. Equities did rally to the finish, leaving the Dow up 125 points, or 1.3%, at 10,193; the Nasdaq Composite index up 25 points, or 1%, at 2,229; and the S&P 500 index up 16 points, or 1.5%, at 1,087.

"You don't want to go home with fear in the market. If you hold gains, and people go home feeling better, then you don't walk in to down 300 [points on Monday]," a trader said.

Uncertainty about the eurozone and debt woes there sparked the latest bout of market losses.

Symmetricom Inc. said in a filing that it was buying back virtually all of its remaining 3.25% contingent convertibles, or about $50 million of the notes, for $51.12 million; and the development raised the question of whether more corporate buyers would step into the market to buy back paper given the level to which convertible prices have dropped.

The week overall was rocky, with quiet trading starting it off, and then selling setting in beginning Wednesday. The volatility kept would-be issuers away, and the market saw no new issues in the past week.

The last new paper included Stanley Black & Decker Inc.'s remarketed issue a week ago and Owens-Brockway Glass Container Inc.'s $600 million issue on May 4, which was the last substantial, widely distributed U.S. paper.

Amgen, Omnicare weaken

Amgen's 0.375% convertibles due 2013 traded last at 99, after having moved between 96 and 100.5 during the session, according to Trace data.

Amgen's 0.125% convertibles, which mature in eight months, traded at 98.6, which was down 0.525 point on the day.

Shares of the Thousand Oaks, Calif.-based biotech giant settled down 50 cents, or about 1%, at $52.44.

Even though Amgen's convertibles were lower, they were still a flight to quality trade, having lost only 0.50 point instead of the 2.5 points that most everything else lost, a trader said.

Nevertheless, they may not be the bonds that bounce back first among those in the convert universe. "There might be a better place to put your money; I don't know. And the next question is what's going to happen with the new issue calendar, and the tenders and calls that are coming. Is paper going away or is there going to be new paper," the trader said.

Omnicare's 3.25% convertibles due 2035 were weaker, trading at 81.375 bid, 81.625 offered, down from 82.5 on Thursday, which was down from 85 on Monday, a trader said.

Shares of the Covington, Ky.-based geriatric pharmaceutical services company ended unchanged on the day at $24.70, in heavier-than-usual trading on the New York Stock Exchange.

Omnicare's credit was 50 basis points weaker on Friday as well, a trader pointed out.

Omnicare also closed on straight debt this week, the trader pointed out.

"If your credit is going to move down, you have to ask yourself, are there better places to put my money. Is there a better credit, with better yield, and less premium than five-year OCR paper," the trader said.

Symmetricom buyback

Symmetricom said it has agreed to buy about $50.4 million of its 3.25% contingent convertible subordinated notes due 2025 in a privately negotiated transaction for a purchase price of $51.15 million, representing the par value plus accrued and unpaid interest.

The purchased notes will be retired and cancelled by the company. Following this purchase, about $6.5 million principal amount of the notes remains outstanding.

It could be a sign that companies are going to come in and put a floor on things, which some viewed as negative if sellers sell too cheaply, while others looked at it positively.

"It's hard for me to see how company buybacks could be a bad sign," a trader said.

Symmetricom's paper doesn't really trade, but it is putable in June 2012 and was last quoted on Trace at 96.

"I don't know any other corporations paying those sort of prices, but I do recall how quickly they jumped in during 2008," a trader said.

Companies are going to start looking at price and duration especially as equities push paper down to par levels, and they are going to make the judgment as to the best use of their cash, a trader said.

In this way issuers can help set a floor for the market, but he said the price paid was not reflective of the market and was an anomaly.

Symmetricom is a San Jose, Calif.-based timing and synchronization hardware, software and services company.

Cemex lifts slightly

Cemex's 4.875% convertible notes due 2015 reversed course, trading at 101 versus a share price of $10.30 after that paper traded down to 100.5 versus a share price of $10.10 on Thursday, and compared to 110 versus a share price of $11.50 a week ago.

The American Depositary Receipts of the Monterrey, Mexico-based cement producer closed up 14 cents, or 1.4%, at $10.15 on Friday.

Cemex priced $715 million of the convertibles in March. On issue, the paper jumped up to 103 and then fell back. But in recent weeks the Cemex convertibles had risen to 110.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Cemex SAB de CV NYSE: CV

NII Holdings Inc. Nasdaq: NIHD

Omnicare Inc. NYSE: OCR

Symmetricom Inc. Nasdaq: SYMM

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