Convertibles weaker; AMR, UAL lag with equities; SunPower, Suntech Power mostly steady

By Rebecca Melvin

New York, Nov. 19 - Convertibles succumbed to some weakness Thursday, pulled lower by a sell-off in equities. But convertibles were mixed on a dollar neutral basis, with a few names better and other lower, market players agreed.

Airlines were pretty active, with some notable weakness amid discouraging economic data and a coincidental FAA computer glitch that caused widespread flight cancellations and delays across the United States.

AMR Corp.'s 6.25% convertibles ended the session down about 1.5 points as its shares lost 3.8% to $5.55. UAL Corp. convertibles were also in trade at prices that appeared to be little changed from previous levels.

Meanwhile, earnings from a couple of solar power names encouraged trade in the convertibles of that sector. The activity marked a continuation of focus after SunPower Corp. was roiled Monday by an investigation of accounting errors that was undertaken by that San Jose, Calif.-based solar module maker.

Since then the SunPower convertibles have been gradually recovering.

Suntech Power Holdings Co. Ltd. convertibles were up a point, but flattish to lower on a dollar neutral basis, after the Chinese solar company reported better-than-expected third-quarter earnings and its shares gained.

"There's not a whole lot to say about the solar space given where prices are right now," a Connecticut-based sellside trader said. "These companies are making flat to almost negative margin producing solar panels. They just have to conserve cash."

Meanwhile, Ford Motor Co. retraced some its recent gains to trade at 111.5 versus a share price of $8.65; but Advanced Micro Devices Inc.'s two convertible bond issues held steady after jumping Wednesday when the Sunnyvale, Calif.-based computer technology company announced it had begun a cash tender for its 5.75% convertibles due 2012.

Overall, convertibles saw some weakness. But there was not an overwhelming amount of selling, sources said.

"There weren't a lot of sellers. I'd say it was 50-50, very mixed," a New York-based sellside trader said. "Some names were better dollar-neutral."

In stocks, the Dow Jones Industrial Average settled off its lows but still down 94 points, or almost a percentage point, at 10,332.44.

The S&P 500 index ended down 15 points, or 1.3%, at 1,094.90; and the Nasdaq Stock Market fell 36 points, or 1.7%, to 2.156.82.

In the primary market, DryShips Inc. was expected after the market close to price $300 million of five-year convertible notes, but terms were not available by 6:45 p.m. ET.

SunPower steadies

SunPower 4.75% convertibles due 2014, which contracted about 3 points on accounting woes earlier in the week, had rallied back to finish down about a point dollar neutral on that day. Since then the paper has slowly recovered.

On Thursday, the SunPower 4.75% convertibles traded up about 0.6 point at 107.72, compared to a trade at 107.089 versus a share price of $22.03 on Wednesday.

The SunPower 1.25% convertibles due 2027 "were definitely hanging in there," a sellsider said. They traded at 84.54, which was little changed despite shares that were lower by 62 cents, or 2.8%, at $21.46.

Meanwhile, Suntech Power's 3% convertibles due 2013 were seen around 76 versus a share price of $15.99 at the close. The paper gained about a point compared to the underlying shares that were up 90 cents, or 6%.

Suntech Power reported better-than-expected results for its third quarter.

"Generally speaking, it was pretty positive," a sellsider said of the sector's recent earnings report. "Any profit in these companies is a big positive. Any profit that they can eke out is good because these companies are in a tight spot because of pricing [of raw materials]," a sellsider said.

There has been a good amount of activity in the stronger credit names, the sellsider said, labeling Suntech and SunPower as those better names.

"SunPower showed it could raise money. That was good," the sellsider said. "They are first behind First Solar, which doesn't have a convert."

Trina Solar Ltd. also posted a better-than-expected third-quarter profit and said that demand was expected to be stronger in the fourth quarter.

The Trina 4% convertibles due 2013 traded up a couple of points to 140.5, but those convertibles are so far "in the money" that they are no longer interesting to most convertibles players.

"The stock is an animal. I can't really explain why it is so strong," a sellsider said. But the borrow is tough, and the bonds are trading in points over parity.

Parity is 130, he said, and they are "probably trading inside of break even."

Trina posted a profit of $40.1 million, or $1.29 per American Depositary Share, compared with a net profit of $18.9 million, or 71 cents per ADS, a year ago.

Net revenue dropped 14% to $249.7 million, which was better than the $216.3 million analysts had been expecting.

For the full year 2009, Trina expects total PV module shipments to be between 380 MW and 400 MW, compared to its earlier view of between 350 MW and 400 MW.

It repeated its expectations of reducing manufacturing costs by 15% to 20% in the year. The company also said it expects to achieve a total annualized cell and module production capacity of between 850 MW and 950 MW by the end of 2010.

AMR, UAL weaker

AMR's 6.25% convertibles due 2014 were down about 1.5 points at 84.5 versus a closing share price of $5.55. Earlier the paper traded at 85 versus a higher share price of $5.75. That compared to 86 versus a share price of $5.77 previously.

UAL's 5% convertibles were heard changing hands at 88 versus a share price of $7.15. UAL's newer 6% convertibles due 2029 were at about 101, which was little changed on the day.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

AMR Corp. NYSE: AMR

DryShips Inc. Nasdaq: DRYS

Ford Motor Co. NYSE: F

SunPower Corp. Nasdaq: SPWRA

Suntech Power Holdings Co. Ltd. NYSE: STP

Trina Solar Ltd. NYSE: TSL

UAL Corp. NYSE: UAL

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