Cemex adds 0.5 point delta neutral; Kodak poised ahead of ITC ruling; Superior Energy up

By Rebecca Melvin

New York, June 30 - The convertible bond market was higher Thursday and pretty busy for the day before a long holiday weekend. Paper was better bid ahead of quarter end and in tandem with higher equities that rallied for a fourth straight day.

"Quarter end was supporting activity," a New York-based trader said. And marking books was the task at hand Thursday afternoon, with traders hoping that generally poor results for June would be balanced out by April and May.

Cemex SAB de CV was up by better than half a point delta neutral during the session, as a bounce back in that stock continued early on. Shares later faded into the close.

Eastman Kodak Co.'s convertible traded around 88 during the session as the Rochester, N.Y.-based digital photography company awaited a ruling by the U.S. International Trade Commission on its patent infringement case against Apple Inc. and Research in Motion Ltd. expected after the market close.

A decision in the case did come as expected after the close, but contrary to the expectations of many the ITC decision was mixed. It affirmed in part a commission judge's earlier decision that Apple and RIM did not infringe on Kodak's patented technology; it reversed part of that decision, and it remanded part of the decision. The split decision sent Kodak shares down 17% in after-hours trade.

Superior Energy Services Inc.'s convertibles traded at 102.25 versus an underlying share price of $37.40, which as up from Wednesday, as shares of the New Orleans-based oilfield services and equipment company traded up about 1% on the day.

The short-dated Superior convertibles, which have six months left until they are callable Dec. 15, were maybe getting a little ahead of themselves, with a New York-based sellsider doubting that Thursday's level was sustainable.

He said the paper was more attractive on Wednesday than on Thursday "by a lot."

NuVasive Inc.'s 2.75% convertibles due 2017, which slipped below par on their debut in the convertibles market earlier this month, traded at 104.5 versus an underlying share price of $35.00.

Brookdale Senior Living Inc., which also priced new convertibles this month, saw its 2.75% convertibles due 2018 pretty steady at nearly 103.

Microchip Technology Inc.'s 2.125% paper traded last at 97.5 according to Trace data, which was up 0.125 point on the day.

Although month end activity boosted early trading, nevertheless, the convertible bond market quieted down into the close, sources said.

Stocks were higher for a fourth consecutive day as Greek lawmakers passed a second austerity bill that assuaged concerns that a default has been held at bay for now. In addition there was some mixed to positive data about the U.S. economy that cheered markets.

For example, the Chicago purchasing managers index unexpectedly rose in June, climbing to a 61.1% reading, which was above the 55% forecast.

For the quarter, the Dow Jones Industrial Average ended with a 0.8% gain, but the S&P 500 index was off 0.4% for the last three-month period and the Nasdaq Stock Market ended the period down 03%.

Light volumes prompt concerns

To make matters worse, the sluggish performance was on light volume and has put Wall Street on edge about possible cutbacks of personnel. Some like Goldman Sachs & Co. have already disclosed that they plan to lay off 230 employees in New York beginning at the end of September.

Convertibles trading desks in general should be relatively secure since they have already been trimmed back hard.

"There may be some small players that go away but in a sort of countercyclical manner, sometimes second tier broker dealers use these periods as opportunities to hire people a little more cheaply," one New York-based trader said.

Cemex improving

Cemex's 3.25% A tranche convertibles due 2016 traded up to 99.5 versus a share price of $8.65 on Thursday.

The premium on the Cemex A bonds is 24.4%, or 19 points, a New York-based sellside desk analyst said.

The Cemex 3.75% B tranche convertibles due 2018 were seen at about 99.25, compared to 96 versus a share price of $8.30 on Tuesday.

And the Cemex 4.875% convertibles due 2015, which are the older convertibles, were seen at nearly 99 after having pushed up Wednesday to 98 versus a share price of $8.60.

"The As and the Bs did better today, and the old one pushed up yesterday," a Connecticut-based sellside trader said.

The American Depositary Shares of the cement producer based in Monterrey, Mexico, closed at $8.60, which was actually off 3 cents in contrast to strength earlier in the session. But the ADS have in general rebounded from weakness in the middle of June.

"The stock has bounced back and the bonds are cheap now," a Connecticut-based sellside trader said.

Mentioned in this article:

Brookdale Senior Living Inc. NYSE: BKD

Cemex SAB de CV NYSE: CX

Eastman Kodak Co. NYSE: EK

NuVasive Inc. Nasdaq: NUVA

Microchip Technology Inc. Nasdaq: MCHP

Superior Energy Services Inc. NYSE: SPN

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