SanDisk moves up on positive earnings; Old Nuance opens up; Investment-grade names active

By Rebecca Melvin

New York, Oct. 21 -SanDisk Corp. gained in the convertible bond market on Friday and was a top volume trader after the flash memory maker reported lower earnings that beat estimates and a 15% increase in revenue.

The older Nuance Communications Inc. 2.75% convertibles due 2027 regained ground after slipping on a dollar-neutral basis when the Burlington, Mass.-based speech and imaging technology company launched and priced a $600 million issue of convertibles earlier in the week, also with a 2.75% coupon.

The new Nuance 2.75% convertibles due 2031 traded at 105.25 versus an underlying share price of $25.00 on Friday.

Mostly the market was quiet, with the usual high-grade benchmark names like Medtronic Inc., EMC Corp. and Archer-Daniels-Midland Co. making up the bulk of market action, sources said.

"It's very slow as investors await clarity on Europe....Convertibles look to be unchanged dollar neutral despite a rally in equities," one sellsider said.

Other's concurred. "....players do not want to take risk going into the weekend," a New York-based sellsider said.

Meanwhile, equities surged as it looked more likely that European leaders will be able to hammer out a credible plan to protect the fragile banking system there. The announcement of a second summit meeting on Wednesday raised expectations of a positive outcome.

Sources also mentioned that action might be muted by the Jewish holiday Simchat Torah, which began on Thursday.

Looking ahead, convertibles players will be focused on a full slate of earnings news, with biotech giant Amgen Inc. set to report earnings on Monday.

At about midsession, the Amgen 0.375% convertibles due 2013 traded at 98.8, which was up 0.10 point, according to Trace data.

Next Tuesday, convertible stalwarts report such as Omnicare Inc., Life Technologies Corp., Human Genome Sciences Inc. and Peabody Energy Corp.

The busy earnings week follows on essentially a warm up seen this week, in which EMC Corp., Textron Inc., Supervalu Inc. and Alliance Data Systems Corp. all surprised to the upside, Citigroup's convertibles market weekly pointed out.

In the primary market, Regeneron Pharmaceuticals Inc. placed a deal in addition to the Nuance deal, for a total of $1 billion in new issuance in the market this past week.

The new 1.875% Regeneron convertible was repriced at 98 and slipped from there, hurt by stock borrow problems on the convert arb side and probably its low coupon on the outright side, a New York-based analyst said.

Regeneron ended the week about 3 points below par.

SanDisk jumps

SanDisk's 1.5% convertibles due 2017 were seen trading at 117.339 on Friday, which was up about 5 points, according to Trace data.

SanDisk's 1% convertibles due 2013 traded at about 98.5.

Shares of the Milpitas, Calif.-based NAND flash memory products maker rose $4.26, or 9%, to $49.76 in heavy volume on Friday.

"The short ones are trading with a 98 handle," a trader said regarding the 1% convertibles due 2013. "Somebody must think these are very money good," a sellside trader said.

The memory-chip maker reported late Thursday third-quarter adjusted earnings of $292 million, or $1.20 a share, which was down from $311 million, or $1.30 a share, for the third quarter a year ago, but better than the $1.07 expected consensus average.

SanDisk reported revenue of $1.42 billion for its third quarter, up 15% and matching expectations of $1.42 billion.

The company said revenue in the current quarter would be between $1.5 billion and $1.6 billion. Analysts on average expect $1.58 billion.

Old Nuance regains

Nuance's older 2.75% convertibles due 2027 were said to have lost about 0.5 point on a dollar-neutral basis after the launch and sale of new 2.75% convertibles, and on a roughly 8% stock price move.

But the older bonds were improving on Friday, a sellside trader said.

"The olds look like they came in, but they are starting to open up again," the trader said, describing the older issue as a decent convertible arbitrage play with a low premium and decent volatility and a good credit.

Initially on the new deal, outright holders were selling the older bonds to buy the new ones, but now hedged players are buying them and the better bid is lifting the price, he said.

"It's a supply and demand situation," he said.

The new Nuance 2.75% convertibles due 2031 traded at 105.25 versus an underlying share price of $25.00 on Friday. The issue had been quoted at plus 0.5 to plus 2 points in the gray market ahead of pricing.

Mentioned in this article:

Alliance Data Systems Corp. NYSE: ADS

Amgen Inc. Nasdaq: AMGN

Archer-Daniels-Midland Co. NYSE: AMD

EMC Corp. NYSE: EMC

Human Genome Sciences Inc. Nasdaq: HGSI

Nuance Communications Inc. Nasdaq: NUAN

Life Technologies Corp. NYSE: LIFE

Medtronic Inc. NYSE: MDT

Omnicare Inc. NYSE: OCR

Peabody Energy Corp. NYSE: BTU

Regeneron Phamaceuticals Inc. Nasdaq: REGN

SanDisk Corp. Nasdaq: SNDK

Supervalu Inc. NYSE: SVU

Textron Inc. NYSE: TXT

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