Convertibles see thin volumes; LDK, Take-Two trade higher; Transocean firms; Hertz eases

By Rebecca Melvin

New York, June 26 - The convertible bond market was mostly quiet on Friday amid "very, very light volumes," with investors willing to sell into bids and buyers focusing on investment-grade names of shorter durations, trading sources said.

"There's nothing moving too much. Things are trading pretty much in line, with a little flight to quality going on," a New York-based sellside trader said.

Safety has crept back into play as markets waver following large run ups since spring.

In addition, the specter of an upcoming redemption date may have played a role. It wasn't clear if recent selling pressure was about profit taking or redemptions, the sellsider said. "But I think it was a little bit of both."

That said, there were names in trade that looked stronger. LDK Solar Co. Ltd. regained ground in trade Friday after easing early in the week. One sellsider said a positive research report this week was behind the strength.

The recently issued Take-Two Interactive Software Inc. 4.375% convertible senior notes due 2014 were higher, trading at 110 versus a share price of $9.40 on Friday, compared to 103.75 versus a share price of $8.75 on Monday. The stock move was up 7%.

Meanwhile, there was a large buyer of Transocean Ltd.'s 1.625% convertible due 2037 in the Street, with players selling into it, sources said.

Hertz Global Holdings Inc. convertibles eased a bit Friday after driving all the way up to 114.5 following the rental car company's improved outlook and options to address its fleet refinancing needs that were presented on Thursday.

Looking ahead, Alliance One International Inc. was expected to sell $100 million of convertibles on Monday. The company's earnings look pretty good, but the issue size represents one-third of its market cap, a New York-based sellsider observed.

Redemption date looms

An impending redemption date, coming up at the beginning of the coming week, was seen as a factor squelching liquidity. Possible redemptions have put some pressure in the market, "but I think it's going to pop after that," a sellsider said.

Given the pressure in the market seen earlier in the week and the lack of liquidity, convertibles players weighed whether redemption selling or profit taking was more to blame.

"It's hard to know, but people have made so much money, I think they want to protect their gains this year, especially after last year," the sellsider said.

Given the lack of liquidity, both buyers and sellers have been able to push the market one way or the other in recent days fairly easily. Selling pressure really started about two weeks ago.

But on Friday there was little direction. In the summer, "Friday after 11 a.m. is really not worth your time," the sellsider said.

Transocean has big buyer

Transocean 1.625% series A convertibles due 2037 traded as high as 95.875 on Friday, which was down 0.75 point outright from 96.625 on Thursday. Its common stock price ended flat to lower at $75.88.

Earlier in the week, the Transocean As were at 95 against a common stock price of $73.50.

On Friday, the Transocean 1.5% series B convertible due 2037 was at 91.75 and the Transocean 1.5% series C convertibles due 2037 were at 88.5.

Transocean is a Vernier, Switzerland-based offshore contract drilling company.

On Thursday, Goldman Sachs upped its ratings on Transocean, Cameron International Corp., Diamond Offshore Drilling Inc., and FMC Technologies Inc. in anticipation of the next up-cycle in fundamentals affecting oil-related names.

The brokerage anticipates that offshore drillers and oil service companies will regain pricing power as oil prices trend higher.

Hertz eases

Hertz's 5.25% convertibles due 2014 traded up to 114.5 versus a share price of $8.00 on Friday, according to a sellside trader. But the paper was seen lower at 110.5 later in the session, compared to 112 on Thursday.

Shares of the Park Ridge, N.J.-based car rental company fell mid session, in heavy volume, but came back toward the end of the day, to end flat to lower at $8.08. The stock had surged 16% on Thursday on a rosier outlook for rental car companies, which are poised to benefit from the crimp in consumer spending that has vacationers staying closer to home rather than booking expensive flights to faraway places.

In addition, the company says it wants to preserve corporate liquidity for growth initiatives, and regarding its 2010 fleet maturities, it's working to negotiate with lenders of its existing variable funding structures in the United States and Europe to improve terms in order for term extensions.

Additionally, the company is considering the possibility of using the government's Term-Asset-Backed Securities (TALF) loan facility and is pursuing other strategies, including OEM financing and talking to lenders about asset-based loan transactions.

Hertz has available liquidity to cover its 2009 fleet maturities, company executives said.

As of March 31, Hertz had $3.6 billion of available fleet financing in addition to the $1.8 billion of corporate liquidity for total liquidity of $5.4 billion.

Mentioned in this article

Alliance One International Inc. NYSE: AOI

Hertz Global Holdings Inc. NYSE: HTZ

LDK Solar Co. Ltd. NYSE: LDK

Take-Two Interactive Software Inc. Nasdaq: TTWO

Transocean Ltd. NYSE: RIG

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.