SanDisk, General Cable hold as shares move sharply; AMR, UAL lower; FiberTower up on exchange

By Rebecca Melvin

New York, Oct. 26 - SandDisk Corp. saw its convertibles in trade and holding in Monday as the underlying shares notched sharp gains amid strong volume - especially notable in a down market.

General Cable Corp.'s convertibles held in pretty well despite a weaker stock price after the fiber optic and copper wire maker reported better-than-expected quarterly results, but forecast a drop in fourth-quarter earnings.

FiberTower Corp.'s convertibles rose after the wireless services company announced that it has begun an exchange offer for its 9% convertibles due 2012.

Ambassadors International Inc. was getting a look after the Newport Beach, Calif.-based cruise company extended its exchange offer for its $97 million of 3.75% convertibles into November, and players weighed the likelihood of a sweetener.

Airlines were pretty active in the early going, trading lower with equities, according to a New York-based sellside desk analyst.

AMR Corp.'s 6.25% convertibles due 2014 were seen a couple points lower at about 86 bid, 87.5 offered, versus a share price that dropped 7%.

UAL Corp.'s new convertibles, which priced Oct. 1, traded at 96.696, which was down 2.5 points on the day as its underlying shares settled down 3% at $6.66.

Overall, trading was called quiet and no new issues emerged Monday.

"It's odd that it's this quiet given that we're in the middle of earnings," a West Coast-based sellsider said.

For the week, new issues may generate some buzz, the sellsider said. But there are also additional earnings reports and housing data later in the week.

Convert index slips some

Markit's iBoxx Liquid USD Convertible Bond index slipped Friday to 100.350 after toggling earlier in the week between 101 and 102, according to data provided by Markit Group Ltd., the index's publisher.

After a month's worth of closes, the recently launched convertible index stands at just about where it started, after slipping to a low of just under 98 on Oct. 2, and then edging back to as high as just under 102 on Oct. 15.

SandDisk holds in as shares rise

SanDisk's 1% convertibles due 2013 traded at 79.5, which compared to 79.625 bid, 80.125 last week on Oct. 21.

"It worked the way convertibles are supposed to work," a sellsider said, describing good two-way flow in the name.

Sellers were taking some profits having earlier bought the Milpitas, Calif.-based flash memory maker on an improving credit picture; while buyers stepped in on swap, the sellsider said.

"You'd buy on swap if you think the bond is going to improve as the stock gets higher, and it becomes more of an equity story, which attracts investors," the sellsider said.

It's trading on a 25 to 30 delta on swap because people still consider it a busted name. The paper is still considerably out of the money with its conversion price of $82, compared to the company's current $24 stock price.

General Cable holds in

General Cable's 1% convertibles due 2012 traded at 86.25 and were seen closing lower at 84.81, compared to 86.45 on Friday.

General Cable's 0.875% convertibles due 2013 were seen down at about 93 compared to a previous level of 97.

Shares of the Highland Heights, Ky.-based industrial company fell $4.16, or 11%, to $34.44.

The company beat estimates by 2 cents, reporting net income for the quarter ending Oct. 2 of $16.4 million, or 31 cents per share, which was down sharply compared with $50.5 million, 94 cents per share, in the year-earlier period.

Before one-time items the company earned 55 cents per share.

Sales fell to $1.08 billion from $1.63 billion, compared to $1.07 billion which analysts had been expecting.

The fall in earnings and revenue was blamed on lower demand in North America.

For the fourth quarter, the company said weak demand will persist and it expects to earn 20 cents to 30 cents a share, which is down sharply from a 57 cent a share profit previously expected by analysts.

General Cable's chief executive officer Gregory Kenny said demand is much softer compared with the recession that affected the company in 2001.

"The stock came in and premium expanded," a sellsider said. "Both [SanDisk and General Cable] were active names and both behaved as convertibles should behave."

Overall, bonds seem to be doing okay, the sellsider said. There was some selling Friday, but not an inordinately high number of sellers in the market.

"It raised suspicions that people might be thinking a calendar is coming and they are trying to free up some capital," the sellsider said.

FiberTower adds on exchange

FiberTower's 9% convertibles due 2012 traded at 77 on Monday, which was up about 4 points on previous levels, as its shares plunged 48% to $0.73.

The San Francisco-based company is offering to exchange the convertibles for other notes that must be redeemed for cash, FiberTower shares and new 9% senior secured notes if certain conditions are met.

As part of the terms of the debt exchange offer, the company's board will be reduced from nine to seven members when those notes are redeemed.

One source said, "Move the stock down to $0.50 and the new notes to 50 and you're still getting paid 83 for the existing notes."

The interim notes mandatorily convert into a total of $14 million cash plus 336.7 million shares plus $125 million par amount of new notes with six-year maturity, 9% coupon (1/3 cash plus 2/3 PIK).

The new notes will be senior to the existing notes.

The above numbers assume the exchange goes through at 100%, and the company already has 50.1% signed up and is tendering for the remainder just like Ambassadors, a source said.

Ambassadors steady

Ambassadors' 3.75% convertibles due 2027 weren't seen in trade, but were steady in the low to middle 40s, even as their underlying shares surged 9 cents, or 14%, to $0.73.

The company announced that it is extending its tender offer to Nov. 5.

"Bondholders realize there's more value there. So they say, 'no,' we're not tendering, and the company has to sweeten it," he said.

Since the Ambassadors bonds are putable in a couple of years and this company has $110 million of assets, "people are not going to sell a dollar for 50 cents."

Mentioned in this article:

Ambassadors International Inc. Nasdaq: AMIE

AMR Corp. NYSE: AMR

FiberTower Corp. Nasdaq: FTWR

General Cable Corp. NYSE: BGC

SanDisk Corp. Nasdaq: SNDK

UAL Corp. NYSE: UAL

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