GM gains on bailout, Ford steady to weaker; Wachovia, Citi gain; Energy Conversion grabs attention

By Rebecca Melvin

New York, Dec. 19 - General Motors Corp. convertibles, which have see-sawed all week, swung higher Friday after the Bush administration unveiled an emergency bailout package to help keep the troubled Detroit automaker afloat long enough for it to make itself viable.

But Ford Motor Co., GM's Dearborn, Mich.-based competitor, which has said it doesn't need any government funding, traded near its lows for the week at 31.

The convertible market overall was quiet as the holiday lull, a typically slow Friday, and a large snowstorm, which swept across the U.S. Midwest and slammed the eastern states, all combined to thin the ranks of convertibles players.

"Nothing is trading in the Street today, just odd lots. It feels like Christmas Eve," a New York-based sellside trader said.

Wachovia Corp. continued to see buying interest at higher levels, and those convertible preferreds were said to continue to lead the asset class among financial issues, as it has done for almost two weeks.

Citigroup Inc. has also been getting a positive bid, according to an East Coast buysider.

Non-traditional entrants in the convertible market were said to be behind the strength in financials as well as other paper, a sellsider said.

Solar power names were in favor this week. Energy Conversion Devices Inc., a Rochester Hills, Mich.-based maker of thin-film solar modules, which has a 3% convertible due 2013 and is yielding 20%, was getting attention from investors, sources said.

Energy Conversion is one of more than half a dozen viable solar convertible deals from which to choose if exposure to alternative energy is desired in the convert space. Others include JA Solar Holdings Co. Ltd. and Suntech Power Holdings Co. Ltd.

But some consider Energy Conversion unique in the field due to its proprietary manufacturing process and thin-film solar module, which is able to integrate easily into building materials.

GM moves higher on bailout

The GM 6.25% convertibles due 2033 jumped 30 cents, or 9%, to $3.78 in slightly heavier-than-average volume versus a closing stock price of $4.49. That compared with $3.48 for the GPMs versus a stock price of $3.66 at the close Thursday.

In average volume, the GM 5.25% convertibles due 2032 gained 30 cents, or 10%, to $3.304 versus a closing stock price of $4.49. That compared with $3 versus a stock price of $3.66 on Thursday for the GBMs.

The shorter-dated GM 1.5% convertibles due June 2009 added 60 cents, or 11%, to $6.05 in light volume.

Shares of the Detroit-based car maker jumped 83 cents, or 23%.

The Bush administration unveiled an emergency bailout package for the ailing auto industry Friday that includes $17.4 billion in rescue loans in exchange for certain benchmarks being met, like positive cash flow generation by March 31.

GM has its work cut out for it as it has ongoing negotiations with the government, debt holders, union workers, suppliers and other key stakeholders, GM chief executive Rick Wagoner said at a press conference Friday.

He called the period "challenging" but one he looked forward to reinvent the company and prove "what American ingenuity can achieve."

"Our industry helped build this country," he said.

The package will include reopening the national contract to try to put work rules and wages in line with foreign automakers.

The agreement also targets March 31 as the date by which the company has to be financially viable with positive net present value. Many think that target is impossible to achieve, but Wagoner said that the steps needed to be taken are in the term sheet and he thinks they are achievable.

The plan is called extremely aggressive, but with two days notice, GM plans to make its first drawdown on the money by Dec. 29.

GM executives also said that the auto industry is slowing down around the world and its capital spending will continue to contract to reflect the realities of the market.

Convertibles players said the bailout was not unexpected, and while it helps, it wasn't expected to wholly solve the problem.

"There are still a lot of negative things out there that the auto industry has not figured out yet," a sellsider said. "It just depends on the next couple months, and whether three months from now they get an extension or not."

Another sellsider remarked: "The bondholders are happy. But the market doesn't really care. What is really interesting is the yield on the 10-year and two-year Treasuries," he said, adding that those historically low yields point to how troubled the financial system continues to be.

Ford Motor's 4.25% convertibles due 2036 were seen around 31, which was off of the week's earlier levels at 34.

Ford shares closed up 11 cents, or nearly 4%, at $2.95.

Wachovia, Citi strengthen

Wachovia's 7.5% convertible preferred shares were at 720 versus a share price of about $5.70, which is up from about 600 10 days ago.

Wells Fargo & Co.'s deal to buy Charlotte, N.C.-based Wachovia is set to close in less than two weeks, and when it does it will create the nation's third-largest nationwide banking chain.

The convertible preferreds have been pretty active, sources said. A sellsider said that "hedge funds that that have been sucking wind with them forever were coming out if it," and new entrants were buying it.

"It's yielding about 10.5%, and the spread between that and the common has finally expanded because the deal is going to close in less than two weeks," the trader said, adding that hedge guys were also putting on trades too given that paper is so cheap.

"It's bits and pieces of things, esoteric things, but decent quality," he said.

In general hybrid bank preferreds, or the perpetual structures, were doing better, a buysider said. He quoted Citigroup's 6.5% convertible preferreds at 27 versus a stock price of $7.50 on Friday.

For a month or so, investment-grade names have steadily improved but the intensely positive bid was starting to worry some.

"It's running up too far," a West Coast-based sellsider said. "Yesterday's offers are today's bids. It's a little crazy; and I'm a little suspicious that it's getting ahead if itself. I mean I would rather have it like this than the other way; but, I'd rather it [were] in a more measured way."

There's still going to be more selling at some point in the first quarter, he guessed.

Mentioned in this article:

Citigroup Inc. NYSE: C

Energy Conversion Devices Inc. Nasdaq: ENER

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

Wachovia Corp. NYSE: WB

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