AMD extends gains after Intel raises forecast; Intel also higher; E*Trade active after swap deal

By Rebecca Melvin

New York, Aug. 28 - Advanced Micro Devices Inc. convertibles were active in trade Friday and moved up yet again after Intel Corp. raised its revenue and gross margin forecast.

Intel's own convertibles were also active and higher, but at midsession, Advanced Micro was the No. 1 volume leader in convertibles, with Intel at No. 2, a New York-based sellside trader said.

E*Trade Financial Corp., which swapped straight debt maturing in 2011 and 2017 for 0% convertibles due 2019, saw the new convertibles trade actively at about parity, a New York-based sellsider said.

Another sellsider said E*Trade was trading at a slight discount to parity at 148, compared to parity at 158. Shares of the discount brokerage jumped 13% to $1.64.

Danaher Corp., which rarely trades, changed hands at 93.5 versus a share price of $62.50 on Friday, according to a New York-based sellside desk analyst.

Overall, the market was quiet, with volume described as "super light."

In equities, the Dow Jones Industrial Average snapped an eight-day winning streak, ending the session lower by 36.43 points, or 0.38%, at 9.544.20.

The S&P 500 index moved in tandem with the Dow, slipping into negative territory before noon, and closing down 2.05 points at 1,028.93. But the Nasdaq stock market eked out a gain of 1.04 point and settled at 2,028.77, amid strength in technology names.

Advanced Micro strengthens

AMD's 6% convertibles due 2015, which gained several points early in the week to trade actively at 64 Wednesday and Thursday, rode the upward momentum higher Friday, trading at 67.25 bid, 67 offered.

AMD 5.75% convertibles due 2012 traded up to 80 bid, 81 offered, from about 78.

The paper trades mostly outright and is not compared to its share price.

The latest price move catalyst was Intel raising its third-quarter revenue and gross margin forecast, citing stronger than expected demand for microprocessors and chipsets.

The news, released early Friday, bodes well for Advanced Micro, which is an Intel competitor.

The AMD convertibles' move Friday followed a similarly impressive move for the name on Monday, when Citigroup upgraded the stock of the semiconductor company to "buy" from "hold."

The Citigroup analyst said that aspects of the Sunnyvale, Calif.-based chip company's businesses were stabilizing and that it would likely outperform its 2010 consensus estimates, which he termed conservative.

The AMD paper's move to around the 67 level, marks a doubling in price from the mid 30s, and there is probably more steam left, a Connecticut-based sellside trader said.

Although the shorter-dated 5.75% paper has traditionally been the favorite, both issues are yielding about the same, with the 6% convertibles yielding a little over 14%, and the 5.75% paper, yielding a little over 13%.

"With the 2012 maturity, you might prefer the first in line, and that's where people are focusing their efforts. But there's no liquidation preference. They are pari passu in liquidation. So it's less relevant. The question becomes the dollar amount, whether you want a lower nibble," the trader said.

Intel gains on improved forecast

The new Intel 3.25% convertibles traded at 106.25 versus a share price of $20.30 on Friday, compared to 102 versus $19.30 on Thursday.

Another source said the new paper traded at 106.5 versus a share price of $20.25, with the older Intel 2.95% convertibles trading at 89.5.

Shares of the Santa Clara, Calif.-based chip maker gained 78 cents, or 4%, to $20.25.

The company said stronger demand means that it now expects revenue for the third quarter to be $9 billion, plus or minus $200 million, as compared to the previous range of $8.5 billion, plus or minus $400 million.

Gross margin for the third quarter is now expected to be in the upper half of the previous range of 53%, plus or minus 2%. All other expectations are unchanged.

The press release proceeded to outline caveats that could cause results to deviate significantly from estimates including ongoing uncertainty in global economic conditions, competition and potential bankruptcies or other disruptions from suppliers.

The gross margin percentage could vary based on changes in revenue; capacity utilization; start-up costs, product mix and pricing, among other things.

E*Trade trades actively

The recently settled E*Trade 0% convertibles due 2019, which have resulted from an exchange of straight debt, traded fairly actively.

The $1.7 billion A tranche of 0% convertibles traded at 148. There was no quote on the B tranche, which is only $2 million in size.

Shares of the New York-based brokerage company surged 19 cents, or 13%, to $1.64 in heavy volume.

With a conversion price of 1.034 for the A tranche and $1.551 for the B tranche, the paper is in the money, with the A tranche deeply in the money.

"They just came out the other day. They are trading around parity with the stock," a New York-based sellside trader said of the convertibles.

The debt exchange, which was announced early this summer, allows E*Trade to avoid paying interest and extend maturities, and it involved its 8% straight debt bonds due 2011 and its 12.5% straight bonds due 2017.

Watson to be redeemed

Meanwhile the market was reacting to filing late Thursday from Watson Pharmaceuticals Inc. announcing plans to redeem all $575 million of its 1.75% convertibles due 2023 - something that was expected, but not official, according to a New York-based sellside trader.

Prospect News reported the official announcement of the redemption by the trustee for the notes on Wednesday.

Watson's 1.75% convertibles due 2023 traded late Friday at 99.9, which was little changed from previous trades at par to 100.1.

"They just announced that WPI is redeeming the 1.75% converts, which was expected, but now official," a sellsider said.

The paper had been trading in a tight range just below par even as the stock crept up over the last month or so. There had been about eight months to the put, and the notes had set up nicely on hedge with a very light delta possible.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Danaher Corp. NYSE: DHR

E*Trade Financial Corp. Nasdaq: ETFC

Intel Corp. Nasdaq: INTC

Watson Pharmaceuticals Inc. NYSE: WPI

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