Convertibles mixed: AMD up after earnings; WebMD recoups; Kodak weak before results; BGC on tap

By Rebecca Melvin

New York, July 25 - Several recent casualties in the convertible bond market were in trade on Monday, but not moving in unison up or down, as the broader markets reacted negatively to the absence of a deal on the U.S. debt ceiling.

"I think the markets are disappointed about how the debt ceiling negotiation is progressing," a New York-based sellside analyst said.

In general, however, it was a normal Monday. "It was not that busy, but not super quiet either," the analyst said. "Any movement in the valuations [of convertibles] was a function of normal volatility; they weren't "moving in a meaningful way," he said

Advanced Micro Devices Inc.'s 6% convertibles due in 2015 were trading actively and higher in a continuation of activity Friday after the Sunnyvale, Calif.-based chip maker posted better-than-expected earnings.

Of the recent casualties, WebMD Health Corp. looked to be a little better, trading above the offer side of the previous market, as the underlying shares of the New York-based health information services company continued to rebound from a steep sell off last week spurred by weak earnings and lowered guidance.

Eastman Kodak Co., which was also pummeled last week, was weak ahead of earnings expected Tuesday. The figures will be watched more for liquidity and balance sheet information than for the earnings themselves, Citigroup's convertibles sales and trading desk said in market commentary.

AMR Corp.'s 6.25% convertibles due 2014 were another casualty, having traded down about 3 points from two weeks ago, a New York-based trader noted.

Clearwire Corp. was more or less in line with its underlying shares, which were lower. The Clearwire convertible traded at 81 versus an underlying share price of $3. But Superior Energy Services Inc. was seen about 0.25 point better than last week.

In the primary market, which has improved in the last two weeks, BGC Partners Inc. launched $125 million of convertible notes that were expected to price after the market close on Monday to yield between 4.25% to 4.75%, with an initial conversion premium of between 17.5% to 22.5%.

AMD strengthens

Advanced Micro's 6% convertible due 2015 were active in trade and holding up well despite weakness in its shares on Monday. The 6% convertibles traded around 102 and at 101.625. The paper had been at 104 and dropped back to 101 before the latest earnings report boosted the chipmaker's securities.

Advanced Micro's 5.75% convertibles due 2012 were not seen in trade.

Advanced Micro shares slipped 12 cents, or 1.6%, to $7.63 in active trade on Monday.

The AMD 6% started trading better last week after the company came out with very strong numbers, a New York-based analyst said. "Before that they were really underperforming."

The analyst said that the convertibles are considered a money market alternative.

Both AMD convertibles are considered yield names and trade outright.

The 6% convertible was at 101 and then rebounded to 102, and it is "still a nice, solid yield name," the analyst said.

In a note on AMD called, "Back to the Future," Gimme Credit analyst Dave Novosel said that of more significance than Advanced Micro's second quarter results was its third quarter forecast.

"The second quarter performance was nothing special, as revenue declined 2% sequentially and 5% on a year-over-year basis. This was the first material quarter-over-quarter decrease in revenue since the third quarter of 2009. But management is calling for a 10% sequential increase in the third quarter, plus or minus 2%, which corresponds to a 7% increase versus last year," Novosel wrote in his research note dated July 25.

About half of the improvement is seen coming from higher average selling prices.

"We expect fourth quarter growth to be even better," Novosel wrote, citing early success of new chips such as Brazos, and other factors.

WebMD slightly higher

WebMD's 2.5% convertibles due 2018 traded at 90 versus an underlying share price of $36.65, which compared to 86 versus $32.25 share price a week ago, when the stock and bonds collapsed on the company's weaker guidance. Prior to that, the convertibles had been at 98.

WebMD shares gained 85 cents, or 2.3%, to $37.47 on Monday.

"WebMD's 30% selloff after earnings was an over-reaction, I think, and the stock continues to rebound," a New York-based sellside analyst said.

Kodak's 7% convertibles due 2017 traded at 65 versus an underlying share price of $2.50 on Monday, and also lower at 63 versus an underlying share price $2.40, which was down from 65.5 versus a share price of $2.40 last week.

The Rochester, N.Y.-based photography company's stock fell 17 cents, or nearly 7%, to $2.33 on Monday.

Kodak is a $672.6 million market cap company, and there are concerns over the company's long term viability.

When second quarter results are released Tuesday, analysts are expecting a loss of $1.23 to $0.20 per share.

BGC on tap

BGC Partners, a New York-based inter-dealer broker, planned to price $125 million of convertible senior notes in a Rule 144A deal late Monday.

The notes were not heard in the gray market prior to pricing.

Joint bookers are Bank of America Merrill Lynch, Cantor Fitzgerald & Co. and Deutsche Bank Securities LLC.

The notes will be non-callable for life with no puts.

In connection with the offering, the company expects to enter into capped call transactions.

Mentioned in this article

Advanced Micro Devices Inc. NYSE: AMD

AMR Corp. NYSE: AMR

BGC Partners Inc. Nasdaq: BGCP

Clearwire Corp. Nasdaq: CLWR

Eastman Kodak Co. NYSE: EK

Superior Energy Services Inc. NYSE: SPN

WebMD Health Corp. Nasdaq: WBMD

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