Convertibles firmer; Ctrip, Twitter improve on swap; SanDisk bonds active; Greenbrier eyed

By Rebecca Melvin

New York, April 7 – Convertibles players were back in action Tuesday, and the space firmed up slightly amid focus on names such as Ctrip.com International Ltd., Twitter Inc. and SanDisk Corp.

Trading action picked up following a quiet period leading into and following Easter.

“Everything was a bit firmer on Europeans returning to their desks following the Easter break and as more buying continues with a lack of new paper in the convertible bond market,” a New York-based convertibles trader said.

“Bonds were up about 0.3 point on swap,” he said.

Ctrip was a notably active name, and its convertibles improved about 0.75 point on swap after Piper Jaffray raised its price target on shares of the internet travel site to $90.00 and boosted its rating to “overweight,” the trader said.

Twitter’s dual convertible bonds traded actively and expanded 0.75 point to a point on swap as shares of the San Francisco-based social media company gained amid renewed takeover speculation. There was a report that the company has hired an advisor after two separate entities expressed interest in the company, but Twitter declined to comment, the trader said.

SanDisk’s two convertible bonds were trading again, in a continuation of the action over the last three or four days. The Milpitas, Calif.-based data storage chip maker has also been the subject of takeover speculation.

Teva Pharmaceutical Industries Ltd.’s 0.25% convertibles due 2026 also traded relatively actively. That paper was up 0.3 point at 153.5. The bonds, which are held on a 100% delta hedge, were in line with shares after Barclays raised its price target on the shares.

“These bonds only move price wise on supply and demand constraints, a trader said.

Greenbrier Cos. Inc.’s convertibles lifted on an outright basis after the Lake Oswego, Ore.-based railcar company reported quarterly results that beat estimates and raised its full-year guidance again.

Looking ahead to Wednesday’s session, the Fed will release the minutes from its March meeting, and earnings season will get underway with the earnings release of Alcoa Inc. after the close.

U.S. equities traded better early on but faded into the close. The Dow Jones industrial average slipped 5.43 points, or 0.03%, to 17,875.42, the S&P 500 gained shed 4.29 points, or 0.2%, to 2,076.33, and the Nasdaq composite stock index lost 7.08 points, or 0.14%, to 4,910.23.

Ctrip.com expands on swap

Ctrip’s 1.25% convertibles due 2018 were seen wrapped around 107 versus an underlying share price of $61.17 in the early going, according to a New York-based trader at late morning.

The Piper upgrade was cited for the rise. Piper has the highest price in the Street, a trader said.

That was about 1.5 points higher on an outright basis and up 0.75 point on a swap basis, he said.

There are both outright and hedged players in the name, a second New York-based trader said.

Twitter bonds up a point

Twitter’s 0.25% convertibles due 2019 traded up 3.5 points to 101.745, according to Trace data.

The Twitter 1% convertibles due 2021 traded at about the same level, or at 101.9.

Twitter shares ended up $2.03, or 4%, at $52.87.

Twitter is being pursued by two separate interested parties, and it has hired Goldman Sachs as an advisor, according to Barron's.

“There is speculation that they hired someone to block a takeover, which is unfounded, until they say something about it,” a trader said.

Despite the fact that dual convertibles typically trade with a point or two difference related to the tenor of the paper, the two Twitter bonds tend to trade at about the same level. The bigger coupon of the longer-dated paper may cancel out the need for the extra compensation normally given, a trader said.

SanDisk bonds better

SanDisk’s 0.5% convertibles due 2020 gained another 0.3 point on an outright basis to 103, according to Trace data. While SanDisk’s 1.5% convertibles due 2017 were up another nearly 2 points to 145.

Shares of the Milpitas, Calif.-based data storage chip maker ended up 45 cents, or 0.7%, at $67.70.

The SanDisk bonds are attractive to convertibles players for a couple of reasons including the fact that the stock has fallen considerably through recent guidance that was revised downward a second time, and due to the fact that there is speculation that the company will be acquired.

“A lot of people are adding to this name,” a trader said.

The in-the-money bonds, or the 1.5% convertibles, are the ones that market players will get involved in if they want more delta exposure, and the 0.5% convertibles are favored by market players that want more balanced paper.

“You can also swap from one to the other depending on your view of the stock,” a trader said.

Greenbrier remains at parity

Greenbrier’s 3.5% convertibles due 2018 changed hands at about 164, which was up from 156 to 158 on Monday, according to Trace data. Greenbrier shares closed up $1.83, or 3% to $62.43, but initially they had popped by as much as 5.6% on the heels of the earnings news.

The convertible bond’s price is equal to parity, a Connecticut-based trader said.

For its second fiscal quarter, Greenbrier posted a profit of $50.4 million, or $1.57 a share, up from $15.6 million, or 50 cents a share, in the year-earlier period. Revenue rose 26% to $630.2 million.

Analysts expected earnings of $1.20 a share on revenue of $613.9 million.

For its fiscal year, Greenbrier now expects earnings of $5.65 to $5.95, up from its previous outlook of $5.20 to $5.50, which was raised in January. The company also raised revenue guidance to $2.6 billion to $2.7 billion for the year, compared $2.6 billion in January.

Overall the convertibles market was quiet, including the Greenbrier convertible, a New York-based trader said.

Mentioned in this article:

Alcoa Inc. NYSE: AA

Ctrip.com International Ltd. Nasdaq: CTRP

Greenbrier Cos. Inc. NYSE: GBX

SanDisk Corp. Nasdaq: SNDK

Teva Pharmaceuticals Industries Ltd. Nasdaq: TEVA

Twitter Inc. Nasdaq: TWTR

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