Alliant Techsystems active, little changed; financials ease amid uncertainty; Newmont extends gains

By Rebecca Melvin

New York, Jan. 30 - The convertibles market was mostly unchanged Friday in unremarkable trade, but many players were pleased to have been able to mark up a number of names in their books on the last trading day of January.

"Across the board things are up. Given what we have seen recently, I think some people were fairly happy and left early after getting to mark things up a bit," a New York-based sellside analyst said.

"I heard a comment from someone who has been here over a year saying it was the first time with AMD that he was getting to mark that up," the analyst said, referring to Advanced Micro Devices Inc.

Alliant Techsystems Inc. was active and trading in line a day after the Minnesota-based defense company reported earnings that were "decent" with guidance that was "OK."

Financials continued to retrace some of the gains they made midweek, reflecting uncertainty about the prospects for a government "bad bank" that would alleviate banks of bad assets on their balance sheets and after president Barack Obama gave a tongue lashing to Wall Street over bonuses.

Newmont Mining Corp.'s 3% convertibles, which priced late Wednesday, extended gains notched on their debut Thursday. One syndicate source quoted them at 112 versus a share price of $40.00.

Market participants hoped the Newmont convertibles, with in initial conversion premium of 25%, would spur additional issuance in a market that's currently starved for new paper.

It's a "very positive sign for the market in general," a New York-based sellsider said of Newmont, agreeing with others that it should pave the way to more activity in the primary market.

As for the secondary market Friday, "there were some things going on, but nothing substantial one way or the other," a sellside analyst said.

Human Genome Sciences Inc.'s convertibles were in trade as their shares sank 9% amid no particular news, according to a sellsider.

The Rockville, Md.-based biotech's 2.25% convertibles due 2011 trade at 38, and the 2.25% convertibles due 2012 traded at 35, both versus a share price of $2.00.

It "could just be month end housecleaning," a New York-based sellside desk analyst said.

Virgin Media Inc.'s convertibles traded at 47 versus a share price of $4.75 on Friday, which was higher than last Friday's 45 versus a share price of $4.40, but below a 50-versus-$4.75 trade on Nov. 12.

Alliant active, in line

Alliant Techsystems' 2.75% convertibles due 2011 were 100.5 bid, 101 offered versus a share price of $79.00, compared to 101.388 bid, 101.553 offered versus a share price of $80.04 on Thursday.

Alliant Techsystems' 2.75% convertible notes due 2024, which can be put back Aug. 15, 2009, were seen at about 108.5.

On Thursday the company's earnings were less than enthusiastically received by shareholders, which was positive for the converts, a New York-based sellsider pointed out.

Market participants were focused mostly on the 2011 paper, sources said.

But during the company's conference call, chief financial officer John Shroyer made comments about the putable paper and said he anticipated the company will be able to pay it out.

"We remain comfortable with our liquidity and access to capital ... the bondholders have the ability to put to us in August of 2009. We have the right to call those bonds as well, and anticipate having adequate liquidity to support that if we so choose," Shroyer said.

"We have adequate cash on hand and a $500 million revolver that will allow us to meet all of the company's anticipated needs, including the prepayment to the pension fund," he said.

Last quarter, two of Alliant's three convertible debt offerings were contingently convertible. But as of Dec. 28, that was no longer the case, Shroyer said.

"Less than 1 million of the bonds were converted in the quarter. The remaining bonds are no longer convertible," the CFO said.

"Our preliminary look at the fiscal year '10 tax rate is approximately 37%. Free cash will also be affected by the pension contributions. Net of tax, the pension will reduce free cash by approximately $130 million in fiscal '10, giving us a total of approximately $130 to $150 million free cash flow for the year," he said.

The company's stock is trading around the conversion price, and it's "possible that as long as the stock stays around here, these things could stay outstanding if the company did something to keep the bonds outstanding - but they didn't indicate that," a sellside analyst said.

Financials ease amid uncertainty

Wells Fargo & Co. convertible preferreds were seen at 637 at the close, which was down from 645 on Wednesday, when they rallied 7 points, or 12%.

Bank of America Corp.'s preferreds were seen closing at 504, compared to Wednesday's 550.

"There's just going to be a lot of headline risk until the market knows more about what government plans to do," a New York-based sellsider said.

What happens with financials hinges on what's going to happen with additional assistance from the government.

But sources were leery about the fact that Washington was taking shots at Wall Street when the debate on the good bank/bad bank plan was expected to come up next week.

"As these things keep on crossing the tape, they are going to trade in line with the latest headline. Unfortunately, no one has a good read on what they are going to do," a sellside analyst said about the government's involvement.

Charlotte, N.C.-based Bank of America and San Francisco-based Wells Fargo are bank holding companies.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Alliant Techsystems Inc. NYSE: ATK

Bank of America Corp. NYSE: BAC

Human Genome Sciences Inc. Nasdaq: HGSI

Newmont Mining Corp. NYSE: NEM

Virgin Media Inc. Nasdaq: VMED

Wells Fargo & Co. NYSE: WFC

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