Sellers push Suntech Power lower; United Therapeutics retains gain; Bank of America adds

By Rebecca Melvin

New York, Aug. 25 -The convertible bond market was "pretty quiet" on Thursday, with sellers rearing their heads in select names like Suntech Power Holdings Co. Ltd. on this particular day, while the broader markets were weighed down by a weak jobs report and dwindling hopes that Fed chairman Ben Bernanke will actually promise actions to help stimulate growth.

Suntech Power's convertibles were lower amid no particular news, and in contrast to the American Depositary Shares of the China-based solar energy company, which were higher for much of the session until they succumbed to selling pressure into the close.

United Therapeutics Corp. traded actively again Thursday and remained strong, with 2.5 points to 3.5 points of premium at the session's end, after it spread out Wednesday when the Silver Spring, Md.-based biotechnology company announced a failed late-stage study of its oral drug treatment for pulmonary arterial hypertension.

Overall, the convertible market was described as quiet.

"I wasn't really aware of huge traders. Looking down the list, I don't see anything that stands out," a Connecticut-based sellside trader said.

Bank of America Corp.'s convertible preferreds were up on the day but underperformed the common shares, which jumped on news that billionaire investor Warren Buffett is investing $5 billion in the Charlotte, N.C.-based bank holding company.

The Buffett move is a strong show of confidence that the bank remains strong and secure. Under terms of the agreement, Bank of America will sell 50,000 shares of cumulative perpetual preferred stock with a liquidation value of $100,000 a share to Buffett's Berkshire Hathaway investment vehicle in a private offering.

The overall market weakened late in the day, with one analyst citing a news report that said the Federal Reserve isn't intending to help stimulate the economy with more bond purchases.

"Jobs was the first leg of the weak day and then no bond purchases from Bernanke is the second," the analyst said.

Concerns about the European sovereign debt crisis were also a feature of the day's mood, with the situation in Europe not a question of confidence but one of solvency, the analyst said.

A trader said it's a "risk-off world. Every time it's going to get its legs, something else comes along. Now it's Finland asking for collateral from Greece."

Nevertheless weakness was on thin volume as many traders and other market players are on vacation. "A lot of stuff is selling with not a lot of volume," the trader said.

"Business is steady but not relative to traditional volumes," he said.

On Friday, investors will be watching Fed chairman Bernanke when he delivers a speech from the annual gathering of central bankers and economists at the Fed's Jackson Hole Summit in Jackson Hole, Wyo.

Last year, Bernanke's speech laid the groundwork for the Fed's unprecedented $600 billion bond buying program aimed at reviving the flagging economy.

Suntech Power trades lower

Suntech Power's 3% convertibles due 2013 traded pretty actively around 64.75 and 65 on Thursday, which was down from 69.25 early in the week, according to a sellside trader.

A second sellsider put the market between 61 bid, 65 offered.

Shares of the Wuxi, China-based solar energy company settled little changed at $5.07 after trading higher for much of the session.

Selling of the convertibles didn't seem to be tied to any particular news, a trader said. "Everything is down."

"Weighing on the broader market is a double dip recession, which is good for oil prices but not so good for solar power prices," he said.

However, he added, there's nothing specific regarding the factors behind selling on Thursday. "It's all hearsay."

Suntech Power is a solar energy company that is linked to French oil major Total SA.

United Therapeutics better

United Therapeutics' 0.5% convertibles due in October traded at 2.5 points to 3.5 points of premium on Thursday after the stock "cracked" on Wednesday.

"It's still doing well," a trader said.

On an outright basis, the paper Traced at 108.75, which compared to 109 versus an underlying share price of $39.95 near the session's close Wednesday.

On Wednesday, the company announced that its oral treprostinil drug for high blood pressure in lung arteries failed its main goal in a late-stage study, raising doubts that the company can get regulatory approval for the ingredient, which is already approved in injectable and inhalable forms.

Bank of America adds

Bank of America's 7.25% series L convertible preferred shares closed at $846, up $51, or 6.4%, on Thursday, while the Bank of America common shares closed at $7.65, up 66 cents, or 9.4%.

"With an outright delta of 25%, the preferred moved a lot more than the models suggested. This is typical of situations where the credit is key," a New York-based buysider said.

"Amid recent rumors about Bank of America's creditworthiness, the preferred was beginning to trade stressed. Buffett's involvement suggests the credit is OK," the buysider said.

The fact that the preferred moved in step with the common despite a low delta is consistent with a phenomenon of the convertibles market that the buysider referred to as "phantom delta," or the tendency for convertibles to move in the same direction as the common stock especially when a company appears to be in financial difficulty.

In this case, the Bank of America preferred captured 68% of the upside of the common stock even though its delta of 25 suggested it should have risen only 25% as much as the common, he said.

The Bank of America convertible preferred closed with an 8.57% yield and remains attractive, the buysider said.

In contrast, the Bank of America 7.25% series J straight preferred shares closed at $22.57 (the equivalent of $902.80 for the L preferred) for a yield of only 8%, the buysider said.

Announcing his investment in Bank of America, Buffett described the company as a "strong, well-led company."

Mentioned in this article:

Bank of America Corp. NYSE: BAC

Suntech Power Holdings Co. Ltd. NYSE: ADS: STP

United Therapeutics Corp. Nasdaq: UTHR

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