L-3 gains on reports; Equity Residential eases from climb; Intel higher on new chips; Headwaters flat

By Kenneth Lim

Boston, Aug. 29 - The convertible bond market was more active Tuesday than expected for an end-August session, with L-3 Communications Holdings Inc. ticking higher outright on bullish reports about the company's growth.

Equity Residential fell slightly, coming off what has been a strong two weeks for convertibles of real estate investment trusts.

Most other trades on Tuesday involved investors adjusting positions as equity markets dipped in the morning before climbing back and advancing for the second straight session.

"We actually saw some people taking the slow days to kind of adjust their portfolios," a sellsider said. "They're not huge transactions, but it's just not as quiet as you'd think."

Intel Corp.'s 2.95% convertible due 2035 was flat to slightly better in line with the stock, which gained on the back of broader market improvements and the launch of a new product.

The convertible traded at 87.125 against a stock price of $19.375 on Tuesday. Intel stock (Nasdaq: INTC) closed at $19.68, up by 1.55% or 30 cents.

"The Intel 2.95s were active, mostly in line," a sellside convertible bond trader said.

Santa Clara, Calif.-based Intel on Tuesday launched a new series of server chips, with major customers Dell Inc. and Hewlett-Packard Co. confirming that they would start selling units with the new processors. The semiconductor chip maker's new product is seen as a key product that targets Intel rival Advanced Micro Devices Inc.'s existing offering.

BankUnited Financial Corp.'s 3.125% convertible due 2011 was a point lower outright as the stock continued to falter.

The convertible changed hands at 92.125 versus a $24.675 stock price, while BankUnited stock (Nasdaq: BKUNA) slid 3.76% or 97 cents to finish at $24.80.

"BankUnited traded fairly actively, dollar-neutral with the equity," a sellsider said. "But it's been a fairly weak equity for the past few weeks."

Shares of BankUnited, a Coral Gables, Fla.-based bank that operators mostly in Florida, have lost more than a fifth of their value since Aug. 8.

Headwaters Inc.'s 2.875% convertible due 2016 was also active but unchanged on Tuesday, changing hands at 98.875 against a stock price of $22. Headwaters stock (NYSE: HW) eased 0.09% or 2 cents and closed at $22.04.

Doral Financial Corp.'s convertible preferred continued to hold steady as investors remained comfortable with the company's ability to avoid defaulting on its straight debt.

Doral's 4.75% convertible preferreds was mostly unchanged on Tuesday, staying firm above month-ago levels amid the threat of a technical default if the company does not file its financials by Aug. 31. The $250 par preferred was 120 bid, 124 offered on Tuesday, while the stock closed at $5.04. Doral stock (NYSE: DRL) advanced 0.4% or 2 cents.

"Recently they've been around 121. Back in July they were around 117, 116," a convertible bond trader said. "They have gotten better."

San Juan, Puerto Rico-based Doral earlier in the month filed its 10-K financial report for 2005, averting a possible default notice from holders of its straight debt. The bank also hired former Citibank West FSB president Calixto Garcia-Valez to head its key Puerto Rican banking subsidiary, underscoring the management restructuring that has taken place since the company's accounts came into question.

"It's a little bit less of a broken company than it was earlier," a convertible bond analyst said.

L-3 higher on reports

L-3's 3% convertible due 2035 edged up by about an eighth of a point outright on Tuesday as the stock received a modest boost from bullish media reports.

The convertible traded at 100.25 against a stock price of $75, while L-3 stock (NYSE: LLL) finished 0.57% or 43 cents higher at $75.41.

"We saw good two-way flow in L-3 bonds," a convertible analyst said. "It may have been the Wall Street Journal article today that was bullish on the company. It was a touch better."

A column in the Journal on Tuesday said L-3 may grow faster than its peers, quoting analysts familiar with the company. Those analysts reckoned that leadership concerns - L-3's former chairman and chief executive Frank Lanza died in June - could be resolved in September, taking some pressure off the stock. The acquisitions and strategies pursued under Lanza's leadership are also expected to keep L-3 growing faster than other defense companies, those analysts said.

L-3 is a New York-based defense contractor.

Equity Residential softens

Equity Residential's newest 3.85% exchangeable due 2026 was ¼ point lower outright at 100.5 versus a stock price of $49.25. Shares of Equity Residential (NYSE: EQR), a Chicago-based apartment real estate investment trust, declined 0.12% or 6 cents to close at $49.36.

The slight retreat was in line with broader declines among REIT convertibles, which have gained the past couple of weeks.

"REITS in general seem a little softer today," a sellside convertible analyst said.

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