DryShips' convertibles slip; Overall market hit by weakness; MGM falls; AMR rallies

By Stephanie N. Rotondo

Portland, Ore., Oct. 4 - The convertible bond market continued to be heavy on Tuesday.

"Everything is just a little bit weaker," a trader said.

"Things are a repeat of yesterday," remarked another source. "Sellers are still sellers and dealers are sellers as well."

"More selling today," said a third market source. "Even the short dated, solid investment-grade credits are now below par."

For example, he said, Amgen Inc.'s 0.375% convertible notes due 2013 fell to levels around 98, while Medtronic Inc.'s 1.625% convertible notes due 2013 slipped to 99.75.

Meanwhile, DryShips Inc.'s 5% convertible notes due 2014 lost some ground. In the previous session, the company had announced that it had adjusted the conversion price of the notes in connection with the planned partial spin-off of Ocean Rig UDW Inc.

The weakness in the market was all-pervasive, and no one sector was spared. MGM Resorts International Inc.'s convertibles were down, as were China Medical Technologies Inc.'s 4% convertible notes due 2013.

On the upside, AMR Corp. "bounced back a bit," a trader said. The convertibles and the stock had been hammered on the previous session on fears of a bankruptcy soon.

DryShips sinks

DryShips, an Athens, Greece-based provider of marine transportation, said late Monday that it had adjusted the conversion price of its 5% convertible senior notes due 2014 ahead of its planned partial spin-off of Ocean Rig UDW Inc.

The spin-off is expected to be completed Wednesday.

The new conversion price is $6.90, down from $7.19.

"Right now, it's trading on credit," a trader said of the convertibles.

He pegged the issue in a 49 to 50 context.

The stock closed up 4 cents to $2.00 on Tuesday.

Most convertibles pressured

Even with no name-specific or even sector-specific news out, many issuers were seeing their convertible debt lose ground.

MGM Resorts' 4.25% convertible notes due 2015, for instance, was trading at 82.5 versus a stock price of $8.35, according to a trader.

Another trader placed the issue at 83.25 versus a stock price of $8.45 around midday.

China Medical Technologies' 4% notes were also down, falling to around 58 from 61.5 bid, 62 offered previously.

Iconix Brand Group Inc.'s 1.875% convertible notes due 2012 meantime were trading at 98.375, with a 4.15% yield to maturity, a trader said.

AMR rebounds

AMR's 6.25% convertible notes due 2014 attempted to regain some of the ground it lost in the previous session on fears the airline parent company could have to file for Chapter 11 protection soon.

A trader saw the paper trading at 47.875, up from levels in the low-40s previously.

There has been no credit-specific news out to cause the convertibles to weaken, but among the airlines, AMR is considered to be a weak link.

In August, AMR announced it had decided to spin off its American Eagle regional carrier after failing to sell it in the open market. Last week, AMR sought financing in a dismal market environment and got stuck with its highest interest rate since 2009.

And, for all of its efforts to shore up its cash position, its efforts could be in vain.

"The boost to liquidity may be only temporary and fleeting - cash flow remains significantly negative and the company is burning cash at an accelerating rate," wrote Gimme Credit LLC analyst Vicki Bryan. "AMR continues to lose market share, as we expected, and now that the economic recovery seems to have stalled it will likely feel the pain faster and more deeply than most of its larger peers."

But the company resumed talks with its pilots on Tuesday, hoping to stem a spree of retirements that has occurred over the last few months.

The stock, after plunging on Monday, rose 41 cents, or 20.71%, to $2.39 on Tuesday.

Best Buy 'interesting'

A trader deemed Best Buy Co. Inc.'s 2.25% convertible notes due 2022 "interesting" on Tuesday.

"They have the cash to cover the converts," he said, making the paper ideal for "buyers looking for places to hide in cash."

He quoted the issue at 99.625 bid, 99.75 offered, in line with recent levels.

The paper is yielding about 2.4%.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

AMR Corp. NYSE: AMR

Best Buy Co. Inc. NYSE: BBY

China Medical Technologies Inc. Nasdaq: CMED

DryShips Inc. Nasdaq: DRYS

Iconix Brand Group Inc. Nasdaq: ICON

Medtronic Inc. NYSE: MDT

MGM Resorts International Inc. NYSE: MGM

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.