Ford adds points on debt swap; financials weaker again, US Bancorp trades; BRE Properties lower

By Rebecca Melvin

New York, March 5 - Ford Motor Co.'s convertible bonds gained in action that dominated early trade Thursday after the Dearborn, Mich.-based automaker said it plans to offer debt holders cash and stock in exchange for as much as $10.4 billion in debt, including convertibles.

Volume was heavy although borrow was a constraint, a New York-based sellsider said of the Ford 4.25% convertible bonds. The $4.88 billion issue of Ford convertibles is one of the largest in the convertible universe.

Otherwise, trading was on the light side, but what action there was appeared to be spread out to include more names than usual.

"You had the usual Prudentials and Nabors, but you also had Allergan," a New York-based sellside trader said, referring to Irvine, Calif.-based Allergan Inc., a multi-specialty health care company.

Financials came in again, with US Bancorp floating-rate convertibles - which don't trade often - a newcomer to the fray.

Real estate investment trusts were also under pressure, a Connecticut-based sellsider noted.

Shares of "REITs were absolutely smoked. It was pretty ugly," another sellsider said, mentioning the convertibles of BRE Properties Inc. as a notable loser.

Equities resumed their seemingly endless meltdown Thursday after a one-day respite, and traders' focus was there. "Everyone is wondering what's the equity market going to do? Is anyone going to survive? Where do you put your money" a sellsider said.

The Dow Jones Industrial Average closed down 281.40 points, or 4.1%, at 6.594.44. The S&P 500 index fell 30.32 points, or 4.25% to 682.55; and the Nasdaq stock market lost another 54.15 points, or 4%, to 1,299.59.

Credit sensitive market

As equity falls, credit tends to fall also, a New York-based sellside analyst said. But convertibles have been pretty resilient in the latest downturn, and the market stands somewhere between high yield and high grade at this point, a sellside analyst said.

They are trading at about 60 cents on the dollar on average, the analyst said. "They are very credit sensitive right now because stock prices are so much lower than when most of the paper was first issued."

Ford pulls higher

The Ford's 4.25% convertible bonds due 2037 settled at about 25 but had been 25 bid, 26 offered earlier.

That was "about parity plus 5 or 6 points moving on a 100 delta, compared to a recent level of plus 2.5 points, according to a New York-based sellsider.

The borrow issue was voiced by several sources.

"...lots of buy-ins out there..." a New York-based sellsider said, referring to stock loans being recalled.

Nevertheless, the Ford convertibles were the top volume name of the day.

Meanwhile, the stock loan for General Motors Corp., which is doing similar restructuring, was described as "ugly, gross, disgusting," a sellsider said.

Ford announced late Wednesday that it planned to restructure its debt through a combination of tender and conversion offers. The move is similar to those being done by General Motors and Chrysler LLC, but Ford's is voluntary since it isn't being required under agreements associated with government rescue funds.

For the Ford 4.25% convertibles, the company was offering full conversion plus 8 points as well as interest up to but excluding the settlement date, according to a New York-based sellsider.

The convertibles were issued in December 2006 along with straight debt. The conversion was set at 108.6957 shares for every $100 bond.

At that time, the company said it was raising money to address near- and medium-term negative operating-related cash flow, to fund restructuring and to provide liquidity against unexpected events.

For convertible holders, the swap follows fast on the heels of Citigroup Inc.'s exchange offer last week on the Citigroup 6.5% convertible preferred shares.

When asked if the moves were stacking up to an issuer trend, a West Coast buysider responded: "Where is John Galt? I have no idea what to think."

The buysider was referring to a character in an Ayn Rand novel that embodied the power of the individual in a society that embraced socialistic ideals and was under the influence of oppressive, bureaucratic functionaries.

US Bancorp joins the fray

US Bancorp's floating-rate senior convertible debentures due 2035 were in trade Thursday and seen at 88.375 bid, 88.875 at the close.

US Bancorp stock fell $2.00, or 18%, to $9.01 in very heavy volume.

"Looks to me like there are a couple of two-sided trades," a New York-based sellsider said.

The Minneapolis-based commercial bank has other floating-rate convertible paper that wasn't seen in trade.

On Wednesday, the bank cut its dividend, and on Thursday there were reports that the bank planned to return funds it received under the Troubled Asset Relief Program.

House Financial Services Committee chairman Barney Frank said US Bancorp will return $6 billion of the $6.6 billion it received from the fund. He also said Northern Trust Corp. will return $1.6 billion.

BRE down 0.75 point

BRE Properties' 4.125% convertible senior notes due 2026 traded 81.75 bid, 82.5 offered, which was down about 0.75 point from previous levels, a sellsider said.

"There were a couple of big trades. There was a seller leaning on them and one buyer taking them up," the sellsider said.

"REITs don't have a ton of equity sensitivity because of the high premiums. And everything that's going on will affect the REITs, all the credit plays into it, and the credit markets aren't open," the sellsider said.

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