Convertibles riding out summer; some profits pocketed in DISH, Liberty/Charter paper

By Rebecca Melvin

New York, Aug. 29 – U.S. convertibles continued to trade quietly on Monday as market players eyed the end of August this week and the restart of more normal market action after the U.S. Labor Day holiday next week.

In general, it was “dead,” with no major theme, a New York-based sellsider said on Monday.

Another trader quipped whether the market was open or not.

Among names that traded, DISH Network Corp.’s 3.375% convertible notes due 2026 and Liberty Interactive LLC’s 1.75% debentures exchangeable for Charter Communications Inc. saw some profit-taking by hedged players, a sellsider said.

The DISH convertibles changed hands at 103.43, which was up a bit on an outright basis but lower on swap, as the DISH common shares gained about $1.00, or 2%, to $49.86 last.

The DISH convertibles have been a commonly traded convertible since the $3 billion deal priced early this month. The Englewood, Colo.-based media company priced the upsized deal at the rich end of price talk.

The new Liberty Interactive/Charter 1.75% convertibles due 2046 traded at 102.6, which was higher by 0.5 point on an outright basis. But Charter’s common shares moved up $1.38, or 0.6%, to $252.31.

Empire State Realty Trust Inc.’s 2.625% convertibles due 2019, which also priced earlier this month, changed hands at 117.3 during the session, according to Trace data.

The Empire State convertibles were said to have moved in line, or flat, on a dollar-neutral, or hedged, basis, and were quoted at 117.4375 bid, 118.1875 offered versus an underlying share price of $21.17.

The Empire shares closed up 49 cents, or 2.4%, to $21.20.

Empire State is a real estate investment trust that owns the Empire State Building in New York. It began moving along with the overall sector last week as some investors pocketed profits following a good run up in the underlying shares of those companies.

Empire State moved the opposite way after news that the Qatar Investment Authority is buying a minority stake in the REIT for $622 million. The investment means that rating agencies may move toward investment-grade status for the REIT, a market source said.

Herbalife Ltd. looked poised to bounce back from Friday’s sell-off that took the bonds down a point amid lower hares.

But on Monday the Herbalife 2% convertible due 2019 traded at 100.5 in the early going which was 2.5 points higher than the previous level. The convertibles dropped a point last week amid speculation regarding Carl Icahn’s position in the company and whether he was considering selling his 18% stake.

The common shares of Herbalife were also higher on Monday, trading last at $63.30, which was up $2.80, or 4.6%, on the day, and higher than where they were before the Friday pullback. After the market close on Friday, Icahn – one of the nutritional supplement company’s biggest defenders – issued a statement in which he denied he had attempted to sell his stake in Herbalife. He instead announced he had purchased 2.3 million more shares of the company.

Amid the Friday scuttlebutt were reports that Icahn was considering selling his stake in Herbalife to Bill Ackman, a short seller who deems the company a pyramid scheme, but Icahn also denied that he had approached Ackman.

But Brocade Communications Systems Inc., which also tanked on Friday, didn’t recover on Monday after an earnings report disappointment sent the bonds down with a downdraft in the underlying equity.

The Brocade 1.375% convertibles due 2020 changed hands at 98 on Monday, which was about 0.6 point better than the last print on Friday, according to Trace data. The Brocade common shares ended the session up a penny at $9.25.

Late Thursday, the company posted its fiscal third-quarter results, showing a profit of 21 cents per share on revenue of $590.7 million. But analysts polled by Thomson Reuters had predicted earnings per share of 17 cents on revenue of $576.3 million. Year over year, EPS was lower than the 27 cents reported then, but revenue was improved by nearly $40 million.

In the broader markets, equities were higher, with a good number of shares hitting 52-week high marks. The S&P 500 stock index gained 11.34 points, or 0.5%, to $180.38, the Dow Jones industrial average rose 107.59 points, or 0.6%, to 18.502.99 and the Nasdaq composite index added 13.41 points, or 0.3%, to 5,232.33. The market action, while light in terms of volume, but strong in terms of breadth, had 4,600 gainers and 2,100 losers.

There didn’t seem to be any consternation about the potential for interest rate hikes, which Federal Reserve chairman Janet Yellen said was a near-term possibility in her speech at the economic summit at Jackson Hole, Wyo., last week.

She said the case for such a hike had strengthened in recent months.

Mentioned in this article:

Brocade Communications Systems Inc. Nasdaq: BRCD

Charter Communications Inc. Nasdaq: CHTR

DISH Network Corp. Nasdaq: DISH

Empire State Realty Trust Inc. Nasdaq: ESRT

Herbalife Inc. NYSE: HLF

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