Convertibles active on special situations; MF Global gyrates; Cheniere up on contract news

By Rebecca Melvin

New York, Oct. 26 - MF Global Holdings Ltd.'s three convertible bonds rebounded into the close Wednesday, after extending their slide in active trade early in the session.

MF was "all over the place" and swings were attached to various headlines including speculation over a potential buyout of the New York-based brokerage by Goldman Sachs, traders said.

"They started out at 50, then fell to 39, and bounced back to 57 into the close," a Connecticut-based trader said of the newer MF convertible bonds.

Cheniere Energy Inc.'s 2.25% convertibles ended sharply higher, but off their high marks, after news that the Houston-based liquefied natural gas terminal company inked a deal with BG Group plc to export LNG from the United States.

Clearwire Inc. ended the session in the mid-40s, after popping to 47 bid, 51 offered, extending gains of the last couple of days.

Wednesday's move was driven by news that Sprint Nextel Corp. signed an agreement with Clearwire to help finance the Kirkland, Wash.-based internet services provider's build out of a next generation 4G LTE wireless technology.

The move reverses Clearwire's slump earlier this month on Sprint's announcement that it planned to shift customers away from Clearwire's WiMAX technology to its own 4G network. Last week the Clearwire bonds were at 28.

Cemex SAB de CV's convertibles were flat to up a point or two, sources said, after the Mexico-based cement company posted earnings that showed debt ratios and its ability to make good on upcoming debt covenants were moving in the right direction, a New York-based sellsider said.

Salesforce.com Inc. was another name mentioned in trade, and that convertible was called flat on a dollar-neutral basis despite a $6.00, or nearly 5%, drop in the underlying shares on Wednesday.

Overall, there was some decent buying and selling in the convertibles market early on, with buying said to have tapered off in the afternoon. The equity market strengthened into the close.

"The stock market has been nuts. I can't figure that one out at all. It was up 200 points and down 200 points and rebounded into the close," a sellsider said.

As for convertibles, action seemed to be dominated by special situations, with little attention paid to the broader markets, which have been on Europe watch, hoping for progress from leaders there on how to stabilize and contain the debt crisis in that region.

"It seemed busy," a New York-based trader said of the convertibles market. "But it was driven by individual headlines: you had Clearwire ripping higher on news; LNG ripping higher on news, and MF news causing those to rebound and rip higher to the high 50s."

MF Global gyrates

New York-based commodity and derivatives broker MF Global continued to free-fall early Wednesday after a disappointing earnings report followed on the heels of a credit downgrade by Moody's Investors Service on Monday.

"MF was all over the place this morning," a New York-based desk analyst said.

At midsession, both of the newer MF bonds were 43 bid, 45 offered with the shares at $1.40.

MF's three-month old 3.375% convertible due 2018 and the eight-month old MF 1.875% convertibles due 2016 traded mostly in the 40 and 50 range during the session, but they also dropped beneath the 40 mark to trade in the upper 30s, according to a New York-based trader.

On Tuesday, the MF 3.375% convertibles were 48 bid, 51 offered, with the stock around $2.25, and they had settled around 50.

MF Global's 1.875% convertibles due 2016 had traded at 47.5 and also at 49 on Tuesday.

MF's 9% convertible note due 2038 traded as low as the lower 50s and as high as 75 on Wednesday, compared to about 72 at the end of Tuesday.

Shares of the New York-based dealer-broker settled lower by only 16 cents, or 8.6%, on Wednesday, after initially plunging another 79 cents, or 42%, to $1.07. That drag followed on Tuesday's move when MF shares plunged $1.69, or 48%, to $1.86.

"They are still down a ton," a New York-based trader said of the MF bonds. "But they bounced back a lot. And who knows but that this was covering shorts from this morning."

A buyout by Goldman Sachs would be positive for convertible bond holders because it would trigger the indentures' change-of-control feature and the holders could put back the bonds at par.

"But Goldman is not likely to want to step in front of a bunch of convertible bond holders," one sellsider said. Nevertheless, outside such as scenario, "it looks like a real problem. People lose their confidence and then they could have to wrap it up. It can happen quickly with companies like this. Like Lehman. They can have to wrap it up in a week," the sellsider said.

There were various reports on Wednesday, including a Wall Street Journal article that MF had hired Evercore Partners and at least one other bank to help it with restructuring.

The current downdraft was fueled by the Moody's downgrade and wider fiscal second-quarter loss that missed estimates. The firm has been hurt by turbulent markets and is saddled with an uncomfortable amount of European debt.

MF reported a wider quarterly loss of $186.6 million in its second fiscal quarter, down from $38.8 million in the same period a year earlier because of low trading amid market turbulence and weak capital markets.

Revenue fell 14%. The company also took charges related to deferred tax assets.

On Monday, Moody's downgraded MF to Baa3 from Baa2, citing the current low-interest environment and volatile capital markets conditions, which made it unlikely that MF Global will be able to achieve the financial targets that Moody's had previously said were required for the Baa2 rating. The rating is under review for possible further downgrade.

Cheniere pops

Cheniere's 2.25% convertibles due August 2012 traded up to as high as 94.5 and settled back slightly to 91 bid, 93 offered at the close.

That was up about 8 points on the day, a Connecticut-based sellside trader said Wednesday.

The 92 to 94 price was up from 85 on Tuesday and up from about 75 at the beginning of October.

Cheniere shares surged $4.20, or 69%, to $10.32 on Wednesday.

But despite the 60% plus move up in the common shares on the news, the convertibles, which have a conversion price of $35.32, are still busted with more than a 240% premium and trade outright, sellsiders said.

Cheniere's 2.25% convertible is the company's only debt.

The $8 billion deal with BG Group will also allow Cheniere to proceed with its Sabine pass project in Louisiana, which would be the first liquid natural gas export plant built in the United States in about 50 years.

Mentioned in this article:

Cemex SAB de CV NYSE: CX

Cheniere Energy Inc. NYSE: LNG

Clearwire Inc. Nasdaq: CLWR

MF Global Holdings Ltd. NYSE: MF

Salesforce.com Inc. NYSE: CRM

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