Convertibles lackluster; Ciena trades mixed to higher; Radian gains; USEC mostly unchanged

By Rebecca Melvin

New York, Feb. 16 - Action in the convertible bond market was lackluster on Wednesday as market players continued to remain sidelined with high-priced paper and loathe to hit offers in the Street deemed very expensive.

"The market is too tight, and now it's structural," a New York-based sellside trader said.

"This is more than just waiting for new issues. This type of pricing is now the norm; it's not temporary; and when it unwinds, it's going to be a more difficult scenario."

There were no new issues in the U.S. market launched or priced on Wednesday.

Notable in its absence from top-volume trading names was EMC Corp., which has been fairly consistently atop volume lists in recent weeks.

In its stead was Amgen Corp. and Beckman Coulter Inc. along with regulars like Symantec Corp. and Transocean Ltd. (The EMC B paper, or the 1.75% convertibles of 2013, did Trace at number 11, however.)

A pair of Ciena Corp. convertibles was heard in trade, with the optical networking gear maker's notes mixed to higher as their underlying shares marched up another 1.8% in light volume.

Ciena's shares have gained 16% since Feb. 3 when the strong earnings report of JDS Uniphase Corp. touched off a buying rush in optical names.

Radian Group Inc.'s convertibles were slightly better, given that the underlying shares of the Philadelphia-based mortgage insurer were 1% lower, pressured by PMI Group Inc.'s weaker-than-expected earnings report.

SunPower Corp.'s convertibles were higher outright as shares of the San Jose, Calif.-based solar company added to a significant run up again.

SunPower shares were lower in after-hours trade ahead of the company's earnings report slated for release on Thursday.

Meanwhile, USEC Inc. was mostly steady with a trade reported at 90 versus a share price of $5.90. That compared to similar pricing in recent weeks, including a dealer purchase on Jan. 21 at 90.15 versus a share price of $5.60. The latter price represented a 6% yield to maturity.

Ciena mixed to higher

Ciena's 0.25% convertibles due 2013 traded at 101.5 versus a share price of $27.75 on Wednesday, according to a New York-based sellside desk analyst. The 0.25% paper was seen settling out at around 100.667 at the end of the session, which was up 0.3 point on the day, according to another pricing source. Trace data recorded a late trade at 99.125, which was down 0.375 point on the day.

Ciena's 4% convertibles due 2015 were said to have traded at 154 versus the $27.75 share price, and that looked to be up about a point on the day.

Neither the Ciena 0.875% convertibles due 2017 nor the Ciena 3.75% convertibles due 2018 were reported in trade by sources queried by Prospect News, but both issues were quoted up a point or two.

Ciena's 3.75% convertibles, which initially priced in mid October, were quoted at 157.8.

Shares of the Linthicum, Md.-based communications networking equipment and software company closed at $27.73, which was up 48 cents, or 1.8%, on the day.

Radian slightly better

Radian's 3% convertible senior notes due 2017 traded at 99.75 versus a share price of $7.85, according to a New York-based sellside desk analyst. A second pricing source had the bonds settling unchanged for the day at 98.52.

Shares of the Philadelphia-based mortgage insurer closed down 9 cents, or 1.1%, at $7.60.

Rival mortgage insurer PMI Group, which also has a convertible bond, reported Wednesday a larger-than-expected fourth-quarter loss of $184.4 million, or $1.14 per share, compared to a loss of $228.2 million, or $2.76 per share in the year-earlier quarter.

Excluding items, PMI lost $1.05 per share, which was larger than the analysts' consensus estimate of a 68-cent per share loss.

Revenue fell 41% to $144.2 million from a year earlier, and shares of the Walnut Creek, Calif.-based company traded down.

Radian, which had posted its own larger-than-expected loss earlier this month, saw its shares spike by as much as 16% last Friday after word from the Obama administration that it proposes to reduce the role of government-backed entities in the mortgage market, including the shut down of Fannie Mae and Freddie Mac.

SunPower surge

SunPower's 4.75% convertibles due 2014 traded Wednesday at 102.75 bid, 103.125 offered, versus a share price of $17.07. That compared to a trade Feb. 11 at 94.75 bid, 95.75 offered, versus a share price of $13.75, according to a Connecticut-based sellside analyst.

The analyst said he didn't know how much the paper moved on a hedged basis.

Shares of the San Jose, Calif.-based solar panel maker gained 56 cents, or 3.4%, to $17.14 on Wednesday.

The SunPower shares have had a meteoric move up since August when they were $10.00. And the SunPower 4.75% convertibles were in the 70s a few months ago, a New York-based sellside trader noted.

SunPower also has 4.75% convertibles due 2014, 0.75% convertibles due 2027 and 1.25% convertibles due 2027. But those issues weren't heard in trade.

Mentioned in this article:

Amgen Corp. Nasdaq: AMGN

Beckman Coulter Inc. NYSE: BEC

EMC Corp. NYSE: EMC

Ciena Corp. Nasdaq: CIEN

Radian Group Inc. NYSE: RDN

SunPower Corp. Nasdaq: SPWRA

Symantec Corp. Nasdaq: SYMC

Transocean Ltd. NYSE: RIG

USEC Inc. NYSE: USU

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