Financials weaken further, but BankUnited finds buyers; Newmont, Goodrich add; Chesapeake slips

By Rebecca Melvin

New York, June 26 - Convertibles mostly sank on Thursday as credit concerns reared again, crushing the stock markets, and taking many convertibles down along with them, market participants said.

Financials and automakers were obvious losers. Goldman Sachs put Citigroup Inc. and General Motors Corp. on its conviction sell list and downgraded several brokers.

General Motors Corp. saw its convertibles down between 2% to 8%, which wasn't as drastic as the 11% drop in the Detroit car company's common stock.

Citigroup's 6.5% perpetual convertible preferred closed down about 1.25 points to around the 44.75 level, amid a 6.3% drop in its underlying shares.

Many bank and broker names continued their seemingly inexorable descent. BankUnited Financial Corp. convertibles actually found a few buyers at the 41 area, even as its stock plumbed all-time lows of $1.05.

Shares of the Coral Gables, Fla.-based regional bank closed up slightly from that level at $1.30, which was down 4.4% on the day.

There were a few winners Thursday, with trades at higher prices representing a flight to safety and including names like Newmont Mining Corp. and Goodrich Petroleum Corp., market participants said.

Meanwhile Chesapeake Energy Corp., which has seen a run up in some of its convertibles, was weaker, extending a trend of the last several days, sources said, but the name was mostly placid in the storm.

"There wasn't any frenzied selling," one New York-based sellside trader said of the convertibles market on a day when the Dow Jones Industrial Average plunged 358 points, or 3%, to 11453.42.

"There was a lot of asking, not much buying or selling really," a New York-based sellside desk analyst said.

Regarding overall trade, "We saw some good volumes in the beginning of the day, but then people were just watching sports or watching the market crater in the afternoon," the sellside trader added.

No one reported a gray market in Evergreen Solar Inc.'s $300 million of five-year convertibles that were expected to price after the market close Thursday.

Banks and brokers both lower

In many cases, the way financial names were set up or hedged left convertibles players happy to see that "they are spreading out," a Boston-based sellside trader said. But this wasn't true in all cases.

UCBH Holdings Inc., which priced $135 million of perpetual convertible preferreds on June 5, has seen its stock move way down in terms of valuation. Those 8.5% convertibles were 60 bid with the stock at $2.33 on Thursday.

"That's down 40% in two weeks. They just keep selling," the sellside trader said.

Shares of the San Francisco-based commercial bank (Nasdaq: UCBH) actually closed up by 2 cents, or almost a percentage point, at $2.29.

Another name that has become "an abomination," he said was BankUnited Financial, which has launched a public offering of $400 million of common stock. There is a stockholder meeting scheduled Friday to vote on increasing the number of common shares to 500 million from 200 million.

"The BankUnited scenario, with it filing to sell something on the magnitude of 300 million shares would be hugely dilutive to equity holders, and all indications are that it is in dire straights with the stock at $1.30; but we have seen equity offerings down here at these levels, although it could be challenging," a New York sellsider said.

"The bonds are trading as a distressed scenario. But there are buyers as this is a potential forced liquidation that could mean some recovery on the bonds that could be higher," he said.

Another sellsider said, "People are buying the convert at 41. This one is both sides as a takeover story. There's a put in 2011, but people are worried about it before that," he said.

National City Corp.'s convertibles were being unwound.

"They did their job. The hedge guys are unwinding, taking them off, and the outrights are putting them on," he said.

He said the NatCity 4% convertibles were at 81.25 bid, 81.75 offered versus a share price of $4.75 on Thursday.

"They are relatively short 2011 senior bonds," he said. The bonds had traded up the upper 80s in recent months, but were recently seen at 83.5 two weeks ago.

Meanwhile, shares of the Cleveland, Ohio-regional bank (NYSE: NCC) closed down 25 cents, or 5%, at $4.80. The shares have been slowly drifting lower from the mid to upper teens at the beginning of the year.

Among equities for sale with the corollary preferreds was Lehman Brothers Holdings Inc. Its 8.25% convertible preferreds were at 857.5, versus a share price of $23 on Thursday, compared to 919 versus $23.75 on June 11.

Shares of the New York-based investment bank (NYSE: LEH) fell $2.08, or 8.4% on Thursday.

Newmont, Goodrich higher

The convertibles of Newmont Mining climbed 3 to 4 points Thursday as investors viewed the gold mining company as a safe haven.

The Newmont 1.625% convertible senior notes due 2017 were seen closing at 129.5, versus a closing stock price of $52.18, compared with $125.6, versus a stock price of $50.45 on Wednesday.

The Newmont 1.25% convertible senior notes due 2014 were at 129.3, compared to 125.6 on Wednesday.

Shares of the Denver, Colo.-based company (NYSE: NEM) closed up $1.73, or 3.43%.

"The Newmonts, with the market cracking, was viewed as a flight to safely. They were active, in big sizes, and better bid," a New York-based sellsider said.

Another name that was better was Goodrich Petroleum. The stock has had a great run, and the credit improved and it was trading in line, he said.

Goodrich Petroleum 3.25% convertibles senior notes due 2026 closed near 135, versus a stock of $71.25, compared to 133, versus a closing stock price of $70.08 on Wednesday.

Shares of the Houston-based independent oil and gas company closed up $1.17, or 1.7%.

Chesapeake touch weaker

The Chesapeake 2.25% convertibles due December 2038 (Cusip: 165167CB1), which has been on a tear for much of June, closed Thursday at 110.35 versus a share price of $62.90, compared to 111.472, versus a share price of $63.77 on Wednesday. Wednesday's level was lower by 1.958 points from Tuesday.

The Chesapeake 2.5% convertibles due May 2037 (Cusip: 165167BZ9) closed Thursday at 169.67, versus the $62.90 stock price, compared to 172.09 on Wednesday. And again the Wednesday price was down from Tuesday, and in this case, by 4.7 points. But the 2.5s had been rising pretty steadily since January.

The Chesapeake 2.5% convertibles due May 2037 (Cusip: 165167CA3) closed at 169.67 also, compared to 172 on Thursday and 175 on Tuesday.

China Sunergy prices

China Sunergy Co. Ltd.'s 4.75% convertibles were released for secondary market trading on Thursday, but they weren't heard in trade.

The Nanjing, China-based solar company priced $50 million of five-year convertible senior notes with a coupon of 4.75% and an initial conversion premium of 20%.

The Rule 144A deal priced at the midpoint of talk for the coupon, which was 4.5% to 5%, and at the cheap end of talk for the initial conversion premium, which was 20% to 27%.

Concurrently an American Depositary share borrower priced an offering of 4.3 million borrowed ADSs at $10.25 per share.

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