Convertibles weaker; Radian slips further; Alcoa down 4 or 5 points outright; Carrizo off

By Rebecca Melvin

New York, Nov. 12 - The convertible bond market remained weaker Friday, extending a trend in place for the last three days amid a sell-off in the equities market and a lack of strong volumes, as well as credit concerns in Europe.

"It was mostly equity driven today," a New York-based sellsider said.

The convertibles space has come in about 0.5 point in the past three days, a second New York-based sellsider said, citing worries about debt problems in Ireland and Greece and expectations of an interest-rate hike in China.

A third New York-based sellsider said trading was light, with "no natural flow here to speak of."

Inflations fears and expectations for a rate hike caused what he called a meltdown in commodities.

Pittsburgh-based aluminum maker Alcoa Inc. traded down about 4 or 5 points outright, changing hands at 220 versus a share price of $13.35, before settling a little higher at 221 and change, a pricing source said.

Carrizo Oil and Gas Co. slipped slightly below par as its underlying shares shed 4%.

Intel Corp. was higher, however, with the newer Intel 3.25% convertibles due 2039 trading up a point to 124 while the older 2.95% convertibles due 2035 traded up nearly 2 points to 104. The Santa Clara, Calif.-based chipmaker said its board approved a 15% dividend increase starting in the first quarter as cash flows continue to improve.

Meanwhile, Radian Group Inc.'s new 3% convertibles took another leg lower to as low as 95.5 after stumbling on their debut Tuesday. The new paper had initially traded up to 106 but quickly dropped back to about par. Further weakness in its shares took the paper lower, with a syndicate source citing a market at 95.875 bid, 96.125 offered versus a share price of $7.75.

Equities slogged lower as worrisome headlines caused investors to take profits. The Dow Jones Industrial Average fell 90.52 points, or 0.80%, to 11,192.58 and was down 2.2% for the week.

The Standard & Poor's 500 index peeled back 14.33 points, or 1.18% to 1,199.21, breaking a five-week winning streak. And the Nasdaq fell 37.31 points, or 1.46% to 2,518.21, dropping 2.4% for the week.

Speculation that China might raise interest rates in response to inflation brought stocks down at the start of the session. Stock indices attempted to pare some losses midmorning but were unsuccessful, and stocks continued lower through much of the session as sovereign debt concerns resurfaced.

Radian takes a leg down

Radian's new 3% convertibles were quoted at 95.875 bid, 96.125 offered versus a share price of $7.75, according to a syndicate source. Another source said the Radian 3% convertibles traded at 95.5 versus the same $7.75 share price.

The new paper "moved down on a 120% to 140% delta," a New York-based trader said, indicating that the bonds moved down faster than the hedge.

A syndicate source said that more sellers than buyers and also a weaker stock price were to blame for some of the paper's quick fall.

Launch of the Radian $350 million deal early Monday - which was later upsized to $400 million - was met with investor enthusiasm, and even richening price talk during marketing of the deal midday wasn't enough curb the gray market, which got up to 104.

On the paper's debut in secondary dealings on Tuesday, the Radian convertibles shot up to 106 versus a share price of $8.82.

Later, the new convertibles were seen lower at 104.875 versus the same share price, and then they nearly touched par, before settling at 100.5 bid, 101 offered.

Shares of the Philadelphia-based mortgage insurer suffered an 11% plunge on Monday on news of the deal, and extended losses Tuesday, dropping another 55 cents, or nearly 6%, in heavy volume.

On Friday, Radian shares fell another 45 cents, or 5.5%, to $7.69 in heavy volume.

Mortgage insurers have suffered from the latest spate of foreclosure crisis headlines. This week reports said that Bank of America is suing Old Republic Insurance for denying claims on defaulted mortgages.

Weiss Ratings has assigned financial strength ratings of D-plus to mortgage insurers including American International Group, MGIC Investment Corp. and Radian Group.

Alcoa lower in volatile market

Alcoa's 5.25% convertibles due 2014 traded at 220 versus a share price of $13.35 on Friday before settling around 221.3 versus a higher closing share price of $13.49. On Thursday, the convertible bonds were said to have settled around 226.

Shares of the Pittsburgh-based aluminum maker lost 32 cents, or 2.3%, to $13.49 in slightly above-average volume.

The bonds have crossed back over into double par after slumping back below that level during the summer months, and down from a high at nearly triple par in January.

Mentioned in this article

Alcoa Inc. NYSE: AA

Carrizo Oil and Gas Co. Nasdaq: CRZO

Intel Corp. Nasdaq: INTC

Radian Group Inc. NYSE: RDN

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