Convertibles weaken; National City plunges; Freeport-McMoRan, Nabors, Suntech Power, Disney lower

By Rebecca Melvin

New York, March 17 - The convertible bond market was down again on Monday, with some selling of certain financial and mining names as well as stalwarts like EMC Corp. But trading activity was generally slim in the aftermath of JPMorgan Chase & Co.'s agreement to buy Bear Stearns Cos. for just $2 per share and more attempts by the Federal Reserve to prop up the ailing credit markets, market players said.

Amid early carnage in the broader markets, it was difficult to "find a bid" in the convertibles market, and even sellers were somewhat reluctant, players said.

"Most people are hesitant to sell, too; they're afraid of what might come back. They're waiting for that next [hedge] fund to shut down, and then they might step in, and pick and choose," a New York-based sellside convertibles trader said.

"There's a take-no-prisoners attitude," said a New York-based sellside desk analyst, describing fear that has taken hold of the market due to a perception that the credit markets' situation is dire.

An obvious loser on Monday was National City Corp., which saw its stock plunge 43% and its newer 4% convertible senior notes hammered about 25 points.

Washington Mutual Inc. and Countrywide Financial Corp. both endured further punishment, and many financials were described as down 1 point to 1.5 points. But the Fannie Mae preferreds were little changed.

Phoenix-based Freeport-McMoRan Copper & Gold Inc. dropped, but Denver-based gold mining concern Newmont Mining Corp. was steady.

In the energy space, Nabors Industries Ltd. traded down, as did Suntech Power Holdings Co. Ltd., which priced a well-received issue of 3% convertibles last week.

The Walt Disney Co. 2.125% notes due 2023 traded "in" about half a point to the 105 to 105.5 level following news Friday that the media and entertainment company is redeeming that paper on April 15.

Meanwhile, in the primary arena, Raser Technologies Inc.'s planned $75 million of five-year convertible bonds still didn't price after having been expected to do so last Thursday and then again on Monday. A syndicate source said the issue wasn't seen getting done "for awhile," given the current overall market situation.

But the Rule 144A deal was still being marketed, the source said. And another source suspected its delay wouldn't be lengthy.

Price talk on the senior convertible notes is for a coupon of 5.5% to 6.5% with an initial conversion premium of 20% to 30%. Merrill Lynch is the bookrunner.

Medical Properties Trust Inc.'s proposed offering of $125 million of five-year exchangeables was still expected to price Wednesday after the close, according to a syndicate source.

Financial pummeling continues

The 4% convertibles of National City traded early at 80 versus a stock price of $10.00. But they were less than halfway through their slide at that point, closing down 25 points at 66.061 Thursday, according to a pricing source, versus a closing stock price of $7.52, and compared to Friday's close of 91.68 versus a stock price $13.50.

The 4% convertibles due 2011 had traded as high as 102 on Jan. 24, a day after the issue was initially priced.

National City is a Cleveland-based financial holding company with banking networks in Ohio, Florida, Illinois, Indiana, Kentucky, Michigan, Missouri, Pennsylvania and Wisconsin.

Reflecting National City's sizable second-lien home equity exposure, which could result in significant losses that will further weaken its capital position, Moody's Investors Service downgraded the bank's senior ratings to A3 from A2.

The ratings are supported by the company's broad retail, commercial and asset management businesses located in the U.S. Midwest, the agency said.

Meanwhile, the Washington Mutual's perpetual convertible preferreds were down another chunk as its underlying shares lost another 12.8% on Monday, after losing about that amount on Friday.

Washington Mutual stock (NYSE: WM) plummeted $1.35 to $9.24, the Seattle-based lender's 7.75% series R non-cumulative perpetual convertible preferred stock closed Monday at 648.3 compared to a Friday close at 710.

Countrywide Financial saw its convertibles sag as well, with it floating-rate A and B tranche debentures maturing in 2037 trading in the middle to upper 70s early in the session.

Shares of the Calabasas, Calif.-based mortgage lender (NYSE: CFC) continued their seemingly inexorable decline to close down by 41 cents, or 9%, to $4.09.

But the 5.375% perpetual preferred stock of Fannie Mae was unchanged at 63,861, compared to a stock price that closed at $22.21, which was down just 0.67% on the day.

Shares of the Washington, D.C.-based mortgage lender (NYSE: FNM) climbed gradually through the session, and according to a Wall Street Journal report, federal officials will be eliminating excess capital requirements for Fannie Mae and Freddie Mac to help increase their ability to support the unhealthy mortgage markets.

Mining names in play

Freeport-McMoRan's 6.75% mandatory convertible preferreds due May 1, 2010 traded at 141 versus a stock price of $96.75 early in the session.

Shares of Freeport-McMoRan (NYSE: FCX) fell a couple more dollars from that point, however, shedding almost 7% for the day, and bringing the mandatories down with them.

The 6.75s closed Monday at 136.98 versus a closing stock price of $94.61. They closed Friday at 148.21 versus a stock price of $101.61.

Meanwhile, the convertible senior notes of Newmont Mining were in play but held up even though their shares were under pressure much of the day.

The Newmont 1.25% convertible senior notes due 2014 traded at 134, and the 1.625% notes due 2017 traded at 136, both versus a stock price of $53.625.

Shares of Newmont (NYSE: NEM) closed well off their lows but were still in negative territory, down 25 cents, or 0.47%, at $53.38.

Disney show too short

There had been speculation for awhile whether Walt Disney would call its 20-year senior notes, according to a New York-based source.

In 2003, Burbank, Calif.-based Disney price $1.15 billion of the convertibles. News Friday that, in fact, the company is calling the notes caused about a half-point decline dollar neutral, or more than three points outright, on Monday.

The Disney 2.125% convertibles closed at 105.5 versus a stock price of $30.46, compared to Friday's closing bond price of 108.82 versus a stock price of $30.75.

Disney shares (NYSE: DIS) closed down 1%.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.