Transit strike doesn't rattle convertibles market; GM sinks; Entergy, ON Semi trade

By Rebecca Melvin

Princeton, N.J., Dec. 20 - Day one of New York's Transport Union Workers' strike didn't seem to prevent many convertible bond market players from making it to work on Tuesday; and the market was slightly more active than it was on Monday, market sources said.

But the session lacked any general trends and company news-driven trading was sparse. Instead, most trades seemed to represent players lightening up a position here or there or adding weight to another, market sources said.

But one feature of the day was trading of the $25 convertible bonds of General Motor Corp., which were lower as their underlying shares fell to an 18-year low before closing off the lows.

Ford Motor Co. preferreds didn't respond in complete sympathy. Although they were lower, volume was light.

A day earlier, Fitch Ratings had downgraded Ford to junk bond status, following S&P and Moody's Investors Service, which both had cut the Dearborn, Mich.-based automotive giant to junk some months ago.

Trading of recent new convertibles issues continued on Tuesday, with ON Semiconductor Corp.'s 1.875% convertibles - which didn't make a great showing for their debut Dec. 15 - trading at 96.75 on Tuesday versus a stock price of $5.60.

Electric utility Entergy Corp., which priced $500 million of mandatory convertibles also in mid December, saw its convertibles trade at 50.10 versus a share price of $69.80, the lower end of the range for the session.

The Entergy mandatories have been traded fairly actively as people continue to determine their positions in light of potential M&A activity surrounding the company, with Entergy either as an acquirer or a takeover candidate, a New York-based sellside desk analyst said.

Entergy is based in New Orleans but temporarily has headquarters in Clinton, Miss., due to devastation caused by Hurricane Katrina.

In the same industry, Calpine Corp. convertibles were lower by 1 to 2 points amid chatter that the hurting power generating company was expected to file for Chapter 11 bankruptcy protection after the close. But as of 7 p.m. ET, a filing from the San Jose, Calif.-based company wasn't seen.

Better on the day were the convertibles of Plano, Texas-based Electronic Data Systems Corp., which were up in line with their underlying shares after a stock upgrade by Lehman brothers, and Waltham, Mass.-based Novell Inc., which was about 0.375 better on a dollar neutral basis.

As for action for the remainder of the week, few held out much hope that any new deals would get done, although several referred to the deal that came from Federal National Mortgage Association, or Fannie Mae, which was the largest deal of 2004, brought during the slowest week of the year last year.

Fannie Mae sold $5 billion of preferred stock, half in convertible form, its largest capital-raising effort in history via bookrunner Lehman Brothers last year on Dec. 29.

The Fannie Mae perpetual convertible, for $2.5 billion, priced with a 5.375% dividend and 34% initial conversion premium. Making up the remaining $2.5 billion were straight floating-rate preferreds, upsized from original plans for $1.5 billion, priced at par of $50.

Fannie Mae is based in Washington, D.C.

Regarding secondary market activity during the rest of the pre-holiday week, many expected that the subway and bus transit strike situation would encourage an even more rapid quieting as more people would opt to take off Thursday as well as Friday to avoid the headaches of commuting.

GM bonds lower as stock slumps

"What drove the convertibles of GM was that the stock was getting hit pretty good," a New York-based buyside trader said.

GM's shares sagged to an 18-year low and its bonds and credit default swaps all weakened amid headlines that Toyota Motor Corp. was upping production for 2006, putting the Japanese carmaker within striking distance of supplanting GM as the world's largest car company.

Toyota said it plans to make a record 9.06 million cars in 2006, just under the 9.15 million cars and trucks that some analysts expect Detroit-based GM will make next year.

After the session's close, news hit the tape that billionaire investor Kirk Kerkorian had reduced his stake in GM to 7.8% from 9.9% at the beginning of December.

According to a regulatory filing from Tracinda Corp., Kerkorian's private investment firm, he sold 12 million shares in transactions on Dec. 15 and Dec. 19.

As the session was ending, a New York-based sellside trader said, "I guess there's just a realization that GM is not making any headway on all their problems. People don't flinch when they hear the words bankruptcy and GM in the same sentence anymore. And there are those putting the potential for bankruptcy within two years at 10% to 30%."

The GM 6.25% bonds shed 0.39, or 2.3%, to 16.41. The 4.50% bonds, which traded at 21 early in the session, closed slightly higher at 21.10, which was down 0.14 point, or 0.66%. The 5.25% bonds were nearly flat at 15.01.

Shares of GM closed down $1.20, or 5.7%, at $19.85.

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