Convertibles mostly weaker; Gaylord drops below 90; Ferro down 2.5 points; ProLogis gains

By Rebecca Melvin

New York, Oct. 27 - Convertibles were weaker across the board Tuesday, although investment-grade names were somewhat mixed as convertibles players took profits with an eye on struggling equity markets.

"Stocks have seemingly stalled, so it's possible there's selling from crossover buyers, which will lead others to take profits too," a New York-based sellsider said.

Many newer issues in the market dropped 1 point to 3 points, another sellsider commented.

Gaylord Entertainment Co., which priced $300 million of convertibles at the end of September, saw its 3.75% convertibles traded at 90 versus a share price of $15.75, and the paper was indicated lower at the close, down to 88.25 from 93.9 on Monday.

Ferro Corp. convertibles fell 2.5 points as its shares dropped after the Cleveland-based specialty materials supplier announced a secondary stock offering Tuesday on the heels of its third-quarter earnings report on Monday.

Arris Group Inc. was down despite the communications technology company's better-than-expected earnings reported late Monday and fourth-quarter forecast of results in line with third quarter performance.

But Textron Inc., which has a negative yield on its convertibles, was mostly quiet even though its underlying shares climbed 7% after posting an unexpected profit and better outlook.

Textron's 4.5% convertibles due 2013 traded at 168.522, which was up 8.561 points, according to Trace data.

Ahead of Cephalon Inc.'s earnings report seen after the close, its 2.5% convertibles traded at 101.75 versus a share price of $54.75. And ProLogis' convertibles were quoted higher amid word of a new ProLogis straight deal.

Stocks ended mostly lower, although the Dow Jones Industrial Average squeaked out a gain at 9,882.17, which was up 14 points.

A disappointing October Consumer Confidence Index reading of 47.7 fostered some selling pressure early in the session. But stocks had started out the day higher following the Standard & Poor's/Case-Shiller home price report that showed home prices in 20 major metropolitan markets increased for the third straight month in August. The Case-Shiller index gained 1% in August from July.

Gaylord weakens

Gaylord Entertainment's 3.75% convertibles due 2014 traded at 90 versus a share price of $15.75 on Tuesday. Shares of the operator of country music's Grand Ole Opry dropped $1.72, or 10%, to $15.57, ending at its lows for the day.

Weakness was attributed to the sector being down. Las Vegas Sands Corp. shares fell 11%.

"I don't see anything company specific. It might be consumer confidence," a New York-based sellside analyst said.

Gaylord will report its third-quarter earnings Nov. 3.

Arris weakens too

Arris' 2% convertibles due 2026 were 94.25 bid, 95 offered versus a share price of $10.60, which was down from an indicated level of 97.7 on Monday, according to a pricing source.

Shares of the Suwanee, Ga., communications technology company ended the session almost at that level, falling 78 cents, or 7%, to $10.59.

The company, which sells products that enable high-speed data and video traffic, said revenue in the third quarter was $275.8 million, compared to the third quarter a year earlier of $297.6 million. Through the first nine months of 2009 and 2008, revenues were $807.8 million and $852.2 million, respectively.

Net income was $21.7 million, or 17 cents a share, compared with $22.4 million, or 18 cents a share last year. Excluding items, it earned 25 cents a share, which was a penny or two better than estimates.

Meanwhile, the company projected that fourth-quarter revenue would be in the range of $265 million to $285 million, with adjusted net income per diluted share in the range of $0.22 to $0.26 and GAAP net income per diluted share in the range of $0.13 to $0.17.

Ferro slips 2.5 points

Ferro's 6.5% convertibles due 2013 traded last at 85 after an earlier trade at 87.5.

Shares of the company fell 64 cents, or 9%, to $6.15.

Ferro announced that it is offering to sell 29.5 million shares of common stock with a greenshoe of up to an additional 4.43 million shares.

Ferro intends to use up to $50 million of the net proceeds from this offering to pay costs associated with its restructuring programs and strategic initiatives. Any remaining net proceeds will be used to reduce borrowings under its credit facility and pay fees and expenses in connection with the amendment and restatement of such facility.

The amendment and restatement of the credit facility, which, among other things, extends the maturity of the revolving portion of the credit facility for one year through June 2012, is conditioned upon Ferro raising at least $150 million in gross proceeds from the offering.

On Monday, Ferro said its earnings and revenue were lower in the third quarter compared with the year-earlier quarter.

Cephalon trades above par

Cephalon 2.5% convertibles due 2014 traded at 101.75 versus a share price of $54.75. The Frazer, Pa., biopharmaceutical company priced the convertibles in May.

After the close, Cephalon reported better-than-expected third-quarter profit on higher sales, lower costs and lower tax expenses related to a legal settlement, and the company issued a 2010 earnings forecast in line with diminished Wall Street estimates.

Cephalon said it expects 2010 adjusted earnings of $6.50 to $6.70 per share and sales of $2.33 billion to $2.40 billion.

Cephalon shares gained in after-hours trading, seen last up 75 cents, or 1.4%, at $54.75.

ProLogis better

ProLogis convertibles were quoted higher after the real estate investment trust based in Denver priced $600 million of 7.375% 10-year senior notes on Tuesday. The new paper will yield Treasuries plus 395 basis points.

ProLogis 2.625% convertibles due 2038 traded at 87, which was up 2 points, and the ProLogis 2.25% convertibles due 2037 were at 91.5, which was up 0.25 point.

Shares of the REIT ended lower by 17 cents, or 1.4%, at $12.17.

Mentioned in this article:

Arris Group Inc. Nasdaq: ARRS

Cephalon Inc. Nasdaq: CEPH

Ferro Corp. NYSE: FOE

Gaylord Entertainment Co. NYSE: GET

ProLogis NYSE: PLD

Textron Inc. NYSE: TXT

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