Valassis improves on attempt to end deal; JDSU falls with poor guidance; CompuCredit rides stock rally

By Kenneth Lim

Boston, Aug. 31 - Activity in the convertible bond market picked up slightly on Thursday as the month drew to a close, with Valassis Communications Inc. gaining in early trading after the company sued to end a $1.3 billion merger with Advo Inc.

JDSU fell with the stock after the company provided a disappointing first-quarter guidance and reported an in-line fourth quarter.

CompuCredit Corp. puzzled traders with outright gains in the afternoon, in line with sharp gains in the stock.

The convertible market in general saw a modest improvement in volume as investors adjusted positions with August coming to an end.

"There's stuff doing," a sellsider said. "It's the last day of the month, I guess some guys are doing last trades before September."

Also trading on Thursday was Nabors Industries Ltd.'s 0.94% convertible due 2011, which gained about a quarter-point outright to trade at 98 versus a stock price of $33.25. Nabors stock (NYSE: NBR) eased 0.21% or 7 cents to close at $32.88.

"It was up with the stock earlier in the day, but for some reason the stock came back down near the close," a convertible bond trader said.

Nabors is a Bermuda-headquartered land drilling contractor for the oil and gas industry.

Ford Motor Co.'s 6.5% convertible preferred was also higher outright, in line with its stock after the Dearborn, Mich.-based auto maker unveiled plans to sell its Aston Martin luxury brand. The convertible rose 1.07% or 0.36 point to close at 34.04, while the stock closed at $8.37. Ford stock (NYSE: F) improved 1.21% or 10 cents.

Valassis gains on suit

Valassis' floating-rate 1.084% convertible due 2033 gained about a point outright on Thursday after the company sued to void a planned merger with Advo.

The convertible traded at 62 versus a stock price of $20.65, and held firm even as the stock continued to slide the rest of the day. Valassis stock (NYSE: VCI) closed at $19.72, a loss of 6.14% or $1.29.

"A lot of the VCIs traded today," a sellside convertible analyst said. "It was up as much as a point."

Livonia, Mich.-based Valassis, a marketing services provider, said late Wednesday that it was suing Advo to try to end its plan to acquire Advo in a stock deal. Valassis alleged that Advo's management misrepresented the financial health of the company and failed to reveal problems with its internal control.

Windsor, Conn.-based Advo said the suit was baseless, and it plans to take action to enforce the terms of the merger. Advo is a direct-mailing marketing company.

"The stock was up on hopes that they would be able to get out of the deal," a sellside convertible bond analyst said. "It probably would have been good for the credit also...If they had some success in getting out of this it would have been good, but maybe people think it's not going to happen now [with the stock's decline]."

Standard and Poor's on Thursday maintained Valassis' BB corporate credit rating, and kept the company on CredidWatch with negative implications.

"While the complaint filed with the court is not yet publicly available, the CreditWatch listing reflects the uncertainties surrounding the resolution of the complaint at a time when Valassis' existing business operations have been challenged," the ratings agency said.

JDSU falls with guidance

JDSU's zero-coupon convertible due 2010 lost about 2 points outright on Thursday after the company's fourth-quarter outlook missed Street estimates.

The convertible traded at 91.5 against a stock price of $2.20. JDSU stock (Nasdaq: JDSU) fell 13.69% or 36 cents.

"The stock really got hit today," a convertible bond trader said. "They had a loss, and to top it off their guidance wasn't what guys were expecting."

JDSU late Wednesday reported a fiscal fourth-quarter loss of $45.8 million, or 3 cents per share, from a year-ago loss of $145.7 million, or 10 cents per share. Excluding items, JDSU's loss was less than a penny per share. The maker of fiber-optic communications equipment expects revenue of $312 million to $328 million for its fiscal first quarter, below analysts' estimates of $332.6 million.

CompuCredit climbs with stock

CompuCredit's 3.625% convertible due 2025 improved by up to three points outright on Thursday after the stock climbed in the afternoon.

The convertible was marked at 95 bid, 95.25 offered against a $28.50 stock price. CompuCredit shares (Nasdaq: CCRT) surged 7.88% or $2.13 to close at $29.15.

"The stock was up big," a sellsider said. "I don't see any news, but there was good two-way flow with better buyers."

Atlanta-based CompuCredit provides credit to the sub-prime consumer market.

Positive quarter so far

A buyside convertible bond trader said the quarter has "been good so far," with convertible returns hovering around 1% for August.

"I expect it to be a strong fourth quarter," the buysider said.

The buysider noted a slower pace of new deal issuance during the month, most of it driven by real estate investment trusts.

"I'd like to see more new deals, not just REITs," the buysider said.

August saw $2.935 billion of deals, including offerings by investment banks exchangeable into stock, or $2.094 billion excluding those structured products, according to data compiled by Prospect News.

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