Virgin Media jumps on bank amendment; Ford unmoved by weak sales; Amgen, Medtronic up with stocks

By Kenneth Lim

Boston, Nov. 3 - The convertible market got off to a relatively slow start Monday as equities struggled to find a direction.

Virgin Media, Inc. was one of the bright spots, as its bonds improved on the company's success in postponing its obligations on £4.4 billion of debt.

Ford Motor Co. was up early but eased later in the day after the auto maker reported a sharp drop in U.S. auto sales for October.

Investment grade names continued to see steady interest although most of the activity appeared to be investors maintaining old positions, a sellside convertible trader said.

"Still a lot of uncertainty out there," the trader said. "My sense is not a lot of the funds are adding, they're mostly just staying in place, maybe doing some delta trading, but there's no sense of excitement about anything. Nobody's buying because there's no capital flowing in right now."

Amgen Inc.'s 0.125% convertible due 2011 gained about 0.75 point to trade at 83 against a stock price of $59.90, while its 0.375% convertible due 2013 added about 0.5 point to change hands at 89 versus the same stock price.

Shares of Thousand Oaks, Calif.-based Amgen, a biotech company, closed at $61.55 Monday, up by 2.77% or $1.66.

Medtronic, Inc. also improved about ¾ point.

The Medtronic 1.5% convertibles due 2011 were spotted at 93.5 versus a stock price of $40.25, while the Medtronic 1.625% convertibles due 2013 traded at 87 versus the same stock price.

Medtronic common stock gained 0.89% or $0.36 Monday for a $40.69 close.

Medtronic is a Minneapolis-based medical device manufacturer.

Primary hopes

A convertible desk analyst said the convertible market could be experiencing a lull as investors try to figure out their strategy for the investment class.

"After a rough month last month guys were kind of reviewing and kind of reassessing what happened last month and looking at how they want to look at the convertible world going forward," the analyst said.

A return of the primary market, which was silent for the whole of October, would be an important boost, the analyst said.

"I think a lot of it has to do with, we have to get the new issue market going again, it's kind of shut down," the analyst said. "It looks like if we see one and it does well, that could be an indication that could bring back the investors."

The financial sector, which was a major issuer of convertible paper before the credit markets dried up, remains a capital-hungry space, but the analyst was unsure whether investors would be looking for more convertibles from financial institutions.

"I think that's the sector that probably needs the capital the most, but as much as people got burned on probably the preferreds...I think people are pretty hesitant to put money into new issue like that, if they do what they did month and a half ago and took away the borrow," the analyst said. "I'm not sure the buyers are going to be comfortable with those convertibles."

Virgin Media gains on deal

Virgin Media's 6.5% convertibles due 2016 jumped by about 12 points outright on Monday after the company said it managed to defer its bank debt obligations until 2012.

The convertibles traded at 58 against a stock price of $6.50, while Virgin Media common stock closed at $6.64, a 15.28% or $0.88 jump.

Virgin Media is a New York-based communications and entertainment company.

The company said Monday that holders of its £4.3 billion of senior term loans and £100 million revolving facility agreed to postpone £2.075 billion of amortization repayments to 2012 and other amendments. Those payments were originally due between now and 2012.

The new credit deal will give Virgin Media more time to seek a complete refinancing of the debt, the company said in October when it announced the proposed amendments.

"It's obviously a plus for them," a sellside convertible analyst said. "It changes the prospective time horizon on the loan. The converts are up, they were like 45.5 last week, so people feel better for the credit. It's still not great, but it's better."

The analyst said it was possible that the convertible could see a little more upside.

"There's still a lot of pressure on convertibles generally," the analyst said. "People are not so quick to buy the stuff at 40 and 50, so it could take some time."

Ford steady on sales report

Ford's 4.25% convertibles due 2036 held firm Monday after the company reported a drop in its October sales.

The convertible traded at 29 versus a $2.125 stock price, while Ford common stock (NYSE: F) slipped 2.74% or $0.06 to close at $2.13.

Ford is a Dearborn, Mich.-based automaker.

"They were up a bit in the morning but it looks like they came back in the afternoon," a convertible trader said.

Ford on Monday reported a 30.2% drop in its October U.S. auto sales, ahead of an expected results announcement Friday when analysts believe the company will report a loss.

The news was not a big surprise for investors, the trader said.

"October was just a horrible month for everybody, whether you were in New York or in Detroit," the trader said. "I don't think it's a surprise at all. That's probably why the stock didn't react much to this."

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Ford Motor Co. NYSE: F

Medtronic, Inc. NYSE: MDT

Virgin Media, Inc. Nasdaq: VMED

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