Nabors little changed on lower oil; GM, Ford mixed; Sinclair Broadcast for sale, but no buyers seen

By Rebecca Melvin

New York, Dec. 5 - Financials, energy and auto names remained central to action in the convertibles market on Friday - as has been the case all week - but activity was light again, with sellsiders complaining about the difficulty of enticing buyers into the ring.

"I'm having a hard time finding people to set up to do the most rudimentary, or 'lay up,' trades, as I call them," an East Coast-based sellsider said.

"There are opportunities, but I don't even know if a lot of the big guys are there anymore; they're not returning phone calls," he said.

The convertible bond market seems to be going through a metamorphosis, sources say, as hedge fund players that have been a major component of the market for many years curtail activity amid forces like de-leveraging, redemptions and poor returns that have crippled the industry this year and particularly this fall.

Hedge funds fell 1.4% in November, a record sixth straight monthly decline, according to data compiled by Hedge Fund Research.

The drop leaves hedge funds down 17.7% this year, and the decline has caused many firms to liquidate funds. One of the latest casualties was New York hedge fund manager Ramius Capital Group, which is shutting four funds totaling about $550 million, covering convertibles as well as distressed credit and merger arbitrage, according to FINalternatives.

On Friday, equities indexes reversed course to end sharply higher as investors shook off an abysmal jobs report that showed the U.S. lost 533,000 jobs in November, its fastest pace since 1974.

The Dow Jones Industrial Average ended up 259 points, or 3%, at 8,636.42 after suffering an earlier 300-point loss.

Lower jobs and the poor economic outlook spurred crude oil to its sixth consecutive loss Friday. Crude oil for January delivery settled at $40.81 a barrel, down $2.86, or 6.5%, on the day on the New York Mercantile Exchange, its lowest settlement since Dec. 10, 2004.

Nabors Industries Ltd. convertibles traded little changed to slightly lower, however.

In financials, a rally among insurers that caused non-convert issuer Hartford Financial Services to more than double, helped lift Prudential Financial Inc.'s longer-dated paper another point, and MetLife Inc. mandatories were also higher.

Ford Motor Co. convertibles bounced from their lows Friday but still ended lower compared to Thursday, while General Motors Corp. convertibles reversed Thursday's losses to end mostly higher. The moves came after the Big Three automakers' top executives testified for hours before lawmakers again in their bid to secure $34 billion in loans needed to help their companies survive the credit crisis and economic downturn.

Elsewhere, Sinclair Broadcast Group Inc.'s 6% convertibles were for sale for 48.5, which was weaker, but no bids for the paper were forthcoming, sources said. No particular reason was seen for the weakness. "It's the same as it's been," a sellsider said.

To the upside, Human Genome Sciences Inc. convertibles were in trade again and trending higher along with their underlying shares, as they have been all week.

Enzon Pharmaceuticals Inc. traded up as well, also in tandem with the company's shares. The Enzon 4% convertibles due 2013 were at 71 versus a share price of $5.60, compared to 68.5 on Thursday.

Financials looking better

Prudential's floating-rate convertibles due 2037 moved up to 92 from 91, according to sources. The fact that the Newark, N.J.-based insurer is raising money through asset sales and that there is the possibly of TARP funds has investors feeling more confident about the put on the newer convertibles, a New York-based sellsider said.

MetLife's 6.375% mandatories due 2009 were indicated to close at 8.49, compared to 7 on Thursday. Shares of the New York insurer surged 22.5%, or $5.64, $30.75.

"Financials were all up. We're moving higher, the Fed has put so much money in there, still it takes awhile ... but the banks aren't going out of the business," a sellsider said.

Ford, GM mixed again

Ford Motor's 4.25% convertibles due 2036 traded late in the day at 31.375 versus a share price of $2.72, after trading earlier in the session at 29.75, which was down from 33 on Thursday.

The GM convertible bonds mostly retraced steep losses notched Thursday.

The automakers' convertible bonds have gyrated, moving up if the likelihood of bailout funds was high, and lower if the prospects looked dim.

The two have done a better public relations job this week than during their last visit last month, according to a Dec. 4 Gimme Credit research report.

They have promised to do the right things like produce more flex fuel and hybrid cars, sell corporate jets, cut CEO pay to $1, restore profitability by 2011 for Ford, and submit to federal oversight for GM, and the UAW agreed to eliminate the jobs bank and delay VEBA payments, Gimme Credit analyst Shelly Lombard wrote.

Ford says it has sufficient liquidity to ride out the current economic storm but is asking for $9 billion as a line of credit just in case. Two potential cash drains are the $3 billion and $4 billion cash pension contribution and $4 billion of debt to Ford Credit that it can't refinance, Lombard pointed out.

The Dearborn, Mich.-based, No. 2 U.S. carmaker's plan consists of doing more of what it's doing, such as adding more cars and crossovers, closing four more plants, and reducing compensation and benefits.

GM is asking for $18 billion, plus a $6 billion line of credit, with $4 billion to be available immediately and another $4 billion in January.

GM's plan was more detailed with base case and downside scenarios. Many of its initiatives are similar to Ford's but they included a long-awaited brand rationalization around four core brands, Chevrolet, Cadillac, Buick, and GMC, while Saab, Pontiac, and Saturn are closed or shrunk.

GM claims its plan will enable it to become profitable with annual sales of 12.5 million to 13 million units. It also says that a healthy GMAC is vital to its sales but didn't offer a contingency plan if GMAC's quest to become a bank fails. Such a quest was frowned upon by members of Congress on Friday.

GM's plan has more execution risk and substantial uncertainty for bondholders, Lombard wrote. And while neither plan is perfect, the probability that they'll get government financing has increased.

Shares of the Ford closed up 6 cents, or 2.3%, at $2.72; and the common stock of Detroit-based GM closed down 3 cents, or 0.7%, at $4.08.

Mentioned in this article:

Enzon Pharmaceuticals Inc. Nasdaq: ENZN

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

Human Genome Sciences Inc. Nasdaq: HGSI

MetLife Inc. NYSE: MET

Nabors Industries Ltd. NYSE: NBR

Prudential Financial Inc. NYSE: PRU

Sinclair Broadcast Group Inc. Nasdaq: SBGI

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