Convertibles mostly steady to firmer: Kodak holds up; AmeriCredit adds; Ford, GM mixed; Nortel drops

By Rebecca Melvin

New York, Dec. 10 - Convertibles were mostly steady to firmer on Wednesday and a sense of "normalcy" was beginning to creep back into the market as a better variety of issues were seen in trade at better volumes, sources said.

"...starting to see folks finally buying things...new ideas," an East Coast-based sellsider said, regarding the market.

Market staples like ImClone Systems Inc. paper, now owned by Eli Lilly & Co., and Prudential Financial Inc. were both better, traders said, and trading broadened out from there.

Eastman Kodak Co. convertibles held in on a hedged basis despite an 8.5% drop in its underlying shares after the Rochester, N.Y.-based digital imaging company retracted 2008 guidance, citing slowing consumer spending and sales.

AmeriCredit Corp. convertibles traded higher in line with better underlying shares.

Brazilian mining giant Companhia Vale do Rio Doce convertibles were up as their shares snapped back amid a reversal in commodity prices as risk appetite appeared to improve among investors.

Ford Motor Co. and General Motors Corp. were mixed as the markets watched Washington for a sense of what would become of proposed legislation to provide emergency funding for the ailing U.S. automakers. A deal between Democrats and the Bush administration was opposed by Republicans.

Nortel Networks Corp. fell after the Wall Street Journal reported that the Toronto-based telecom-gear maker has sought legal counsel to explore the possibility of bankruptcy.

The company denied that a bankruptcy was imminent and said it was continuing to pursue previously announced restructuring plans as it grapples with weak sales and the credit crunch.

Ciena Corp. wasn't mentioned in trade, but the Linthicum Heights, Md.-based network services provider reports fourth-quarter earnings before the market open on Thursday. Ciena's 0.875% convertibles due 2017 traded at 35.6 on Tuesday, which was up 2.9 points.

Better buyers were seen overall, especially earlier in the day, as equities traded in choppy fashion, traders said.

Kodak holds up better than shares

Eastman Kodak's 3.375% due 2033 printed at 82, which was down from 83.5 on Tuesday, but better on a dollar-neutral basis, a sellside trader said. The issue had been down to 81 last week, but regained ground Monday and Tuesday.

Its shares on the other hand dropped hard Wednesday after the company withdraw its near term earnings forecast. Shares settled lower by $0.61, or 8.5%, at $6.59.

"They are one that holds in there even if the stock gets knocked down," the trader said. "It's busted and callable in 2010 and people are assuming that they are going to get called, so it's basically two-year paper yielding 15% for decent B paper."

The Rochester, N.Y.-based digital imaging company withdrew its second half and full year 2008 guidance citing a "dramatic slowdown in consumer spending" that worsened in the weeks subsequent to initial guidance provided Oct. 30.

The company cut its outlook for revenue growth, digital revenue growth, earnings from continuing operations, and cash generation because of the deepening global recession and changes in the value of the U.S. dollar; it didn't provide a revised forecast.

Instead it said it will update investors on business performance when it announces fourth-quarter and full-year 2008 results Jan. 29.

As previously announced, Kodak is taking a number of specific actions to address the global economic challenges impacting all of its businesses. These actions, which the company has already begun, include more tightly focusing its portfolio of investments, intensifying its emphasis on generating cash, and further streamlining its cost structure.

The company also announced that executives wouldn't receive salary increases in 2009 and that it would temporarily suspend for 2009 the company's U.S. 401(k) match.

"There is an unprecedented amount of uncertainty surrounding the economic environment and most signs indicate that we may be facing a prolonged global recession," said chief executive Antonio M. Perez, said in a release.

AmeriCredit gains in line with shares

AmeriCredit's 0.75% convertibles due 2011 traded at about 43.5 on Wednesday, compared to 41 previously. Shares of the Fort Worth, Texas-based auto finance company jumped $0.41, or 5.4%, to $7.98.

AmeriCredit's 2.125% convertibles due 2013 printed at 39.

"This is the first time I've seen it in a while," a sellsider said of the AmeriCredit convertibles. Strength in the financials across the board early Wednesday probably helped boost this generally "pretty liquid" issue, he said.

Autos await bailout news

In addition, investors were awaiting word on the pending automakers' bailout.

Ford's 4.25% convertibles due 2036 settled little changed on the day at 36.29 versus 36.09 on Tuesday. Shares of the Dearborn, Mich.-based carmaker settled 2 cents higher at $3.25.

GM convertibles settled mixed on a 10 cent loss for the Detroit-based carmaker's stock at $4.60.

Under the bill being considered Wednesday, the carmakers would have to submit restructuring plans to a federal industry overseer, or car czar, by March 31. But they could be given until May to negotiate with the government on a final agreement.

Congressional Democrats and the Bush administration chiseled out an agreement that would provide $14 billion in emergency loans to GM and Chrysler.

A breakthrough came when Democrats agreed to take out language that would have forced the carmakers to drop lawsuits challenging tough emissions limits in California and other states.

Congressional Republicans were expressing reservations Wednesday and may seek to block it. Sen. David Vitter, R., La., said he planned to filibuster the measure.

CVRD adds as commodities rise

CVRD's 5.5% mandatory exchangeable notes RIO series due 2010 traded Wednesday at 24.675 versus a share price of $12, compared to about 22.4 versus a share price of $10.83 at the close on Tuesday.

CVRD's 5.5% mandatory exchangeable notes RIO-P series due traded at 25.60 versus a lower share price of $10.50.

Rio de Janeiro-based CVRD's shares gained $1.22, or 11.3%, to $12.05 on Wednesday.

CVRD, the world's largest iron ore producer, has had to shutter capacity and layoff workers in recent months due to slowing of the global economy that has crimped demand for raw materials, and subsequently reduced prices. The mining concern also produces nickel and other metals.

But on Wednesday commodity prices, including copper, gold and other metals, surged, partly in speculation that a U.S. bailout of the U.S. auto industry is forthcoming and that demand for raw materials will climb.

Nortel slides on bankruptcy chatter

Nortel's 1.75% convertibles due 2012 and its 2.125% convertibles due 2014 were both quoted at 15 versus a share price of $0.52 intraday, and were seen settling down at about 13 versus a share price of $0.40, compared to a level of 16 on Tuesday.

Shares of Nortel plunged 12 cents, or 23%.

The beleaguered telecommunications equipment maker saw its stocks and bonds fall after the Wall Street Journal reported that it has sought legal counsel to explore bankruptcy court protection amid weak sales for its wireless gear and as the credit crunch hobbles the sale of key assets

The company said it is focused on the restructuring plan that was outlined Nov. 10 to cut costs. The company's stock has been trading below the $1 minimum on the New York Stock Exchange for a month.

On Sept. 17, the company said it would sell an unprofitable new business called Metro Ethernet, which makes gear to transmit internet and video feeds. But no deal has yet emerged to sell that business.

Mentioned in this article:

AmeriCredit Corp. NYSE: ACF

Companhia Vale do Rio Doce NYSE: RIO

Eastman Kodak Co. NYSE: EK

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

Nortel Networks Corp. NYSE: NT

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