Convertibles quiet: Ford higher, GM drops as automakers' fate unresolved; Qwest, Eastman Kodak slip

By Rebecca Melvin

New York, Dec. 12 - The convertible bond market saw some action early Friday, but by mid-session activity had pretty much dried to a trickle - which was the opposite of the way water was flowing into some basements after a severe ice storm hit the northeast, traders said.

Equities traded in choppy fashion amid uncertainty about what would happen with the U.S. auto industry bailout being debated in Washington.

"Whatever you hear, you can take that and discount it because there's a 50-50 chance that it will happen. You're dealing with the Senate and the White House, right? What else do you expect?" a New York-based sellsider said about the situation.

After the Senate voted down the bailout dollars, the White House said Friday it will consider using some of the funds from the $700 billion financial rescue package to aid the automakers.

Ford Motor Co. convertibles were very active and ended higher on the day. But General Motors Corp. ended sharply lower, also in heavier-than-average volume.

Ford and GM were a focus of the convertible market the whole week, traders agreed.

Also on Friday, Qwest Communications International Inc. convertibles traded lower early in the day in tandem with a drop in their underlying shares. But when the shares turned around to end the day firmly on the upside, the convertibles didn't follow suit.

Eastman Kodak Co. was also said to be in trade Friday after taking a hiatus on Thursday. The shares were pretty much wrapped around 80, which was lower than the 82 on Wednesday when last it was active.

"Stuff was going on in the morning, but there was nothing after 11," a New York-based sellsider said. Asked whether he thought widespread power outages affecting pockets of the Northeast had anything to do with it, he said, "A lot of my branch guys weren't in. And when I was on the train this morning, for a second I thought it was Saturday. There was no one on the subway."

Ford gains, but GM losses

Ford's 4.25% convertibles due 2036 finished the day at 33 bid, 34 offered, which was up from the low 30s Thursday. The paper moved in a narrow range mostly between 30 and 37 all week as investors watched the drama unfolding in Washington.

Shares of the Dearborn, Mich.-based car maker settled higher by 14 cents, or 4.8%, at $3.04.

Late Thursday, the Senate voted against passing the $14 billion financial aid plan for U.S. automakers after stiff Republican opposition proved too much to overcome. As a result, foreign markets plunged and U.S. futures saw steep losses.

In response, the White House said it will consider using some of the funds from the $700 billion financial rescue package to aid the automakers. Meanwhile, the Treasury said it is ready to prevent an automaker failure until Congress reconvenes, according to Reuters.

The news helped GM, Ford and the overall market. GM was down as much as 36% early on, but it went on to a much gentler loss of 18 cents, or 4.4%, at $2.94.

The GM 6.25% convertibles due 2033 closed at $3.92, which was down 11.9% in heavier-than-average volume.

The GM 5.25% convertibles due 2032 closed down 12.7% at $3.30 in average volume.

The GM convertible paper known as the GRMs also saw a steep 11.6% loss to $6.10, while the GXM's, which are 4.5% convertibles due 2032, traded down 10% to $3.85 in light volume.

The situation "is not good," a New York-based sellside trader said. "Not a lot of people have a lot of faith in those guys. Hedge fund guys say, 'I would buy that stock at zero or below.'"

Qwest moves lower

Qwest's 3.5% convertibles due 2025 ended the day at 76.5 bid, 77.5 offered, which was down a point or two compared with where it went out Thursday and compared to 80 where it started the day Thursday.

Shares of the Denver-based communications company settled up about 3% at $3.14 after it retraced losses intraday.

"It went out yesterday at 78-79 and today established itself at 77. Now the stock is back up to where it was but now the converts aren't trading," a sellsider said at the end of the trading day.

Another name in the sector that was trading this week was Sprint Nextel Corp., which traded down Thursday on a downgrade by Moody's Investors Service to junk.

"There are people that can't hold it now that it's junk," a sellsider said of Sprint. "But I don't think it affected Qwest trading."

Sprint Nextel's 5.25% convertibles due 2010 settled at about 81, according to NASD Trace, compared to 82.375 on Thursday.

Eastman Kodak moves lower

Eastman Kodak's 3.375% securities due 2033 settled at about 80 versus a share price of $6.41, compared to 82 versus a share price of $6.59 on Wednesday.

Some sellers came in Friday, and they were fairly active, a sellsider said.

On Friday, Moody's said it will review the Rochester, N.Y.-based company's credit ratings and may lower them since the company withdrew its 2008 outlook. Shares of the company ended up nearly 2% at $6.41.

Mentioned in this article:

Eastman Kodak Co. NYSE: EK

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

Qwest Communications International Inc. NYSE: Q

Sprint Nextel Corp. NYSE: S

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