Ford shoots up on tender; Continental, UAL muted; CapitalSource gains on confidence; National City rises

By Kenneth Lim

Boston, April 28 - Ford Motor Co. shot up outright in response to interest from investor Kirk Kerkorian Monday on an otherwise quiet day for convertibles as skittish investors remained mostly on the sidelines.

Meanwhile, Continental Airlines Inc. slipped slightly while UAL Corp. was unchanged after Continental said there would be no merger between the two airlines.

The convertible market in general had a slow session on Monday as investors took a wait-and-see approach pending the Federal Reserve's coming policy meeting. The Fed's two-day meeting begins Tuesday, and is expected to be followed by an interest rate cut.

"You've got the Fed talking in another two days, that's kind of put a damper on things," a sellside convertible trader said. "Secondly, I think you've still got guys trying to figure things out in terms of the credit markets."

Names that saw some action were mostly the usual suspects that have been active over the past week.

Ford up on tender

Ford's 4.25% convertible due 2036 jumped about 6 points outright after the common shot up on news that the Tracinda Corp. investment vehicle of billionaire Kirk Kerkorian was looking to raise its stake in the company.

The convertible traded at 112.5 against a stock price of $8.40, in line dollar neutral. Ford common stock (NYSE: F) traded at $8.21, up 9.47% or $0.71.

Kerkorian's investment vehicle, Tracinda Corp., said Monday it is planning a cash tender for 20 million Ford shares at $8.50 per share, to raise its stake in the Dearborn, Mich.-based auto maker to 5.6%. Tracinda already owns 4.7% or 100 million shares of Ford.

A convertible desk analyst said Ford credit was mostly unchanged following the news.

"I think it's a stock play," the analyst said. "It's hard to say what kind of credit is involved here. God knows how much this guy has to spend but the fact that he's offering to pay $8.50 per share means he's got quite a bit to spend. People figure there'll be some support on the equity...although his track record in these things can be doubtful."

CapitalSource better

CapitalSource Inc. saw its bonds improve a couple of points outright after the company said it renewed a $1 billion secured credit facility due 2010.

CapitalSource's 1.625% convertible due 2034 changed hands at 94 versus a stock price of $14.75. The 4% convertible due 2034 was 89.5 while the 7.25% convertible due 2037 traded at 81 against the same stock price. CapitalSource common stock (NYSE: CSE) gained 4.28% or $0.61 to close at $14.86.

CapitalSource, a Chevy Chase, Md.-based small- and medium-sized businesses bank, said it renewed the credit facility with a syndicate of five banks led by Wachovia Capital Markets, LLC with a commitment of $400 million. The facility finances real estate loans and real estate-related asset-based loans.

"The renewal of this credit facility demonstrates our ongoing ability to access liquidity, and we are very pleased to have completed this renewal with several banking partners with whom we have long standing and broad relationships," CapitalSource chief financial officer Thomas A. Fink said in a statement. "We expect to complete the renewal of other credit facilities in the coming days and also are moving forward with our recently announced depository strategy, which will further strengthen and diversify our funding."

A convertible trader said CapitalSource convertibles improved slightly on a dollar-neutral basis.

"The 1.625s were up a bit dollar-neutral," a convertible trader said. "The company managed to renew some financing, which means its capital base is more stable, which is good news for the credit. The 1.625s have a put in '09, so it's going to improve as long as the company continues to be able to access cash."

National City up slightly

National City Corp.'s 4% convertible due 2011 was ½ point higher outright and slightly lower dollar neutral after the company stock climbed on an analyst's upgrade.

The convertible traded at 85.5 against a stock price of $6.75, while National City common stock (NYSE: NCC) closed at $6.50, up by 2.85% or $0.18.

National City, a Cleveland, Ohio-based bank, saw its equity upgraded to outperform from market perform by BMO Capital Markets on Monday on the back of National City's announcement last week about a $7 billion equity financing deal.

BMO cited the capital raise and said it leaves National City with a much stronger balance sheet.

Continental, UAL muted

Continental's 5% convertible due 2023 was a hair lower outright at 106 against a stock price of $16.75 after the company said a rumored merger with United Airlines was off the table.

Continental common stock (NYSE: CAL) closed at $16.96, lower by 1.51% or $0.26.

Houston-based Continental said over the weekend that it is currently not pursuing any merger, a surprise move after months of rumors that it was in talks with United. Credit Suisse analyst Daniel McKenzie downgraded Continental stock to underperform from outperform and chopped his target price to $13 from $31 following Continental's announcement.

Meanwhile, United Airlines parent UAL Corp.'s 4.5% convertible due 2021 remained quiet despite a slight drop in its stock. The United convertible was last seen April 21 at 71.47. United stock (Nasdaq: UAUA) declined by 2.63% or $0.40 to close at $14.81 on Monday.

Reports on Monday said United Airlines and US Airways Group Inc. could now be close to a merger with the Continental deal no longer being discussed.

"The Continentals have a put in June 2010, so I think they're holding up a little better," a convertible trader said. "But I don't think any of these really effected the bonds that much. The whole industry is just so terrible right now. So the two of them aren't getting together, big deal. You're one step closer to hell, but you've already taken 10,000 steps. Even if they had merged, it would have been combining two poor credits, so I don't think it's too big of a deal."

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.