Countrywide gains ahead of expected closing, other financials lower; Ford slides; XM Satellite quiet

By Rebecca Melvin

New York, June 30 - Countrywide Financial Corp. convertibles gained on Monday despite lower underlying shares ahead of the expected closing of Bank of America Corp.'s acquisition of the California-based mortgage lender on Tuesday.

Countrywide's Libor minus 350 basis points series A convertibles were up 0.50 point, and the Countrywide Libor minus 225 bps series B convertibles added 0.75 point, according to a Connecticut-based sellside trader.

Elsewhere in financials, Lehman Brothers Holdings Inc., Bank of America and Fifth Third Bancorp all closed lower amid another session of sector weakness, although some names pared losses by the end of the day. Lehman Brothers, however, fell sharply lower in the afternoon to close down 11% at $19.81 amid rumors of a possible discounted buyout.

Ford Motor Co.'s convertibles fell again to trade at 71.7 as another sell-off struck the company's shares ahead of the auto industry's June sales figures expected Tuesday.

XM Satellite Radio Inc. was quiet, trading sources said, after the satellite radio firm won an agreement from 95% of the holders of its 1.75% convertibles due 2009 not to assert a fundamental change that would trigger a change-of-control put as a result of its merger with Sirius Satellite Radio Inc. In exchange, holders will get new debt under similar terms but with a 10% coupon.

The issue will remain convertible at $50 per share.

CreditSights, an independent research firm, said that although the coupon is now closer to market, "we expect XM would have to pay even more were it to issue a new bond to finance the put on the notes," CreditSights said.

The calendar marking quarter end on Monday didn't seem to affect activity in the convertibles market. "It was pretty quiet," a New York-based sellside desk analyst said, suggesting that despite the quarter end, it was still a summer Monday.

Tuesday promises to be busier before things really quiet down ahead of the Fourth of July weekend, he said.

Monthly issuance data revealed that new deals in June slowed considerably to $7.1 billion, down from $15.76 billion in May. Financials still accounted for a bulk of new issuance, and that flow is expected to slow.

Oil prices again hit a record high on Monday, and more negative headlines about the potential of a more protracted slowdown than previously expected set a dour mood initially on Wall Street.

The Basel-based Bank of International Settlements said Monday, "In the aftermath of a long credit-driven boom, it would not be surprising to see turmoil in financial markets, slowing real growth and temporarily rising inflation."

"The consensus view is still that the global economy will slow only modestly further in 2008," the bank added, and that growth continues to be strong in the Euro zone, Japan and major emerging markets.

Countrywide inspires investors

The "money good" consensus on the two floating-rate convertibles of Countrywide caused the series A paper to rise to 97.25, significantly higher than where the paper has typically traded in recent months.

"A small amount traded there, most of it was at about 96," a Connecticut-based sellsider said.

People expect the deal is going to happen, sources said of the Bank of America acquisition.

Countrywide's three-month Libor minus 350 bps series A convertible senior debentures due April 15, 2037 were seen closing at 97.25, compared to 94.8 on Friday.

The Countrywide three-month Libor minus 225 bps series B convertibles also due in 2037 were seen closing at 93.92, compared to 91.75. Earlier the series B convertibles had traded at 94.5.

Shares of the Calabasas, Calif.-based company (NYSE: CFC) closed down 17 cents, or 3.9%, at $4.25.

Bank of America's 7.25% series L perpetual convertible preferred closed down at 888.5 versus a share price of $23.87, compared with 897 versus a share price of $24.59 on Friday.

Shares of the Charlotte, N.C.-based commercial bank (NYSE: BAC) lost 72 cents, or 2.9%, to $23.87.

Lehman, Fifth Third lower

The Lehman Brothers 8.75% series Q mandatory convertible preferreds closed at 771.86 versus a share price of $19.81, compared with 827.25 versus a share price of $22.25 on Friday.

The older 7.25% Lehman preferreds, which also priced earlier this year, closed at 802.28 versus a share price of $19.81, compared to 828 versus the Friday close of $22.25 for its shares.

Shares of the New York investment bank (NYSE: LEH) closed down $2.44, or 11%. Rumors were flying that the company denied that Barclays Bank was planning to make a steeply discounted bid for the firm.

Fifth Third's 8.5% series G convertible preferreds, which have been a darling among convertibles players since it was issued earlier this month, also lost ground on Monday, trading at 107 versus a share price of $10.25 early in the session.

The Fifth Third convertibles closed at 106.36 versus a share price of $10.18, after trading last week at 112.

Shares of the Cincinnati-based regional bank (Nasdaq: FITB) closed off 5 cents, or 0.5%, at $10.18.

Ford, GM slide ahead of sales numbers

Ford Motor Co.'s 4.25% issue due 2036 traded Monday at 71.73, after having traded at 72 earlier in the session, and compared to 74.25 on Friday.

Shares of the Dearborn, Mich.-based carmaker lost 17 cents, or 3.4%, to $4.81.

Meanwhile the General Motors Corp.'s 6.25% convertibles due 2033 (NYSE: GPM) closed unchanged after an early swing lower. The paper closed at 13.28 versus a share price of $11.50. Shares of the Detroit-based carmaker closed off only 5 cents, or less than half a percentage point, also after an early swing downward.

XM quiet in trade

Traders queried hadn't heard XM Satellite Radio's 1.75% convertible senior notes due 2009 in trade after the Washington, D.C.-based satellite radio services company announced Friday that it reached an agreement with the holders of the notes to an exchange offer, under which it will issue new 10% senior convertible notes due 2009 for the existing notes before July 10.

Outside of the coupon, the new notes will have substantially the same terms as the existing notes. Trace reported the paper at 91.125.

The noteholders that are part of the agreement have agreed not to assert any claim that the proposed merger of XM with a subsidiary of Sirius Satellite Radio constitutes a fundamental change under the existing indenture. The exchange offer will be conditioned on the closing of the merger.

New issuance slows in June

Although issuance from financials was expected to slow to a trickle, the new issuance convertibles market wasn't seen drying up in July as a sprinkling of other sectors continue to produce convertibles issues, including energy, mining and agricultural concerns.

"They [those sectors] need to raise capital for things such as M&A," a New York-based sellside desk analyst said.

There were another couple issues from solar companies including Evergreen Solar Inc.'s $325 million of notes and China Sunergy Co. Ltd.'s $45 million of notes. But further activity from this sector wasn't expected.

"I think they all already have one," the sellsider said of solar companies. "But I don't know, though; I keep saying 'that will probably be the last one' and then there's another one."

For the last several years there has been a considerable drop off in July, however. Last year, there were 27 new deals in June, compared to 12 in July; in 2006, it went from 20 to five; and in 2005, it went from 12 to eight.

© 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.