Ford, GM move lower on higher oil prices; Transocean steady; Fannie Mae, Lehman regain some ground

By Rebecca Melvin

New York, Aug. 21 - Oil replaced financials as a dominant theme of the markets Thursday, sending auto sector convertible paper lower as oil prices jumped. Meanwhile some energy names moved higher or in line with their underlying shares, market players said.

Not much was trading though, with convertibles players saying it was "very slow."

Ford Motor Co. and General Motors Corp. convertibles traded lower as crude oil surged more than $5 on a weaker dollar and geopolitical concerns that came to the fore.

Russia's threat to withdraw from participation in joint military activities with NATO after the United States and Poland signed a missile-shield agreement left many sobered about the tensions that have been mounting recently between the United States and Russia.

Airline convertibles, which also tend to move inversely to oil prices, were quiet. New York-based sellside desk analyst said that even though UAL Corp. stock opened significantly lower and closed down 9% in heavy volume, no airline convertibles was seen in trade.

Energy stalwart Transocean Inc. added in line with its underlying shares, however.

Financials continued to be a focus. Fannie Mae convertible preferreds bounced from lows marked Wednesday in line with their shares, which recovered 10% in heavy trade.

Lehman Brothers Holdings Inc. started the session weaker but recovered by the close, helped by financial analyst Richard Bove's upgrade on the fourth-largest investment bank to a "buy."

Oil higher, autos lower

Ford's 4.25% convertible bonds traded at 67.5 versus a share price of $4.60. Recently the paper was a 75 versus a share price of $5.25.

Ford stock (NYSE: F) was down 20 cents, or 4.3%, on the day.

The GM 6.25% convertibles due 2033 (NYSE: GPM) closed down 50 cents, or 4.4%, at 11 versus a closing stock price of $9.89. That compared with 11.50 versus a stock price of $10.16 at the close Wednesday.

The GM 5.25% convertibles due 2032 (NYSE: GBM) dropped 34 cents, or 3%, to $11.40 versus the closing stock price below $10.

But still shares of the Detroit-based carmaker (NYSE: GM) only sank 24 cents, of 2.4% on the day, compared to the P's 4.4% fall and the B's 3% decline.

The (NYSE: GXM) plunged $1.59, or 10%, to $13.89.

Transocean traded pretty much dollar neutral, a West Coast-based sellside trader said, as crude oil for October delivery rose $5.62, or 4.5%, to $121.18 a barrel on the New York Mercantile Exchange.

"They have not changed much materially. The stock was up 2% to 4%, and the bonds haven't moved off dollar neutral," the sellside trader said.

The Transocean series A 1.625% convertible due 2037 gained about a point to trade at 105.5 against a stock price of $132.25.

The Transocean series B 1.5% convertible due 2037 added about 0.5 point outright to trade at 105, while the series C 1.5% convertible due 2037 increased by more than a point to change hands at 104.75, all versus the same stock price.

On Wednesday, the series B and series C convertibles were at 104.5 and 102.5, respectively.

Shares of the Houston-based offshore drilling contractor (NYSE: RIG) closed off their highs, ending the day up only 0.74%, or 98 cents, at $131.55.

Fannie Mae, Lehman regain ground

Fannie Mae's 8.75% mandatory preferreds were at 11.10 bid, 11.40 offered versus a share price of $4.50, compared to 10.75 bid, 11.75 offered versus a share price of $4.40 on Wednesday.

The older Fannie Mae 5.375% series 2004-1 convertible perpetual preferreds were at about 25,000 bid to 30,000 offered, compared to 29,243 versus $4.40 on Wednesday.

Shares of the Washington, D.C.-based mortgage funding company (NYSE: FNM) closed up 45 cents, or 10%, at $4.85.

"Fannie Mae was acting a little better - the stock anyway," a sellside trader said.

The better performance was characterized as bargain hunting as the prospect of a government bailout continues to weigh on markets.

The Lehman preferreds were not trading actively, but some paper did move during Thursday's session, sources said.

People are probably hedged up pretty good with credit default swaps and short as much stock as possible on the 8.75% mandatory preferreds, according to one source.

Lehman Brothers' 8.75% mandatory convertible preferreds moved back toward the 55 mark, trading at 54 versus a share price of $13.10 during the session; while the older 7.25% Lehman preferreds, closed at 53 versus the same $13.10.

Lehman common stock (NYSE: LEH) ended down just a penny at $13.72.

The stock is down nearly 80% since last year and currently has a market value of about $9 billion.

Questions regarding what the company can do to shore up its balance sheet remain unanswered, with pundits bandying around possible solutions including a capital raise, taking it private and getting rid of illiquid assets.

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