Ford convertibles weaker than issue price; Alliant Techsystems off; LifePoint paper improves

By Rebecca Melvin

New York, Nov. 6 - Ford Motor Co.'s new convertibles were able to recover slightly Friday from weakness Thursday as their underlying shares strengthened some; but the paper was still down 0.5 point to 1 point from issue, market sources said.

The huge $2.5 billion Ford deal, which debuted Wednesday, is the largest new issue the market has seen this year, but it was something of a disappointment.

"People got jammed," a New York-based sellsider said, attributing the frustrating weakness to allocation - some people got more than they hedged for - and a drop in the stock price.

Elsewhere, Alliant Techsystems Inc. convertibles were also weaker even as their underlying shares have risen

The market overall was characterized as soft as illiquidity continues to be a problem.

"There is zero liquidity. If someone wants to sell and there are no buyers, can you say the issue is really lower?" a New York-based sellside trader said.

Many market players, who have racked up high returns for the year to date, are unwilling to put those returns on the line at this point so close to the end of the year.

LifePoint Hospitals Inc. was up, however, by about a point as its shares slipped after the Brentwood, Tenn.-based rural hospital owner and operator reported earnings that beat estimates and reaffirmed earnings and revenue guidance for the full year.

Stocks were mostly flat but nosed into positive territory at the end of the session, and this despite a worse-than-expected monthly jobs report from the Labor department.

October nonfarm payrolls fell 190,000 in October, which was worse than the expected decline of 175,000. The unemployment rate rose to 10.2% from 9.8%, which was worse than the 9.9% expected.

Separately, wholesale inventories fell 0.9% month over month in September, which was slightly better than the negative 1.0% consensus.

The Dow Jones Industrial Average ended up 17.46 points, or 0.17%, to 10,023.42; the S&P 500 index ended up 2.67 points, or 0.25%, at 1,069.30; and the Nasdaq Stock Market rose 5.45 points, or 0.34%, to 2,112.44.

Ford still lags issue price

Ford's newly priced 4.25% convertibles due 2014 were trading down about 0.5 point to 1 point from issue at 101 bid, 101.75 offered versus a share price of $7.68 on Friday.

A sellsider also reported a trade at 100.125 versus a share price of $7.50.

Shares of the Dearborn, Mich.-based automaker added 30 cents, or 4%, to $7.75 on Friday in heavy volume, helping the issue pull up slightly from weakness Wednesday and Thursday.

On Thursday, the new Ford 4.25s were trading at 99.75 with the stock at $7.42 or $7.43.

Before today, "people were puking them. They were trading down because people wanted to get out of them," according to one sellsider.

A second source said they were selling off because people had bought larger allocations than they really wanted and hadn't hedged fully the allocation they received. People were also intending to flip them back to the underwriter, but they couldn't do that without losing money when the stock fell.

"A decent chunk of this is one swap versus the common," the sellsider said.

On Wednesday, the Ford paper traded right around par for most of the day as its underlying shares slipped.

On Thursday even as the common moved, there were no bids for the bonds at par. People were scared they'd get pounded," a sellsider said.

On Friday, the bonds improved, but they were still worse than issue, he said.

The old Ford 4.25% convertibles due 2036 traded on Friday at 100.625 versus a share price of $7.50, compared to 100.5 on Thursday and 104 on Monday.

Alliant weakens

Alliant Techsystems' 2.75% convertibles due 2011 traded at 103.75 versus a share price of $82.00 on Friday, compared to 103.5 versus a share price of $81.50 on Thursday.

Although there was not much price change from Thursday, the paper has weakened over the last week or so as its shares have risen. Shares are up 6% since last Friday, when they closed at $77.78.

It wasn't clear why the convertible paper of the Minneapolis-based aerospace and defense company was weaker. One source said the overall convertibles market is softer, with few bidders, and Alliant was weaker with the general market.

LifePoint improves

LifePoint's 3.25% convertibles due 2025 traded at 91.5 versus a share price of $29.00, according to a New York-based sellside desk analyst.

A second source put the paper at about 90.5, but that was still up a point from previous levels, the trader said.

Shares of the company ended unchanged for the day at $29.00 after earlier dropping lower.

The rural hospital owner and operator's third-quarter net income rose to $31.4 million, or 58 cents a share, from $8.5 million, or 16 cents a share, in the year-earlier period. Per share earnings were 3 cents better than estimates.

Revenue rose 10% to $745 million from $675.1 million. The hospital company had been expected to have lower revenue of $729.9 million, according to analysts' estimates.

LifePoint also confirmed full-year guidance for earnings of between $2.35 per share to $2.55 per share and revenue of between $2.9 billion and $3 billion.

President and chief executive William F. Carpenter III said that management was encouraged by LifePoint's trends in revenue, EBITDA and earnings per share, but not satisfied with in-patient admissions.

"Admissions growth remains a priority, and it is important to us and our hospitals that more patients receive quality care close to home. In that regard, by being the first to bring state-of-the-art technology to our communities, our hospitals have made it easier for patients to choose our facilities more often over those in distant communities," Carpenter said.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Ford Motor Co. NYSE: F

LifePoint Hospitals Inc. Nasdaq: LPNT

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