Ford up on earnings; financials climb on stress test news; AmeriCredit, Coeur d'Alene trade

By Rebecca Melvin

New York, April 24 - Ford Motor Co.'s convertibles expanded 1 to 1.5 points Friday on much better-than-expected earnings, lower-trending cash burn and better credit in general, a New York-based sellsider said.

Meanwhile, financials moved up again after the U.S. government released information about how its stress tests on the country's 19 largest financial institutions were conducted.

The stress test details themselves were viewed as "pretty light," but the disclosure was nevertheless enough to encourage investors to add more financial convertible preferreds in hopes of gleaning a premium if preferred for common exchanges take place.

Bank of America Corp., in particular, was seen as potentially needing to do such an exchange, and its convertible preferreds improved again Friday.

Wells Fargo & Co. was also better, as were regional banks, including Fifth Third Bancorp and KeyCorp.

"People are hoping that Citi will be the guide and that there's a fair chance that the preferreds need to be converted," a New York-based buyside financials analyst said, referring to Citigroup's exchange offer originating at the end of February.

"You would buy preferreds, if you're thinking you get a kiss on forced conversion," the analyst said.

PNC Financial Services Group Inc. wavered after announcing positive earnings. One source said the 4% convertible bonds due 2011 were down fractionally, while another called them up 0.125 point to 0.25 point.

In addition, AmeriCredit Corp. convertibles were in play as its shares surged 16% on strong earnings.

Elsewhere, some commodity-related and energy names were in play, including Coeur d'Alene Mines Corp., Cheniere Energy Inc. and Trico Marine Services Inc.

In the primary, Old Republic International Corp.'s newly priced 8% convertibles added a couple of points upon release to secondary market trading.

Overall, the market was active and seen stronger early on but was quieting in the afternoon ahead of what was expected to be a fair-weather weekend in New York.

"Everything has been quite strong this morning, and quiet on this sunny afternoon," a New York-based sellside trader said.

Ford results drive convertibles up

Ford's much less liquid 4.25% convertible bonds due 2036 jumped to 13 points over parity, trading at 67, as its underlying shares "ripped" higher, gaining 51 cents, or 11%, to $5.00.

The recent Ford exchange offer, which depleted the Ford 4.25% convertible issue by about 90%, was completed at plus 8 points over parity.

"It's not a company that's making money, but when you look at it compared to its peers, at least it's not going bankrupt," a sellsider said.

Another convertibles player suggested that it was a very strategic move for the company not to have taken any TARP funds.

Ford posted a net loss of $1.4 billion, or 60 cents a share, compared with a profit of $70 million, or 3 cents a share, in the year-earlier period.

Revenue declined 37% to $24.8 billion.

Excluding one-time items, the loss was $1.8 billion, or 75 cents a share, which was better than estimates.

Ford chief financial officer Lewis Booth said first-quarter cash burn of $3.7 billion will be the highest this year. The car maker ended the quarter with $21.3 billion and is now projecting to burn $4 billion this year.

Ford's North American unit posted a pre-tax loss of $637 million compared with a loss of $45 million a year earlier. Earnings from South America fell to $63 million from $257 million a year earlier.

Meanwhile, the Dearborn, Mich.-based automaker's European unit swung to a loss of $550 million compared with a profit of $739 million.

B of A, Wells higher

The B of A convertibles in particular were seen "puffing out" amid expectations that the bank will probably need to raise more capital and may do so partly by way of an exchange offer similar to that of Citigroup or Huntington Bancshares, a buyside analyst said.

"Bank of America could need $15 billion to $20 billion," the analyst said.

Bank of America's 7.25% convertible preferred shares traded up to 573, which was up a little more than 19 points, or 4.5%, on the day, and compared to 490.5 at the close on Monday.

The Bank of America convertible preferreds fell on Monday, but on Tuesday morning following reassuring comments by U.S. treasury secretary Timothy Geithner, it moved up with the financial sector overall. From there it climbed slowly and steadily until Friday when it jumped higher.

Shares of the Charlotte, N.C.-based financial institution closed Friday up 3% at $9.10, compared to a close of $8.02 on Monday.

Wells Fargo's 7.5% convertible preferreds were at 630 near the end of the day, which was up 32 points, or 5.3%, versus a stock price of $21.40, which was up nearly 7%, and compared to 553.25 on Monday.

Even Citigroup's 6.5% preferreds were up a tiny bit, at 32.

"The stress test news was inconclusive. There were no actual numbers. It doesn't really clarify it at all. We'll know May 4. They'll have results, and then they have 100 days after that to decide what they are going to do," a New York-based sellside trader said.

A buyside analyst concurred. "My take on it is that the stress test is pretty uneventful. The inputs weren't outlined, and it was light on details with no loss projections or capital requirements ... but the markets are viewing it as a good thing that there are no changes."

"With Citi as a guide, there is a fair chance that the preferreds will have to be converted," the analyst said, referring to Bank of America, Fifth Third and KeyCorp.

"What people are hoping [is] that the Citi conversion is the model since investors made a lot of money if they were long the preferred," the analyst said.

PNC steady

PNC's 4% convertible bonds due 2011 traded in the 93.5 bid, 94 offered context, which was little changed from previous levels, with the stock up 8%, an analyst said at the close.

Early on PNC was improved with prints at 93.1875, a New York-based sellsider said.

"I think it's been so steady, people aren't watching it that much," another New York-based sellsider said.

The Pittsburgh-based financial services company reported first-quarter earnings that beat consensus. The integration of National City Corp. is on track, the company said. And segment results were mixed, with corporate banking and residential mortgage better but retail banking and global investment servicing lower.

CreditSights in a report Friday estimated that PNC may require additional capital of roughly $2.7 billion, noting that PNC's tier 1 capital ratio rose to 10.2% at Dec. 31, 2008, compared with 9.7% in the year-earlier quarter. And its tangible common equity ratio improved to 3.3% compared to 2.9% at year-end 2008.

Old Republic adds

The newly priced 8% convertibles of Old Republic were seen at 102 bid, 102.5 offered, versus a share price of $9.60 in early trade.

Shares of the Chicago-based insurance holding company dragged a little from that level, closing down 14 cents, or 1.5%, at $9.46.

"It's a really mediocre company, but we played it because the terms were so good," a buysider said.

Old Republic priced an upsized $275 million of three-year convertible senior notes after the close Thursday to yield 8%, with an initial conversion premium of 20%.

The deal was initially expected to be $250 million in size.

The registered deal priced at the midpoint of talk via Merrill Lynch & Co. and J.P. Morgan Securities Inc., who were joint bookrunners of the deal.

The bonds' greenshoe was upsized to $41.25 million from $37.5 million.

The bonds are non-callable for life with no puts, and they will be stock settled.

Mentioned in this article:

AmeriCredit Corp. NYSE: ACF

Bank of America Corp. NYSE: BAC

Cheniere Energy Inc. NYSE: LNG

Coeur d'Alene Mines Corp. NYSE: CDE

Fifth Third Bancorp Nasdaq: FITB

Ford Motor Co. NYSE: F

KeyCorp NYSE: KEY

PNC Financial Services Group Inc. NYSE: PNC

Old Republic International Corp. NYSE ORI

Trico Marine Services Inc. Nasdaq: TRMA

Wells Fargo & Co. NYSE: WFC

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