Transocean, Ford mostly in line in slow trade; NII stronger; Alliance One prices on cheap end

By Rebecca Melvin

New York, June 30 - The convertible bond market Tuesday was pretty slow, with trades in the liquid names like Transocean Ltd. holding mostly steady, and with volumes dropping off significantly after that, market sources said.

Transocean was seen in trade at 96.5 for its 1.625% series A convertibles versus a share price of $74.00. Its underlying shares, like many among equities, pared their losses as buyers stepped in late in the session.

Equities swung around on Tuesday but still ended lower - although up for the second quarter - amid fresh concerns about ebbing consumer confidence.

NII Holdings Inc.'s 2.75% convertibles traded stronger, moving up to 94, which was as much as 0.50 point higher, even as its underlying shares moved a little lower.

Henry Schein Inc.'s convertibles were weaker in active trade, widening out on their move down as their underlying shares held steady.

Ford Motor Co. convertibles were seen to move in line with their underlying shares. The Ford Motor 4.25% convertibles due 2036 were in trade at 83 versus a share price of $5.80 and were seen higher at the end of the session around 84 versus a close of $6.07.

The newly priced Alliance One International, Inc. 5.5% convertibles weren't heard in trade after the issue was released for secondary trading on Tuesday.

The Morrisville, N.C.-based leaf tobacco merchant priced $100 million of five-year convertible senior notes at the cheap end of talk.

June new issuance active

Convertible new issuance remained active in June, but it was lower compared to May and April, and deal sizes were smaller.

There were a total of 19 deals totaling $4.08 billion, which was down from $6.8 billion in May, and down 9% from $4.4 billion in April. The June tally included JetBlue Airways Corp.'s two tranches priced June 4.

Demand was still strong, with seven of the 19 deals upsized, compared to 11 out of 21 in May.

New issues were priced with an average cheapness of 3.91%, the tightest valuation since August 2008, Barclays Capital analysts said in research published Tuesday.

Average deal size was down to $209 million, from $326 million in May, $437 million in April and $335 million in March.

Globalstar Inc. brought the smallest deal of the month with a deal of $53 million, and Goldcorp Inc. brought the month's largest deal, with $863 million of convertibles issued June 2. The month brought the first convertible mandatories for the year, but most of the new issuance, or $3.2 billion, consisted of cash-pay convertibles.

By sector, materials companies accounted for 30% of issuance and energy accounted for 25% of new issuance. Financials accounted for 5%, which was a reverse of 2008, when financials was the largest sector of new issuance.

Seventy-one percent of the new issuance was in the category of small capitalization companies, with large cap accounting for 22% and mid cap accounting for 7%. For the year to date, 50% of new issuance was from small capitalization companies.

In terms of credit quality, 52% of new issuance was high yield and 26% was non-rated.

Weighted-average yields were 5% in June, while average premiums were 23.3%. Year-to-date average new-issue terms were 5.1% yield and 24% premium, compared with 6.1% yield and 27.8% premium in 2008.

NII holds up well

NII Holdings' 2.75% convertible senior notes due 2025 traded at 94 Tuesday, which was about 0.5 point from where they had been seen previously.

The credit tightened, and "it was a pretty good move for them," a sellside trader said.

Shares of the Reston, Va.-based wireless communications company lost 84 cents, or 4.2%, on Tuesday to close at $19.07.

"I like them because they are maintaining their stranglehold on Latin America, instead of beating their brains out to be on the high end over here," the sellsider said.

NII operates as Nextel in Latin America, particularly Mexico, Brazil, Argentina, Peru and Chile.

Henry Schein in line to weaker

Henry Schein's 3% convertible senior notes due 2034 were seen at 111.375 bid, 111.50 offered versus a share price of $47.70 a little after midsession, widening out on a move down from about 112.

"The stock hasn't moved; it's holding up well," a New York-based sellside trader said, calling the convertible in line to weaker.

It's a delta play and in the health care space, the sellsider said.

Henry Schein is a medical products supplier based in Melville, N.Y.

Mentioned in this article

Alliance One International Inc. NYSE: AOI

Ford Motor Co. NYSE: F

Henry Schein Inc. Nasdaq: HSIC

NII Holdings Inc. Nasdaq: NIHD

Transocean Ltd. NYSE: RIG

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