Ford, EMC convertibles lower; Lexington Realty edges up with better stock; Seagate jumps

By Rebecca Melvin

New York, Jan. 21 - Selling in the convertibles market persisted Thursday after president Barack Obama proposed rules that would limit banks in terms of size and the types of trading they would be allowed to undertake with proprietary funds.

The proposed regulation, which wouldn't allow banks to own, sponsor or invest in hedge funds for proprietary profit, definitely rattled markets, a New York-based sellside analyst said. But "in the short term, it has to pass the House and Senate, so how much will actually be implemented is uncertain."

Higher-priced convertibles began to sell off earlier in the week. Among names in trade Thursday, Ford Motor Co. slid about 4 points as its underlying stock came off 40 cents, and EMC Corp. also moved lower.

Lexington Realty Trust's newly priced 6% convertibles traded up to 100.75 bid, 101.25 offered versus a share price of $6.30, helped by their underlying shares, which bounced back Thursday from a 10% drop on Wednesday.

Another recent new issue, the Salesforce.com 0.75% convertibles, traded down at 98 versus a share price of $67.30 on Thursday, compared to 100.5 versus a share price of $69.00 a week earlier.

Seagate Technology convertibles jumped after the Grand Cayman, Ky.- based hard disk drive maker swung to a quarterly profit.

U.S. stock indices slumped Thursday, extending Wednesday's losses, as uncertainty heightened after Obama unveiled a plan to limit the size of the nation's biggest banks. Many financial names, including the convertible preferred shares of Bank of America Corp. and Wells Fargo & Co., sold off, but many regional banks gained.

The convertible preferred shares of Cincinnati-based regional bank Fifth Third Bancorp traded up 5.5 points, or 4.2%, to 137.54 on good quarterly results, according to a New York-based sellsider.

Also putting a damper on markets was an unexpected rise in weekly jobless data. The Labor Department reported first-time claims for state unemployment benefits jumped by 36,000 to 482,000 last week. Consensus forecasts had called for claims to edge lower to around 440,000.

Ford, EMC slip lower

Ford's 4.25% convertibles due 2016 traded down to 137 versus a stock $11.20 on Thursday, compared to 141.5 versus a share price of $11.60 on Wednesday. On Jan. 14, the new Ford convertible, which priced in November, traded at 143.5 versus a share price of $11.75.

Shares of Dearborn, Mich.-based Ford shed 33 cents, or 3%, to $11.18 on Thursday in heavy trading volume.

Meanwhile EMC's 1.75% series A convertibles due 2011 traded at 119.25 versus a share price of $17.40, according to a New York-based sellside desk analyst. Later the paper was seen at 117, which was down 5.5 points from 123 on Wednesday.

EMC's 1.75% series B convertibles due 2013 were down a lesser amount, at 123, which was down about a point compared to 124 on Wednesday.

Shares of the Hopkinton, Mass.-based data-storage company settled off their lows for the day, down 1.4%, on volume that was about double the three-month average volume.

Traders expressed concern about the White House proposal and its potential affects on the capital markets. Stock markets reacted strongly as well, with investment bank stock prices dropping dramatically after Obama spoke. They recovered somewhat later as investors digested the news for which details are not yet available, but ended closer to lows.

"We don't know exactly what the proposal is," a sellsider said.

The CBOE volatility index surged 19%, closing above 20 for the first time since Jan. 4.

Lexington Realty trades at 101

Lexington Realty's newly priced 6% convertibles traded at 101 versus a share price of $6.30, with the market called 100.75 bid, 101.25 offered; although one source said the paper was only 100.5 versus a share price of $6.30.

The stock "bailed out" the convertible, according to one sellsider. Shares of the New York-based real estate investment trust settled up 2% at $6.15, after trading up higher by about 4%. The stock fell 10% on Wednesday.

The company priced $100 million of 20-year convertible notes at par of $1,000 late Wednesday to yield 6% with an initial conversion premium of 17.5%, which came at the cheap end of talk, which was for a coupon of 5.5% to 6% and a premium of 17.5% to 22.5%.

The Rule 144A deal has a $15 million greenshoe.

The notes are non-callable for seven years, with puts in years seven, 10 and 15.

Bank of America Merrill Lynch and J.P. Morgan Securities Inc. were joint bookrunners of the sale.

Proceeds will be used to repay certain secured and unsecured debt and for general corporate and working capital purposes.

Seagate jumps

Seagate's 2.375% convertibles due 2012, the old Maxtor Corp. convertibles, traded up to 123.188 bid, 123.688 offered versus a share price of $19.51 on Thursday, up from Wednesday's 117.188 bid, 117.688 offered market level.

Seagate's 6.8% convertibles due 2010, also a former Maxtor issue, wasn't seen in trade. But that issue stands near par as it is close to maturity this spring.

Shares of Seagate jumped $1.73, or 10%, to $19.49 after the company reported better-than-expected results for the fiscal second quarter amid a rebound in the PC market. Seagate's results were above analysts' expectations, and the company's outlook for 2010 was positive about economic recovery.

Mentioned in this article:

Bank of America Corp. NYSE: BAC

EMC Corp. NYSE: EMC

Fifth Third Bancorp Nasdaq: FITB

Ford Motor Co. NYSE: F

Lexington Realty Trust NYSE: LXP

Salesforce.com NYSE: CRM

Seagate Technology NYSE: STX

Wells Fargo & Co. NYSE: WFC

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