Convertibles firmer; USEC better on Obama comments; Newmont Mining in trade as gold gains

By Rebecca Melvin

New York, Feb. 1 - Convertible bonds were quiet but slightly firmer on Monday, helped by improvement in the broader markets and a bid in the convertibles market related to players looking to re-allocate funds after recent issuer redemptions, market players said.

Sybase Inc. said Monday it was calling the remaining $413.7 million of its 1.75% convertible subordinated notes due 2025; and last week, Incyte Corp. said it was calling its 3.5% senior convertible notes and 3.5% subordinated convertible notes, both due 2011, with the redemption date set Feb. 22.

"It's firmer, at least temporarily, and with action like this - with a bid in the market - the bonds that are put, yield plays ought to stay that way," a New York-based sellside trader said.

Another sellsider concurred, saying that "with Sybase being called, and no new issuance to pick up the slack, it's going to boost valuations since more dollars are going into fewer issues."

Among names in trade was Bethesda, Md.-based USEC Inc., which has seen its stock and bonds climb following comments made last week by president Barack Obama backing further development of nuclear power.

USEC is a supplier of low-enriched uranium for commercial nuclear plants. The USEC 3% convertibles due 2014 were at about 71 versus a share price of $4.25 on Monday, according to a New York-based sellside desk analyst.

Newmont Mining Corp.'s convertibles were also in trade, probably on the back of higher gold prices on Monday. But Freeport-McMoRan Copper & Gold Inc.'s convertible mandatory preferreds, which mature in May and have been active for the last few weeks as its common slumped, wasn't heard in trade.

Otherwise, convertibles market trading was fairly concentrated on the same large, liquid names that are typically in trade, including EMC Corp., Transocean Ltd., Ford Motor Co. and Medtronic Inc.

"It's the same names all the time that trade, unless news comes out. But there was no news today," a sellsider said.

Soft January performance

The outright convertible bond market posted a return of minus 1.61% in January, representing a rocky start to the year, compared to a strong December return for Barclays' convertible composite index of 3.85%.

Despite continued strength in credit markets, performance was driven mainly by a sell-off in equities, with the S&P 500 index down 3.6%, the Nasdaq stock market off 5.34% and the Russell small cap index down 2.68% for the month, wrote Barclays analysts Venu Krishna, Manoj Shivdasani and Peng Cheng.

Market slims

With Sybase and Incyte representing the latest instances of the trend toward reduced convertible paper, there was a bid in the market Monday as investors eyed options for putting that money back to work in the convert space.

"New issuance would be nice," a sellsider said, referring to the fact that the convert market hasn't seen any new paper since Jan. 21, and before that in January, the primary market saw six deals totaling $1.4 billion after $4.8 billion in December.

"The volume was the third lowest in the last 12 months," Barclays Capital analysts said in a report Monday.

Most investors are "sitting on their hands" waiting for the next catalyst, so there isn't a lot of price action in the market, but there is a bid that is supporting the market, a sellsider said.

"There's just less and less paper, especially investment grade," another sellsider agreed.

After retiring $35 million of the Sybase 1.75% bonds last August, the company announced Monday that it planned to redeem all of the remaining $413.7 million of that issue on March 3.

The Dublin, Calif.-based wireless software company said it will buy back the notes at a redemption price of par plus accrued interest up to but excluding the redemption date. The interest will be equal to $0.4375 per $1,000 in notes. The redemption will be funded from available cash.

Incyte, a Wilmington, Del.-based drug discovery and development company, said it will redeem all of its 3.5% convertible senior notes due 2011 and its 3.5% convertible subordinated notes due 2011 at 100.5 plus interest to its redemption date, which is Feb. 22.

Newmont in trade as gold rises

Newmont's 3% convertible senior notes due 2012 traded at 119.5 versus a share price of $44.75. The paper priced almost exactly one year ago, on Jan. 30, 2009.

The Newmont 1.25% convertible senior notes due 2014 traded at 121 versus the same share price of $44.75, according to a sellsider.

Shares of the Denver-based gold producer added $2.68, or 6.3%, to $45.64 on Monday.

Gold prices bounced higher Monday, the most in four weeks, amid a stall in the U.S. dollar rally.

Gold for April delivery rose $21.20, or 2%, to settle at $1,105 an ounce on the Comex division of the New York Mercantile Exchange.

Freeport-McMoRan's 6.75% mandatory convertible preferreds due May 2010 were seen up about 5 points at 103.35 versus a share price of $70.75, a sellsider who didn't trade the name on Monday said.

Shares of the Phoenix-based mining concern also jumped, reversing a trend of the last couple of weeks which saw the shares fall 17% since Jan. 19.

The Freeport convertible mandatory preferreds traded down in tandem with the common stock, standing at 120.5 versus a share price of $84.75 on Jan. 19, and slipping down through the teens to about 98 on Friday.

The $2.5 billion mandatory convertible preferreds were issued in March 2007.

Mentioned in this article:

EMC Corp. NYSE: EMC

Ford Motor Co. NYSE: F

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

Incyte Corp. Nasdaq: INCY

Medtronic Inc. NYSE: MDT

Newmont Mining Corp. NYSE: NEM

Sybase Inc. NYSE: SY

Transocean Ltd. NYSE: RIG

USEC Inc. NYSE: USU

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