Convertibles quiet; Annaly Capital off; Ford, Nasdaq, Avis steady; AMR adds after upgrade

By Rebecca Melvin

New York, Feb. 12 - The convertible bond market quieted early Friday, with paper for sale, ahead of a long holiday weekend. Markets will be closed on Monday in observance of Presidents Day.

"Things are definitely for sale with little volume," a New York-based sellside trader said.

Annaly Capital Management Inc.'s new convertibles that debuted Tuesday were weaker, with a market seen early Friday at 96.875 versus a share price of $17.20, down from the discounted issue price of 98.

RadioShack Corp. was steady to slightly lower, with that name, which trades on a 50% delta, trending in line with its underlying shares.

Ford Motor Co.'s convertibles were mostly steady, with an older issue slightly lower after having outpaced the newer paper this week.

Avis Budget Group Inc.'s convertibles traded flat at 103.5 versus a share price of $12.40, comfortably over par.

AMR Corp.'s convertibles, which dropped below par a week ago, were back up to 110 on Friday amid an equity upgrade from Stifel Nicolaus to "buy" from "hold."

Away from planes and automobiles, the Nasdaq OMX Group Inc. continued in trade at an unchanged 95, after being among the most actives on Thursday and also in trade at 95 on Wednesday.

"Yeah, that's been active," a New York-based sellside desk analyst said of the Nasdaq convertible. "I don't know what's up though."

Market seen 'choppy'

In the past week, trading in the convertibles market overall was described as choppy. More than anything else, earnings news drove market activity. And this made market breadth appear better, but sources said there wasn't any real shift in the market.

"With companies reporting, you had some more off-the-run names getting traded. But I don't think there were any more names in trade than usual," one analyst said.

Another sellsider said that trading volume was lower because there was "nothing compelling" to drive activity. "It's going to be a grind from here on out," the Connecticut-based sellside trader said.

Equities were generally weaker Friday but were pulled off their lows to end mixed, with the tech-heavy Nasdaq stock market actually ending in positive territory.

The Dow Jones Industrial Average ended down 45.05 points, or 0.44%, to 10,099.14; the S&P 500 index lost 2.96 points, or 0.27%, to 1,075.51; and the Nasdaq Stock Market added 6.12 points, or 0.28%, to 2,183.53.

Arbitrage strategies will outperform outrights with the stock market not doing that well," according to one New York-based sellside analyst.

Annaly comes at a discount

Annaly Capital's newly priced 4% convertibles traded at 96.875 versus a share price of $17.20, which compared to 97.565 on Thursday.

Shares of the New York-based real estate investment trust that owns a portfolio of mortgage-backed securities settled at $17.15 on Friday, which was down just 4 cents.

The fact that that issue priced at a discounted 98% of par was seen to be issue specific. The fact that it has a large 16% dividend means that it was difficult for hedge players to become involved because it means they have a greater cost of carry.

Annaly's $500 million of five-year convertibles wasn't upsized from original talk and came at the cheap end of talk, for a yield 4% with an initial conversion premium of 20%.

Credit Suisse Securities (USA) LLC was the bookrunner.

AMR higher in trade

AMR's 6.25% convertibles due 2014 traded at 110 versus a share price of $8.50, which was up from Monday's 101 versus a share price of $7.50.

Shares of the Fort Worth-based air carrier gained through the week, rising 22 cents, or nearly 3%, to $8.71 on Friday.

The Stifel Nicolaus upgrade cited AMR's higher revenue per available seat mile estimates as a reason for a positive view. In addition risks are reduced with Japan Airlines' decision to keep its alliance with AMR's American Airlines and its oneworld global alliance.

Going into 2010 convertibles analysts for Bank of America Merrill Lynch suggested that investors hedge airline convertibles with a constructive view. Airline revenue decline has slowed, thereby improving outlook. The potential of higher energy prices hasn't materialized yet, but it is a risk, the analysts said.

The bank's analysts said they prefer cheap yield plays and low-premium arbitrage plays hedged at a higher delta for the airline sector.

Ford mostly steady

Ford Motor's older 4.25% convertibles due 2036 had been more active and priced higher than the newer Ford 4.25% convertibles due 2016 during the past week.

Ford's older 4.25% convertibles were seen closing at 134.71 on Friday versus a closing stock price of $11.12, compared to Thursday's price of 125.

Ford's newer 4.25% convertibles due 2016 were seen closing at 134.45. A sellside source also reported having traded the newer paper Friday at 135.5 versus a share price of $11.15.

The source also said the Ford 6.5% convertible preferred shares traded at $42.20 versus a share price of $11.00.

Shares of the Dearborn, Mich.-based automaker ended down just 6 cents, or 0.5%, at $11.12.

RadioShack market off slightly

A market in the RadioShack 2.5% convertibles due 2013 was 111 bid, 111.75 offered versus a share price of $19.50, compared to a trade at 112 versus a share price of $19.85 on Thursday.

Shares settled little changed but 3 cents to the upside on the day at $19.96.

The convertibles of the Forth Worth-based consumer electronics retailer are three-year paper trading on a 50% delta.

"People might be able to hedge it up and make a little. It depends on the credit spread and vol. It's not one of the great looking names," a sellsider said.

Mentioned in this article:

Annaly Capital Management Inc. NYSE: NLY

AMR Corp. NYSE: AMR

Avis Budget Group Inc. NYSE: GET

Ford Motor Co. NYSE: F

The Nasdaq OMX Group Inc. Nasdaq: NDAQ

RadioShack Corp. NYSE: RSH

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.