Convertibles 'less weak'; Transocean, Hertz, Ford Motor regain some ground; Microsoft down

By Rebecca Melvin

New York, June 11 - The convertible bond market felt a little stronger Friday - or at least "less weak" - even though trading was quiet and market players expressed some frustration about the lack of volume.

The main broker-dealers "are not just pounding bids in the Street today, at least not in my sectors," a New York-based trader said, who called the market "less weak."

The bid pounding took the market to a low point on Thursday, but on Friday, pricing seemed to recover slightly.

The market has been suffering from inaction as investors shy away from commitments amid uncertainty that exists with the BP plc oil leak situation in the Gulf of Mexico and the fact that the economy is not growing fast enough to overcome concerns about the European sovereign debt crisis.

Transocean Ltd., which has been leading the market in terms of volume and sentiment for the last several weeks, recovered a little ground on Friday, trading at levels similar to Wednesday, after sagging on Thursday.

Hertz Global Holdings Inc. was somewhat stronger as well, despite weaker shares that ended down 1.2% on the day.

Similarly, Ford Motor Co.'s 4.25% convertibles due 2016 traded at 146.75 versus a share price of $11.40, compared to a trade Wednesday at 135 versus a share price of $11.25.

Microsoft Corp.'s new 0% convertibles due 2013, which debuted in the secondary market on Wednesday, were down about 0.5 point on a dollar-neutral basis on Friday having traded at 100.10 versus a share price of $25.40.

Secondary muted

Overall, action in the convertible bond market was quiet, with sellsiders saying that other than trading in the Transocean convertibles, the market was dead.

"If you are a Transocean trader you have been busy - or you should be. If you trade anything else you might as well be watching the World Cup," a trader said.

The month-long FIFA World Cup soccer tournament kicked off Friday.

In addition, volume in the past week has been highly concentrated in a few names. On Thursday the top four volume leaders accounted for 50% of the overall volume figure. That figure didn't factor in Microsoft's new paper, however, which was active.

Equities pulled out gains Friday after early losses, which were precipitated by an unexpected declined of retail sales in May.

According to a report by the Commerce Department, retail sales fell 1.2% in May, the first drop in eight months. Auto sales were down 1.7%, but excluding auto sales, building materials and gasoline receipts, sales figures were little changed in May.

New issuance lifts

In addition to Microsoft's $1.15 billion new deal, which launched and priced on Tuesday, there were new issues from Cadence Design Systems Inc. and National Financial Partners Corp.

Cadence's 2.625% convertibles traded flat on their debut in the secondary Thursday, and National Financial Partners' 4% convertibles were also quiet, seen offered around 100.5 last on Thursday.

But the boost in new paper supply was a good thing, sources said.

So far this month, the new issue market has seen nearly $2.1 billion in new paper, which is already better than new issuance for all of May, according to Prospect News' data.

For the quarter to date, 2010 issuance is around half of what it was for the same 2009 period, standing at $7.37 billion for the current quarter, compared to $14.305 billion for the 2009 quarter.

But for the year to date, issuance lags only 1.3%, standing at $15.4 billion in 43 deals, compared to $17.83 billion in 54 deals for the 2009 year to date.

For the month to date, June's $2.10 billion in four deals compares to nearly $3 billion in 11 deals for June 2009.

Transocean adds

Transocean's 1.5% series C convertibles due 2037, which have lost the most of three sister issues since the Gulf of Mexico deep-water well explosion, traded at 82.25, which was up from 81.75 Thursday but compared to 83.5 on Wednesday, according to a New York-based sellsider.

Since the drilling rig explosion April 20, the series C paper has lost about 15 points. On April 22 and April 23, the convertibles were 95 bid, 96 offered.

Transocean's 1.625% series A convertibles due 2037, which are putable in December, traded at 96.5, compared to 96 on Thursday and 96.5 on Wednesday, the sellsider said.

Shares of the Vernier, Switzerland-based company jumped $2.58, or nearly 6%, to $46.85 Friday.

The gain was notched despite a new estimate by U.S. scientists on the amount of crude that has flowed from the broken well into the Gulf that put the high-end up to as much as 40,000 barrels per day, double their previous estimate.

Hertz a little better

The Hertz 5.25% convertibles due 2014 traded at 143.5 versus a share price of $10.40 on Friday, compared to a trade at 139 versus a share price of $10.00 on Wednesday.

Shares of the Park Ridge, N.J.-based car rental company traded down as much as 4% on Friday but then pared losses to end down by just 1.2%.

On Thursday, Hertz announced its subsidiary Hertz Vehicle Financing LLC priced $184.3 million in three-year and five-year series 2009-3 rental car asset-backed notes, class B, rated "Baa2" by Moody's Investors Service.

The three-year notes carry a 4.94% coupon with a 5% yield, and the five-year notes carry a 5.93% coupon, or 6.01% yield, with expected final maturities in 2013 and 2015. On Thursday, Hertz shares jumped 5%.

Mentioned in this article:

Cadence Design Systems Inc. Nasdaq: CDNS

Hertz Global Holdings Inc. NYSE: HTZ

Ford Motor Co. NYSE: F

Microsoft Corp. Nasdaq: MSFT

National Financial Partners Corp. NYSE: NFP

Transocean Ltd. NYSE: RIG

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