Apache adds, trades actively on debut; Ford Motor paper gaining on earnings; SanDisk slips

By Rebecca Melvin

New York, July 23 - The new Apache Corp. 6% mandatory preferred was a major focus of the convertible bond market Friday, with the new $1.1 billion issue trading up in active trade on its debut in secondary trading as the common shares gained 4%, market sources said.

"That's all people traded today," a New York-based trader said of Apache.

Another said it was "definitely the name of the day."

Elsewhere, Ford Motor Co. improved again on strong quarterly results, with the Ford 4.25% convertibles due 2016 up 5 points. But one trader said trading volume wasn't any heavier than usual in the name.

SanDisk Corp.'s convertibles were lower after the Milpitas, Calif.-based memory chip maker reported a jump in second-quarter profit and after word that SanDisk chief executive Eli Harari plans to step down at the end of the year, to be replaced by Sanjay Mehrotra, SanDisk president and chief operating officer.

But Microsoft Corp.'s convertibles weren't a notable market factor even though the software giant posted better-than-expected profit.

Great Atlantic and Pacific Tea Co. Inc.'s two convertible bond issues plunged along with their underlying shares after the grocery-store chain reported earnings that missed earnings estimates.

Meanwhile, Liberty Media Corp. was a volume name in the last few days, with one trader suggesting trades of its various convertibles was related to action in the name's credit default swaps.

"It's a CDS play, the movement was over the credit in general, in the CDS, resulting in hedge positions from there," a New York-based trader said.

Overall the convertible bond market improved on the week after treading water early in the week as the equity markets also moved up, ending on a high note on Friday.

There was a shift away from inactive trade focused on a few, liquid issues to more broad-based trading, and somewhat better volume, traders said.

"Volume was slightly better this week though still slow," one trader said.

While a second trader said, "Credit has improved across the board, creating greater liquidity everywhere, and improving valuations."

The upward move in equities Friday was tied to relief that most European banks passed their stress tests, something that has been an overhang on the market, a trader said.

"I think people are feeling better about the U.S. economy given earnings this week, and now the European problem looks better," a trader said.

Apache adds in active trade

Apache's newly priced 6% mandatory preferreds traded out of the chute at 51.25 and up to 53 on their debut Friday. A midsesssion market was 52.625 bid, 53 offered, and toward the end of the day they were 53 bid, a sellsider said.

"But the shares were up 3.5 points, so it's not as good as it looks," the sellsider said.

Shares of the Houston-based oil and gas exploration and production company closed Friday at $92.79, up $3.51, or nearly 4%. That was up from an issue of common stock that priced late Thursday at $88.00 and from Thursday's close of $89.28.

Apache priced $1.1 billion of the 6% convertibles at par of 50 with a 24% initial conversion premium.

That was at the rich end of talk, which was for a dividend of 6% to 6.5% and an initial conversion premium of 18% to 22%.

"That's pretty rich for a mandatory...even on a good company," a New York-based trader said.

On Thursday, it "didn't do much in the gray market, it was plus one and a quarter range, but the stock today is up 4 points. Terms were revised down before it came, and it's the first real deal in a month," the sellsider said.

The paper was trading Thursday in the gray market at between 50.75 and 51.5.

The company Thursday also priced an upsized 23 million shares of common stock at $88.00 per share. Initially, 21 million shares were expected to be priced.

SanDisk weaker

SanDisk's 1% convertibles due 2013 traded at 91.5 on Friday which was down from 92 bid on Thursday.

"SanDisk was down, but not that active," a trader said.

Late Thursday, SanDisk reported a second-quarter profit of $257.9 million, or $1.08 a share, compared with $52.5 million, or 23 cents, earned for the year-earlier period. Revenue was $1.18 billion, up from $730.6 million.

Analysts had expected earnings of 90 cents a share on revenue of $1.16 billion.

But shares of SanDisk fell anyway by $1.67, or 3.9%, to $41.43.

Ford gains

Ford's 4.25% convertibles due 2016 traded up nearly 5.5 points on Friday to 151.25 from 145.782 on Thursday, as the underlying shares of the Dearborn, Mich.-based automaker jumped 63 cents, or 5.2%, to $12.72.

On Tuesday, the new Ford convertibles traded at 139.5 versus a share price of $11.50.

"The stock is ripping on earnings," a sellsider said.

Ford reported a 13% rise in second-quarter income due to higher sales at higher prices.

Its earnings were $2.6 billion, or 61 cents a share, compared with $2.3 billion a year earlier. Excluding items, the company earned 68 cents a share.

Revenue jumped 17% to $31.3 billion from $26.8 billion a year earlier.

Analysts had expected earnings of 40 cents a share from the automaker in the most recent quarter.

Ford said second-half financial results will be lower than the first half because of costs associated with new-vehicle introductions. Ford said it is also positioned to report a positive automotive operating-related cash flow for 2010.

A&P plunges on earnings

A&P's 5.125% convertibles due 2011 traded down 31 points to 64.25, while the A&P 6.75% convertibles due 2012 traded down 21.25 points to 50.

Shares of the Montvale, N.J.-based grocery-store chain dropped $1.32, or 34%, to $2.61 on Friday.

The company reported wider losses and appointed another chief executive, its second this year. Nevertheless, it reported revenue in line with expectations.

"It was abysmal earnings. The 5.125% convertibles are in the mid to low 60s, and it last printed 95, so it gapped 25 points from there," a trader said.

"To me, I would love to say it's not a big surprise, but it was obviously a surprise when the prices move like this," the sellsider said.

The loss from continuing operations was $116 million for the first quarter ended June 19, double the loss booked in the year-earlier period.

Same-store sales fell 7.2%.

The company's adjusted earnings, excluding items, of $19 million, missed estimates for $64 million.

The company also appointed Sam Martin as its president and chief executive, succeeding Ron Marshall, who joined the company in January.

The company is pursuing capital raising opportunities including incremental financing though the current bank facility and the sale of non-core assets and sale-leaseback transactions.

Liberty Media 3.5s trade at 50

Liberty Media's 3.5% convertibles due 2031 traded at 50, which was up 0.375 point on Thursday.

These convertibles are based on the underlying shares of Motorola Inc., which settled down 4 cents, or 0.5%, to $7.75. The premium on this issue is 42%.

Other Liberty convertibles have different underlying equities. The Liberty 3.75% convertibles are exchangeable into shares of Viacom Inc., and the Liberty 4% convertibles are convertible into shares of Sprint Nextel Corp.

Mentioned in this article:

Apache Corp. NYSE: APA

Ford Motor Co. NYSE: F

Great Atlantic & Pacific Tea Co. NYSE: GAP

Liberty Media Corp. Nasdaq: LINTA

Microsoft Corp. Nasdaq: MSFT

SanDisk Corp. Nasdaq: SNDK

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