Ford 'comes in' dollar neutral after earnings; A123 jumps on sale news; Powerwave slides

By Rebecca Melvin

New York, Jan. 29 - Ford Motor Co.'s 4.25% convertibles contracted about 0.5 point on a dollar-neutral, or hedged, basis Tuesday after the Dearborn, Mich.-based automaker gave a downbeat outlook for its European operations, and shares fell 4.6%, according to a New York-based analyst.

But D.R. Horton Inc. reported earnings and revenue that topped forecasts, helped by a surge in sale orders, and shares of the Fort Worth-based homebuilder surged 12%.

D.R. Horton's 2% convertibles due 2014 traded up with the underlying shares to 186.75, which was up 16 points outright. And that was up about a sixteenth on a hedged basis, a New York-based trader said. But "if you had to re-hedge, you probably did not make any money."

A123 Systems Inc.'s 6% convertibles due July 2013 jumped to 75 from the upper 60s after reports that the U.S. government approved a sale of the bankrupt lithium-ion battery business to the U.S. unit of Chinese auto parts maker Wanxiang Group. Waltham, Mass.-based A123 filed for bankruptcy on Oct. 16.

Powerwave Technologies Inc., which filed for bankruptcy on Monday, saw its 3.875% convertibles due 2027 trade actively at 5.

Convertibles volume was solid, but many of the trades were in the safer, higher grade credit names.

Market pundits said investors weren't likely to take on more risk on Tuesday following a run up in stocks this month, mixed U.S. economic data, and more data due out this week, and ahead of the Federal Reserve policy meeting underway, which ends on Wednesday.

On Tuesday, the Consumer Board's consumer confidence index for January fell more than economists expected, to its lowest level in a year, and boosting speculation that the Fed will make no changes in its accommodation policies, although some are thinking there might by a signal for a shift in the future.

Ford 'comes in' dollar neutral

Ford's 4.25% convertible senior notes due 2016 traded down 6 points outright to 160, which was said to be down 0.5 point on a dollar-neutral basis.

Ford shares slipped 64 cents, or 4.6%, $13.14 in heavy volume.

"It looks like the 4.25% convertibles came in half a point on an 80% delta," an analyst said.

Ford has a second 4.25% convertible issue that doesn't really trade.

The No. 2 U.S. automaker disappointed investors with its fourth-quarter results, which included a weaker outlook for its European business. It now expects losses of about $2 billion for 2013 in Europe, compared to a previous forecast of losses of $1.5 billion for the year.

The fourth-quarter pre-tax profit was $1.7 billion, or 31 cents per share, up $577 million from 2011, according to a company news release. Net income for the quarter was $1.6 billion, or 40 cents per share.

Ford attributed its 2012 full-year pre-tax profit of $8.3 billion, or $1.41 per share, to record results from North America and continued solid performance from Ford Motor Credit Co.

Ford's North America pre-tax profit for the fourth quarter was up $1 billion at about $1.8 billion and came in at about $8.3 billion for the year.

For the year, Ford Credit reported pre-tax profit of $1.7 billion, net income of $1.2 billion and about $20 billion of available liquidity, according to Ford's presentation materials.

Automotive ended 2012 with gross cash of $24.3 billion and $34.5 billion of liquidity.

Ford's fourth-quarter net income was $1.6 billion, or $0.40 per share.

The company's full-year net income was down $307 million from 2011 at $5.7 billion, or $1.42 per share.

Ford paid $3.4 billion in 2012 to its worldwide funded pension plans as part of a long-term strategy to de-risk the plans.

But overall, the company had a solid fourth quarter, achieving an operating profit for the 14th consecutive quarter and the highest fourth-quarter operating profit for the total company and the automotive sector since 1999, when trucks and SUVs were a more significant portion of our U.S. product mix, president and chief executive officer Alan Mulally said on an earnings call.

Powerwave trades at 5

Powerwave's 3.875% convertibles due 2027 traded at 5 on Tuesday, the day after the Santa Ana, Calif.-based wireless infrastructure company filed for bankruptcy protection from creditors.

"A lot of activity around the 5 level today," a New York-based trader said.

The pricing didn't represent a big move in the convertibles given that there was a high probability of bankruptcy.

Powerwave also has a 2.75% convertible, which is more senior, that was seen in the 19 bid, 21 offered context.

Powerwave shares fell another 2 cents, or 25%, to $0.06. The shares fell 70% on Monday.

Mentioned in this article:

A123 Systems Inc. Pink sheets: AONEQ

D.R. Horton Inc. NYSE: DHI

Ford Motor Co. NYSE: F

Powerwave Technologies Inc. Nasdaq: PWAV

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