Northwest Airlines convertibles trade down; automakers mostly lower; Micron, Amkor gain

By Rebecca Melvin

Princeton, N.J., Aug. 11 - The convertibles of Northwest Airlines Corp. traded lower Thursday, and other airline paper bumped around as crude and fuel oil prices surged again.

News of a fare hike from Delta Air Lines Inc., Continental Airlines Corp. and others carriers helped lift those stocks from session lows, but the convertibles couldn't be persuaded higher.

Micron Technology Inc. and Amkor Technology Inc. both gained a little ground, traders said. But General Motors Corp. and Ford Motor Co. were mostly lower.

This week's new Conseco Inc. 3.5% convertible improved about 0.25 point on Thursday to 100.75 bid 101.25; but the new 2.375% Maxtor Corp. convertible slipped by about that much to close at par, at the middle of the spread, syndicate sources said.

Overall the convertibles market was quieter despite a rally in Treasuries, the oil-price spike, and following a "big day" Wednesday when a flood of new paper entered the market, including U.S. Bancorp's $2.5 billion floating coupon convertibles.

In addition to U.S. Bancorp, three other issuers each brought $300 million convertible deals into the market, for a total value of $3.4 billion.

"It was a big day yesterday. People were disappointed that they didn't come in cheaper. But it was positive. We need new paper. So that's positive," a New York sellside trader said.

As for Thursday, it was "loud," with phone calls for markets and levels, but there wasn't much trading, a sellside shop desk analyst said.

"It feels pretty soft. There isn't much going on," a buyside trader in Connecticut said.

The oil move was having more of an impact on stocks, than on convertibles; and Treasuries action hadn't yet caught on with convertibles, the trader said.

"It [the Treasuries rally] hasn't shown up in any convertibles yet. It probably will tomorrow," the trader added.

Crude oil rose to a record $66 a barrel in New York on a combination of factors including reduced output estimates, high U.S. gasoline demand and higher natural gas prices.

For September delivery, crude rose 94 cents, or 1.5%, to $65.84 a barrel at the 2:30 p.m. close of floor trading on the New York Mercantile Exchange.

Meanwhile, U.S. 10-year Treasuries rose to their highest level in two weeks on international demand, leaving the note's yield down 6 basis points to 4.33% at the end of the day in New York.

Strike threat, oil saps Northwest

The convertibles of Northwest Airlines were lower with traders citing another surge in oil prices for the decline. But news on the tape also revealed more uncertainty for the Eagan, Minn.-based airline as it faces a growing strike threat from its mechanics.

Chief executive Doug Steenland said on Thursday that a hostile economic environment and the practices of lower-cost competitors have forced the fourth-largest U.S. airline to ask its workers to make painful sacrifices in order for it to survive.

"The company simply has no choice. We can't ignore reality," Steenland said, noting that new entrant, low-cost carriers represent about 30% of the industry.

Steenland's comments came at the beginning of a presentation by Northwest executives on the carrier's readiness to face a possible strike by its mechanics union, the Aircraft Mechanics Fraternal Association.

Trouble in another area of the workforce came in the form of a grievance filed by the Northwest chapter of the Air Line Pilots Association after the company used a charter company Wednesday for two scheduled Northwest flights.

Both Northwest and Champion have said Champion could operate some Northwest flights if mechanics go on strike after 12:01 a.m. ET on Aug. 20.

Champion has a fleet of 16 Boeing 727s. Airlines contract with Champion for backup flight coverage.

Northwest has said it wants a total of $1.1 billion in annual savings, including $176 million from mechanics. The mechanics have offered temporary cuts they say would add up to $143 million a year.

Northwest's 6.625% convertible traded down 0.5 point to 1 point to 37.125, versus a stock close of $4.11, which was down 10 cents, or 2.38%.

Northwest's 7.625% convertible was down about a point at 33.625 bid, 34.625 offered, traders said.

Traders didn't report much activity in the paper of Delta Air Lines, with its 8% convertibles due 2023 seen mostly unchanged at about 18. But the Atlanta-based carrier's senior paper "seemed a little better," a trader said.

The convertibles of AMR Corp., the parent of American Airlines, looked weaker by 0.5 point to 1 point, while those of Continental were off by about 0.5 point. Continental's 4.5% convertible due 2007 showed up on Trace at 88.50.

Automaker convertibles mostly lower

The convertibles of GM and Ford were mixed to mostly lower, although even the early 1% gain in GM's 4.5% convertible was pared by half by the end of the session.

GM's $25 convertible bonds bearing a 4.5% coupon closed up just 0.10, or 0.42%, at 24.13. The other bonds were lower, including GM's 6.25% convertible and the 5.25% convertible, which both shaved off less than half a percentage point, and Ford's preferred shares, which shed 0.31, or 0.77%, to 40.04.

GM shares were down 10 cents, or 0.29%, at $34.91, and Ford common stock edged down just four cents to $10.36.

Micron regains footing, Amkor up

The convertibles of Micron Technology were up 0.5 point to 1 point in active trade Thursday, traders said, recovering some ground from a drop in the 2.5% convertible paper of the Boise, Idaho-based semiconductor maker beginning last week.

Chandler, Ariz.-based Amkor Technology also ticked up, traders said. The provider of semiconductor assembly and test services saw its 5% convertible due 2007 trade at 86, with its stock up 20 cents, or 3.85%, at $5.40.

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