Intel shrugs off layoffs; SanDisk retreats on expansion plans; General Motors mixed before meeting

By Kenneth Lim

Boston, July 13 - The convertible bond market continued to be sluggish on Thursday, but tech names were in play amid broader market uncertainties and news related to bellwether Intel Corp.

Intel's convertible ended unchanged as investors shrugged off the company's plan to cut 1,000 management jobs.

SanDisk Corp. fell after the flash memory chip maker said it was building a new plant with partner Toshiba Corp. in Japan, fueling concern about oversupply.

General Motors Corp.'s convertibles were mixed ahead of a meeting Friday between chief executive Rick Wagoner and Carlos Ghosn, who heads Nissan Motor Co. and Renault SA, to discuss a potential alliance between the three companies.

Otherwise the convertible market was quiet on Thursday.

"It's the summer, and there's stuff in the Middle East that's weighing on the market," a sellsider said.

A convertible bond trader said some of the larger names improved as investors saw volatility opportunities in a broad-based slide in the equity market. The Dow Jones Industrial Average closed 166.89 points lower at 10,846.29, while the Nasdaq composite index lost 36.13 points to end at 2,054.11.

"These investment-grade large caps did much better today on a pick-up in volatility," the trader said. "But other than that it was kind of quiet."

Ford Motor Co.'s 6.5% convertible preferred (NYSE: F-PS) stayed firm despite a drop in the stock after the auto maker halved its dividend and board member fees.

The preferred spiked up on Thursday after the cuts were announced, but quickly returned to earlier levels and closed down by 0.4% or 0.11 point at 27.44, while Ford stock (NYSE: F) fell 4.65% or 32 cents to close at $6.56.

"It's slightly better because of the cuts," the sellsider said. "But it's not major."

Dearborn, Mich.-based Ford on Thursday reduced its third-quarter dividend to 5 cents per share on its class B and common stock, a move that could save it more than $90 million a quarter. The company also cut its board members' fees in half.

Credit ratings agency Standard and Poor's maintained its B+ rating on Ford and kept the outlook remained unchanged. S&P said the dividend cut did not immediately affect the ratings, noting that while the reduction will save Ford $375 million a year, the cash savings are relatively marginal because Ford is net cash positive at the parent level.

Intel shrugs off job cuts

Intel's 2.95% convertible due 2035 largely unchanged outright and on a dollar-neutral basis on Thursday after the company said it was cutting 1,000 management jobs.

The convertible was bid at 82 against a stock price of $17.88 on Thursday. Intel stock (Nasdaq: INTC) closed at $17.72, down by 0.89% or 16 cents.

Santa Clara, Calif.-based Intel said Thursday it will lay off the employees, who form about 1% of the chip maker's workforce, in an effort to become more efficient. The company did not say how the cuts would affect the company's finances, but more details are expected when the company reports its second-quarter results on July 19.

Equity analysts saw the cuts as a possible precursor to more layoffs as the downsizing goes beyond the management level.

A sellside convertible analyst said it was not clear how the layoffs would affect the stock.

"The recent trend of news doesn't suggest that these stocks are going anywhere in the near term," the analyst said.

Intel's convertibles have come in recently, but continue to be just fair or slightly overvalued, the analyst said. The job cuts are unlikely to have any significant effect on the company's credit, the analyst added.

"You're talking about a Libor plus 30 [basis points] credit here," the analyst said. "You're not talking about a Libor plus 300 name that could suddenly become a Libor plus 250, you're talking about low double digits for credit. It's still a solid company, it's unlikely to meaningfully impact the credit."

SanDisk falls on new plant

SanDisk's 1% convertible due 2013 was down in line with its stock on Thursday after the company said it would build a new plant with partner Toshiba Corp. in Japan.

The convertible was 82.625 bid, 82.875 offered against a stock price of $42, about one point lower outright from the Wednesday's levels. SanDisk stock (Nasdaq: SNDK) fell 5.98% or $2.63 to end at $41.33.

SanDisk and Toshiba said late Wednesday that they will build a new $3 billion plant to make NAND flash memory chips, which are used in digital music players and other electronic devices. SanDisk's stake in the new venture will be 49.9%, the company said.

The plant will eventually be able to process up to 100,000 silicon wafers per month, SanDisk said, but some analysts worried that the capacity will lead to an oversupply and slimmer margins.

"There's definitely some concern about margins," a trader said.

General Motors mixed before meeting

General Motors's trio of convertibles had a mixed session Thursday ahead of a meeting between the company's chief and the head of Nissan-Renault to discuss a possible three-way alliance.

General Motors' 4.5% convertible due 2032 (NYSE: GXM) gained 0.12% or 0.03 point to close at 24.59, while General Motors stock (NYSE: GM) finished at $28.32. The 5.25% convertible due 2032 (NYSE: GBM) eased 1.78% or 0.33 point to close at 18.24 versus the same stock price, while the 6.25% convertible due 2033 (NYSE: GPM) declined 1.63% or 0.33 point to end at 19.87, also against the same stock price. General Motors stock closed lower by 4.39% or $1.30.

Carlos Ghosn, who turned around Nissan and Renault as their chief executive, said Thursday in media interviews that he was not planning on running General Motors in an alliance. But he said he would like to see Nissan-Renault and General Motors take stakes in each other to cement any alliance.

Rick Wagoner, General Motors' chief executive, said Thursday he was open to an alliance, but added that General Motors did not need a partner to restructure its business.

The two chief executives will meet Friday to discuss the potential for an alliance, and Ghosn said he expects talks to finish by the end of the year.

A sellside trader said it is still not clear whether an alliance will materialize and if it will even help General Motors turn around.

"This doesn't change anything," the trader said.

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