Bargain hunters target Countrywide, CapitalSource; Advanced Micro Devices recovers; foreign issues coming

By Evan Weinberger

New York, Aug. 6 - Players looking for value turned to Countrywide Financial Corp. Monday as stocks rallied.

CapitalSource Inc. convertibles were also active as bargain hunters helped the bonds regain some of the value they lost early in the day.

Advanced Micro Devices Inc. also saw active trading on its convertibles, and like CapitalSource, the bonds regained some value lost early in the day.

Overall, with stock markets shooting up Monday, convertibles investors took the day to consolidate some positions and look for value where they could find it.

"It's a beautiful time to make some delta trades," one trader said.

And while trading volume is down some from the highs of a few weeks ago, volume has been above average in recent days.

"It isn't like everyone's running for the hills," an analyst said. "We've seen some buying and selling."

Even after American Home Mortgage Investment Corp. filed for Chapter 11 bankruptcy - a move that came as little surprise following recent cost-cutting announcements from the Melville, N.Y.-based mortgage lender Friday - and changes in lending procedures from several subprime lenders, the markets raced forward Monday. There was the expected bargain-hunting and investors appeared to be hoping for a steadying announcement from the Federal Reserve Tuesday.

"Somebody decided there was too much selling last week," one analyst said. "Of course, we'll see with the Fed announcement tomorrow [Tuesday]. That'll be interesting."

The Dow Jones Industrial Average picked up 286.87 points, or 2.18%, to close at 13,468.78. That follows Friday's more than 281 point drop.

The Nasdaq followed suit, gaining 36.08 points, or 1.44%, closing at 2,547.33.

On the new deal front, Fujitsu Ltd. of Tokyo priced ¥200 billion in convertible bonds and Tata Steel, a Mumbai, India-based steel producer, announced the launch of $650 million in convertible bonds.

Value hunters target Countrywide

Traders and analysts said that Countrywide, the largest mortgage lender in the United States was ripe for value seekers.

Countrywide's Libor plus 225 basis points convertible senior debentures due April 15, 2037, which have a put coming in May 2009, were particular risers throughout the trading Monday.

"I have accounts who b[ought] a bunch of CFC's this [morning and] late afternoon," one trader said. "They really improved - these were outright value accounts - with a 10%-plus yield to put. With the U.S. dollar on its butt a foreigner can own this on the cheap. Even without - see strong upside here - the sky will remain in the sky, for now at least."

The trader said the Countrywide debentures closed at 90 versus a stock price of $26.75. They had been trading at around 93.75 on Thursday before being crushed on Friday and making their comeback Monday.

Also higher on the day were Countrywide's Libor plus 350 bps convertibles due April 15, 2037. The next put on these convertibles is set for October 2009. The bonds closed the day at 89 versus $26.75 Monday. The convertibles took a similar ride in the last three trading days - finishing Thursday at 93.50, crashing Friday and recovering Monday.

Stock in Calabasas, Calif.-based Countrywide (NYSE: CFC) rebounded Monday as well, gaining $1.75, or 7%, and closing the day at $26.75.

Another convertible that piqued the interest of bargain shoppers was CapitalSource. The Chevy Chase, Md.-based small business lender saw its 7.25% senior subordinated convertible notes due2037 also rebound Monday.

After beginning the day at 88.58, the convertibles rose to 94 versus a closing stock price of $19.19. CapitalSource stock (NYSE: CSE) picked up 28 cents, or 1.48%, on the day, after slipping at the opening.

And rounding out notable values for Monday, Advanced Micro Devices saw its 6% convertible senior notes due 2015 regain some early losses on the day. The convertibles finished the day at 86.4 versus $12.77. They began the day at just over 87, but dipped as low as 85 early.

Stock in Sunnyvale, Calif.-based Advanced Micro (NYSE: AMD) finished lower Monday, closing the day at $12.77, a drop of 8 cents, or 0.62%.

Two foreign deals coming

One new deal came in from Japan Monday morning. Fujitsu priced ¥200 billion in convertible bonds that will mature in two equal tranches of ¥100 billion each. Both tranches carry 1.6% coupons through May 27, 2009 that will turn into zero-coupon bonds beginning May 28, 2009.

The first tranche, which matures on May 31, 2010, has a hard call through May 27, 2009 at 103.5. The second tranche has a hard call until May 27, 2009 with a 104 redemption. Both tranches have a soft call subject to a 111.11% hurdle beginning May 28, 2009.

Fujitsu is an information technology and consumer electronics company. It plans to use the proceeds to refinance existing convertibles due to mature in 2009.

Coming on the horizon, Tata Steel announced an offering of $650 million in convertible bonds due Sept. 5, 2012.

The bonds will have a 1% coupon and a 35% initial conversion premium. They are talked at a yield of 4.75% to 5.25%. There is will be a $150 million greenshoe.

The company plans to use the proceeds for capital expenditures or international acquisitions, lending to its subsidiaries and to finance expenditures for its acquisition of Corus Group plc.

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