Convertibles under pressure: Washington Mutual, Symantec, GM, Suntech Power lower

By Rebecca Melvin

New York, March 14 - News that Bear Stearns Cos. needed to be propped up with emergency loans from a rival and the New York Federal Reserve on Friday dominated the financial markets, putting significant downward pressure on convertible bonds and squelching market activity, convertibles players said.

It was "more misery," a New York-based sellside convertibles desk analyst said.

Trading was thin, but some financial and energy-related paper traded hands, including Washington Mutual Inc. and Nabors Industries Inc., as well as Symantec Corp.

General Motors Corp.'s 6.25% convertibles fell 3.9% in higher than average volume; and both the new and old convertibles of Suntech Power Holdings Co. Ltd. traded lower in line with a 3.8% drop in their underlying shares.

In the primary arena, pricing of a new issue expected from Raser Technologies Inc. was postponed until Monday, according to a syndicate source. The Provo, Utah-based geothermal power development and motor technology company plans to price $75 million of five-year convertible bonds.

Meanwhile, Medical Properties Trust Inc. announced a new issue of $125 million of five-year exchangeable senior notes, expected to price Wednesday after markets close, a syndicate source said.

Bear market concerns

Bear Stearns has the smallest market capitalization of the bulge bracket, and is less well-diversified than some of its larger peers, so perhaps it didn't come as a complete surprise that it was the one that faced a crisis requiring emergency funding. But everyone agreed that it isn't good for anyone.

"It doesn't bode well. They were neck deep in the mortgage products, so in some way it's surprising that they held up as long as they did," the New York desk analyst said.

"They are smaller and not as well diversified. But there's a lot of fear out there. How many banks have Bear Stearns as counterparties to trades? If they go out of business or have trouble meeting collateral, all the other banks are impaired. It's a snowball effect."

A Connecticut-based sellside head trader said the situation creates a whole new level of lack of confidence. "We saw Drexel Burnham go out the same way. But back then, nobody stepped into help," he said.

"It could have been Merrill; but they have a lot more retail presence that helps buffer what's going on," he said, referring to Merrill Lynch & Co. Inc.

Kathleen Shanley, an analyst with independent research firm Gimme Credit, said, "Though BSC was historically known for its conservative risk management culture, that image has been tarnished by the recent collapse of several hedge funds managed by Bear Stearns Asset Management, and by its current liquidity crisis."

Shanley called it a bad news/good news story. The bad news being that the company confirmed its "liquidity position in the last 24 hours had significantly deteriorated." But good news because JPMorgan Chase and the Federal Reserve Bank of New York stepped up to provide secured funding to the company for an "initial" period of up to 28 days.

Bear says it's in discussions with JPM about permanent financing or "other alternatives," but there can be "no assurance that any strategic alternatives will be successfully completed."

On Monday, Bear has an earnings report conference call. "That's our next data point," a New York based sellside trader said.

WaMu down 3 points

The convertibles of Washington Mutual were down about 3 points dollar neutral, according to a trader. Washington Mutual stock (NYSE: WM) plummeted $1.54, or 12.69%, on the day.

Renewed selling of the bonds and stock resulted after Moody's Investors Service said it downgraded the troubled mortgage player, reflecting the rapid deterioration of the residential housing sector in the first quarter of 2008 and the resulting increase in expected provisioning needs on the bank's residential mortgage loan portfolio.

Moody's believes remaining lifetime losses on the portfolio will be higher than previously expected, that WaMu's required provisioning is likely to be greater than $12 billion and that full-year 2008 net losses could eliminate the company's approximately $6 billion capital cushion above regulatory well capitalized minimums.

The rating agency also noted that Seattle-based WaMu maintains a strong liquidity position through its core deposit franchise, Federal Home Loan Bank access and limited holding company debt maturities in 2008 and 2009.

Nevertheless, its debt was downgraded to near junk levels. Its senior unsecured bond rating downgraded to Baa3 from Baa2, subordinated bond and senior subordinated bond ratings to Ba1 from Baa3 and preferred stock rating to Ba2 from Ba1. The Prime-2 short-term rating was affirmed.

Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred stock closed Friday at 710 versus a closing stock price of $10.59. They closed Thursday at 780 versus a stock price of $10.59.

Washington Mutual stock (NYSE: WM) plummeted $2.66, or 12.19%, on the day.

Symantec slips

Symantec's 0.75% convertibles due 2011 were about 3 points lower outright at 106.1 at the close Friday versus a $16.46 stock price, compared to a close of 108.9 versus a $17.26 close on Thursday.

The Symantec 1% notes due 2013 closed down Friday at 106.8 compared to 109.6 on Thursday.

Liquidity is becoming more of a focus, like a commodity, a New York-based trader said, and Symantec convertibles are viewed as a kind of safe haven in turbulent markets like the one experienced recently. Nevertheless the paper was still down about half a point over the last two days.

Shares of the Cupertino, Calif.-based internet software and services company (Nasdaq: SYMC) lost 4.6% on Friday.

General Motors' P series trades actively

GM's 6.25% convertible senior debentures due July 15, 2033 (NYSE: GPM) screeched to a $16.25 close, a drop of $0.66, or 3.9% in volume that was three time the 3 month average volume. Its sister issue, the GM GM's 5.25% series B convertible notes due March 11, 2032 (NYSE: GBM) lost 36 cents, or 2.2%, for a close of $16.03.

Its 4.5% series A convertible notes due March 11, 2032 (NYSE: GXM) were little traded.

GM shares (NYSE: GM) slid 5.4% on the day. The Detroit-based automaker recalled more than 200,000 Buick and Pontiac vehicles on Friday due to a defect that could cause oil leaks and fires. The No. 1 U.S. automaker has also been under pressure because of a more than two-week old United Auto Workers union strike at parts supplier American Axle and Manufacturing Holdings Inc.

Mylan adds, Suntech dips

Mylan's 6.5% mandatory convertible preferred stock due Nov. 15, 2010 closed Friday at 849.8 versus a stock price of $11.08 after finishing Thursday at 832 versus a stock price of $10.69. Mylan shares (NYSE:MYL) gained 39 cents, or 3.65%.

The Canonsburg, Pa.-based generic drug maker gained after Citigroup raised its recommendation to "buy" from "hold."

But, Suntech Power's new 3% convertibles took a little haircut Friday to close at 103.2 versus a stock price of $32.10, compared to 106.1 versus a $33.45 stock price on Thursday. The new Suntech convertibles priced earlier this week.

Medical Properties to price exchangeables

Medical Properties Trust Inc., a Birmingham, Ala.-based real estate investment trust focused on healthcare facilities, plans to price $125 million of five-year exchangeable senior notes after the close on Wednesday.

Price talk on the deal was for a coupon of 8.75% to 9.25%, and an initial conversion premium of 15% to 20%.

The five-year bullets have an over-allotment option for an additional $18.75 million of notes.

Concurrent with the offering, Medical Properties plans to sell about 11 million shares of common stock, with an over-allotment option of up to 1.65 million additional shares.

UBS Investment Bank is bookrunner of the notes.

The capital raised will help fund a "transformative" acquisition of the $371 million HCP Inc. portfolio of up to 21 healthcare facilities

Edward K. Aldag Jr., chairman, president and chief executive, said "This portfolio acquisition is a transformative event for MPT. The portfolio will increase the number of properties in our portfolio by 75%, substantially increase our tenant diversification with eight new, well-known operators whom we believe to be of high quality, as well as significantly improve our geographic footprint."

Medical Properties' existing 6.125% exchangeable senior note due 2011 closed at 86 on Friday, versus a stock price of $11.35, compared to a close of 88.5, versus a stock price of $12.08 on Thursday. Medical Properties shares (NYSE: MPW) lost 6% on the day.

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