Convertibles add on stronger volume: Sprint/Nextel, NII Holdings, Alliant Techsystems strengthen

By Rebecca Melvin

New York, Jan. 6 - The convertible bond market was fairly busy Tuesday, with continuing better bids, convertible players said.

"There was more trading, with things finally finding levels after four days of being bid up," a New York-based sellsider said.

In addition to the usual large, liquid convertible names, like Amgen Inc., EMC Corp. and Transocean Inc., there was activity in smaller issues, as well as in financials.

A pair of telecom names was stronger. Sprint/Nextel Corp.'s 5.25% convertible due 2010 "flew higher" to 90 from 88 on Monday and 83 in recent sessions. Shares of the Overland Park, Kan.-based wireless and wireline communications services company also continued a several-week long winning streak, jumping 9.4% to its highest level since early December.

NII Holdings Inc. convertibles strengthened as shares of the Reston, Va.-based digital wireless company jumped 8.5%.

Alliant Techsystems Inc., which has been active in recent sessions, gained as shares of the Minneapolis-based defense company wavered in both positive and negative territory but ended unchanged on the day.

Among financials, National City Corp.'s paper, which is now PNC Financial and National Retail Properties Inc., were seen active and on the upside.

Economic stats mixed

While money was seen going back to work, returning some normalcy to both the credit and equity markets, the economic news crossing the tape Tuesday was mixed at best.

November factory orders fell 4.6%. Orders had been expected to decline 2.3% after falling 6% in October. November home sales were down 4% month over month, which is worse than the 1% decline that was widely forecast. Sales were down 4.2% in the prior month.

But the December ISM Service Index came in at 40.6, which was better than the consensus estimate of 36.5.

In addition, the minutes from the Federal Open Market Committee's Dec. 16 meeting showed there was significant contraction in economic activity during the fourth quarter, and downside risk to growth remains. Unemployment is expected to rise significantly into 2010.

Defensive outlook

Barclays Capital convertibles analysts presented an outlook for the convertible market for 2009 in a conference call that was cautiously optimistic, recommending a defensive stance in the market.

They foresee total market return for U.S. convertibles at 11.9% for 2009, assuming no change in equities, 20% tightening of investment-grade spreads and 10% tightening for non-investment-grade spreads.

But at the same time, the analysts' economic outlook wasn't upbeat. They said that macro data is weakening at an accelerating rate and told convertibles players to expect a deep recession, with unemployment spiking to 8.2% by the third quarter.

The New York Times reported that hedge fund JD Capital Management LLC of Greenwich, Conn., is winding down its once $1.3 billion multi-strategy hedge fund after big losses in 2008.

JD Capital's Tempo Master Fund lost more than 40% for the year. A volatility fund run by the same former Goldman Sachs executive will continue to run a volatility fund started in June.

The fund was reportedly involved in convertible arbitrage and distressed loans, which were hard hit for the year. Barclays analysts said Tuesday that the convert arb strategy lost nearly 60% for the year.

As for what percentage of the convertibles market still remains in convert arb hands, Barclays analyst Venu Krishna estimated that it's now about 45% to 50%, compared to 70% previously.

Sprint/Nextel, NII continue to gain

Sprint/Nextel's 5.25% convertible due 2010 traded up to 90 and change, compared to 88 on Monday, a sellside trader said.

Shares of the company gained 20 cents, or 9.4%, to $2.32.

NII Holdings' 3.125% convertibles due 2012 traded at 69 during the session and were seen closing at 69.486, compared to 67.514 on Monday.

NII Holdings' 2.75% convertibles due 2025 were seen trading at 91 from about 90.25.

NII shares settled at $23.62, which was up $1.85, or 8.5%.

"I've been saying to buy them for the longest time. The credit is much better, and they have plenty of cash," a New York-based sellside trader said.

NII Holdings' 2.75% convertibles due 2025 were one of 33 convertible issues that Barclays Capital analysts have put in their 2009 recommended portfolio.

The cash-pay bond is not rated, has a face value of $350 million, and call protection for 1.7 years, according to Barclays research.

At a bond price of 85.5 and stock price of $20.22, the yield to put is 12.65%, according to Barclays research.

NII Holdings was the only telecom in the portfolio, but there were six information technology sector issues (the third largest concentration in the portfolio), including Arris Group's 2% convertibles due 2026, Computer Associates' 1.63% convertibles due December 2009, EMC's A series 1.75% convertibles due 2011, Intel's 2.95% convertibles due 2035, Sybase's 1.75% convertibles due 2025 and Symantec's A series 0.75% convertibles due 2011.

Alliant strengthens

Alliant Techsystems' 2.75% convertible due 2011 traded between 100 and 103.5 on Wednesday, up from a print late Monday that was 102.4 versus a share price of $86.57 on Friday.

Shares of Alliant ended unchanged on Tuesday at $86.47.

"This paper has been cheap, and the pricing has been getting better, much better," the sellsider said.

Mentioned in this article:

Alliant Techsystems Inc. Nasdaq: ATK

Amgen Inc. Nasdaq: AMGN

EMC Corp. NYSE: EMC

NII Holdings Inc. Nasdaq: NIHD

Sprint/Nextel Corp. NYSE: S

Transocean NYSE: RIG

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