Convertibles weaken; PMI, MGIC extend losses, Kodak slides; UAL lower; Cameron, NII steady

By Rebecca Melvin

New York, May 19 - Convertible bonds were for sale again Wednesday in a de-risking effort that began in earnest this week amid uncertainty in Europe and governmental actions being taken there to stem a debt crisis.

Market action was muted, however, as players were reluctant to add exposure, and therefore bids were few.

"There's a real lack of liquidity and so much fear now," a New York-based sellside trader said. "There's still pressure. People are afraid to stick bids out there."

A second sellsider echoed the sentiment: "It's very easy to get an offer, but getting the other side is difficult."

Among names in trade PMI Group Inc. fell another point, after losing a point on Tuesday, as the Walnut Creek, Calif.-based mortgage insurer's credit remained virtually unchanged.

MGIC Investment Corp.'s convertibles also lost another point Wednesday, even though the Milwaukee-based mortgage insurer's credit improved slightly and its shares jumped on an equity upgrade.

Ambac Financial Group Inc. saw weak trading of its subordinated debt, but its convertibles were quiet as the New York-based bond insurer holding company saw its equity slide about 10% on a wider quarterly loss. Later, Ambac shares pared losses for a 5% drop.

Eastman Kodak Co. skidded by 3 or 4 points despite a loss in its underlying shares of only 6 cents, or 1%.

The Kodak 7% convertibles due 2017 traded at 105 versus a share price of $5.50 on Wednesday, compared to 111 versus a share price of $6.00 on Tuesday, according to a sellside analyst.

UAL Corp.'s 6% convertibles due 2029 were also lower in active trade.

"Convertibles are for sale," a New York-based sellside trader said in an effort to explain the losses. "There is de-risking across the asset class right now. It's about the same as for high yield, but our [convertible] market's ebbs and flows are greater than theirs."

Cameron International Corp., however, saw its 2.5% convertibles remain in active trade, changing hands at 118.5 versus share price of $36.35.

NII Holdings Inc.'s 2.75% convertibles due 2025 were also "doing what they were supposed to be doing," a source said, which means they hold up despite weaker underlying shares.

PMI, MGIC weaken

PMI's recently priced 4.5% convertibles due 2020 were seen trading at about 83 on Wednesday, compared to about 85 on Tuesday, according to one pricing source.

Shares of the company were actually higher by 7 cents, or 1.6%, at $4.40 on Wednesday.

MGIC's 5% convertibles due 2017 were seen closing at about 97.5, which was up less than 0.125 point.

MGIC was raised to "overweight" from "neutral" at Piper Jaffray by equity analyst Michael Grasher, who cited the prospect that the Obama Administration's anti-foreclosure program will cut claims costs.

The Home Affordable Mortgage Program, a $50 billion program authorized by Congress, has generated "more success than we thought possible," Piper's Grasher said, according to a Bloomberg report.

"One expects the mortgage insurers likely experience a significant benefit from preserving and loss standpoint," Grasher said.

HAMP pays mortgage servicers a $1,000 fee to rewrite loan terms to reduce monthly payments and $1,000 a year up to three years as long as the borrower stays in the program. More than 8,000 homeowners were able to permanently reduce their mortgage payments in April, the Treasury said on May 17.

For the latest quarter, Ambac's loss widened to $690.1 million, or $2.39 a share, from $392.2 million, or $1.36 a share, a year earlier. The latest quarter included a $1.71-a-share negative impact from the accounting change.

Revenue was negative $499.1 million, compared with positive $1.13 billion in 2009, as results in both periods were skewed by derivative impacts. Earned net premiums plunged 36% to $125.2 million while net investment income grew 17% to $117.6 million.

Claims paid fell 29% to $231.7 million, primarily related to residential mortgage-backed securities, while total net loss and loss expenses plummeted 88% to $89.2 million on prior-year woes from Ambac's RMBS portfolio.

Mentioned in this article:

Ambac Financial Group Inc. NYSE: ABK

Cameron International Corp. NYSE: CAM

Eastman Kodak Co. NYSE: EK

MGIC Investment Corp. NYSE: MTG

NII Holdings Inc. Nasdaq: NIHD

PMI Group Inc. NYSE: PMI

UAL Corp. Nasdaq: UAUA

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