Convertibles under pressure; new Unisys wavers but adds dollar neutral; NetApp weaker

By Rebecca Melvin

New York, Feb. 23 - Convertible bonds looked to be a little lower on swap on Wednesday as there was some selling in the midst of a thinly traded market.

"There was just a little bit of pressure if people wanted to lighten up on things in a thin market with not much inclination to do anything," a New York-based sellside trader said.

The selling was not widespread or severe but simply a function of a thinly traded market, he noted.

Unisys Corp.'s newly priced 6.25% convertible mandatories wavered on their debut in the secondary, trading up early after coming on terms that were viewed as cheap, but slipping back below par as its underlying shares sank.

Nevertheless, the new Unisys paper went out at 99.375 versus a share price of $35.85 at the close, which, on a delta-neutral basis, represented 2.5 points of expansion, a syndicate source said.

NetApp Inc. came in slightly by maybe 0.125 point as the Sunnyvale, Calif.-based data-storage-equipment maker's shares came under pressure like a lot of names in the tech sector, but the convertibles weren't trading very actively.

United Continental Holdings was a little lower outright but not doing terribly given that shares of the Chicago-based airline were down 6% in response to higher oil prices Wednesday.

Meanwhile, KV Pharmaceuticals Inc. was reported to have traded at 90, which was up from 88 last week, amid a sharply lower share price.

Overall the market saw a pick up of volume from Monday's levels, but was still characterized as "sluggish."

"There was some action in stocks, but not a lot of follow through in convertibles," a New York-based sellsider said.

"A lot of people sit out on days like this," the sellsider said.

Unisys wavers on debut

Unisys' newly priced 6.25% convertibles traded up to 101.5 bid, 102 offered on their debut Wednesday, with a high print at 102.25, according to a syndicate source.

But they subsequently slipped back, trading below par with a 99 handle, or a low print of 99.25, before recovering some ground to 100.125 versus a share price of $36.45.

The stock was quite volatile during the day, but the mandatories did well nevertheless, with quite a lot of trading action, the syndicate source said.

A sellside trader said: "I saw them 101.5 to 102. But they didn't stay there for long; the stock started to come in."

The new Unisys mandatories traded up in the gray market and came cheap enough, but the underlying shares got hit hard.

Shares of the Blue Bell, Pa., information technology services provider ended the session down $1.58, or 4.2%, to $56.85.

There wasn't much of a measurable reaction in the shares when the deal was launched Tuesday, so Wednesday's move might have been a delayed reaction to news of the dilution, a trader said.

In addition, Unisys began a cash tender offer Tuesday for its 14.25% senior secured notes due 2015 and 12.75% senior secured notes due 2014.

The registered, off-the-shelf mandatory deal came at the rich end of talk, which was for a yield of 6.25% to 6.75% and an 18% to 22% premium.

The threshold appreciation price is $45.66.

Goldman Sachs & Co. and Citigroup Global Markets Inc. are the joint bookrunners of the deal, with RBS Securities Inc. acting as the co-manager.

The three-year mandatory has a $33.75 million greenshoe, and proceeds of the deal will be used to repay debt.

NetApp under pressure

NetApp's 1.75% convertibles due 2013 were seen bid at 165.876 at the close, which was down from 169 on Tuesday, according to a pricing source. That compares to the underlying shares that were down $1.20, or 2.3%, at $50.64 at the close in heavy volume.

Last week the company posted a weaker-than-expected profit outlook along with its decent third-quarter report.

"NetApp felt a little lower. It traded a bunch, but not that much traded in big size," a New York-based sellside trader said.

He said that the trading session overall wasn't that great "any way you slice it," and NetApp was a good example of some general weakness on selling pressure.

UAL lower outright

UAL's 4.5% convertibles due 2021 traded a little lower through the session, ending at about 101.5 bid, 102 offered, after an earlier trade at 102.75 versus a share price of about $24.00.

That was down from 104 bid, 105 offered last week, a New York-based sellside trader said.

"They are a couple of points lower" from where they had been trading, but given that shares fell Wednesday by $1.66, or nearly 7%, to $22.78, it wasn't that bad.

The paper trades on an outright basis, and it looks like outright players stepped in to pick up some of the lower-priced paper at the end of the day.

UAL's 6% convertible senior notes due 2029 were also seen lower at 281.5 versus an underlying share price of $23.00 during the session. And that compares to pricing at nearly 300 previously.

Airlines were "OK, or even a little bit better with the stock pulling back on higher fuel prices," one sellsider said.

AMR Corp. wasn't really seen in trade, sources said. But its 6.25% convertibles due 2014 were quoted 111.5 against a share price of $7 at one point during the session. At the close, however, the AMR paper was quoted 107.82 versus a share price of $6.56.

Mentioned in this article:

AMR Corp. NYSE: AMR

KV Pharmaceuticals Inc. NYSE: KV

NetApp Inc. Nasdaq: NTAP

United Continental Holdings NYSE: UAL

Unisys Corp. NYSE: UIS

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