Central European Distribution gains outright; RadioShack up after earnings; Apollo on tap

By Rebecca Melvin

New York, April 25 - The convertible bond market was quiet Monday, the day after a long holiday weekend, with thin trading volumes and sources finding it difficult to determine pricing performance of various names compared to moves in their underlying shares.

Markets were closed Friday for the Good Friday holiday.

"It is beyond quiet - we're all brain dead today," a New York-based sellside trader said.

But in the primary after the market close, Apollo Investment Corp. launched a Rule 144A deal for $200 million of six-year convertible notes.

The New York-based closed-end investment company has already tapped the convertible market this year with a $200 million offering of 5.75% five-year convertibles in January.

"They are diversifying their sources," a syndicate source said regarding Apollo's use of proceeds.

Back in the secondary market, Central European Distribution Corp. added 2 to 3 points on an outright basis as the underlying shares surged on a report that predicted shares of the beverage company would go higher given favorable prospects for the sector overall and amid the company's prospects in particular.

RadioShack Corp.'s convertibles traded higher, but looked to have ended the session little changed, in tandem with the move made by the underlying shares after the Fort Worth, Texas-based electronics retail chain posted first-quarter profit fell on revenue that was higher. The company also announced planned private placements of $300 million of straight senior notes.

Both Intel Corp. convertible issues traded higher by a point to several points. The Intel 3.25% convertibles due 2039 were reported in trade at 124 versus a share price of $21.95. At the close, they were said to be 123.574 bid, which was up from 121.76 bid at the close on Thursday.

The Intel 2.95% convertibles due 2035 traded up to 104.75 versus the same $21.95 share price during the session. But by the market close, those bonds were said to be 105 bid, compared to 104 bid previously and versus an underlying share price that ended up 48 cents, or 2.2%, to $21.94.

Gilead Sciences Inc. continued to trade pretty actively in an extension of Thursday's action when the biopharmaceutical company missed expectations for its first-quarter earnings.

CEDC jumps on positive story

Central European Distribution's 3% convertibles due 2013 were seen in trade at 87.825, which was up about 2 points on the day, according to Trace data. The paper trades on an outright basis.

Shares of the beverage company surged $1.59, or 14.4%, to $12.63 in heavy volume. Earlier, shares had been up even higher.

Central European Distribution, a vodka maker and distributor with U.S. headquarters in Pennsylvania, was mentioned in a Seeking Alpha article that suggested that the company's shares may double in value.

"Many beverage stocks have been rallying lately, but there are still some bargains and solid values in this sector," the Seeking Alpha online story said.

Beverage companies, which are typically resilient to economic downturns, offer earnings growth, reasonable PE ratios and even dividends in some cases, the story said.

Central European Distribution reported earnings that disappointed the market and shares "dropped off a cliff," from about $23 down to around $10. At the current level, which was around $11 before the Seeking Alpha story, they were recommended as a buying opportunity, and were referred to as the best value in the sector.

The company "is likely to be more volatile than the others, but it has far more upside," according to the article, which said the stock may double.

In March, Moody's Investors Service placed the vodka maker under review for a possible downgrade in response to deterioration in Central European Distribution's operating performance during the fourth quarter of 2010 and early first quarter and word that its lenders have agreed to waive a breach of debt covenants.

The company also posted an unexpectedly weak 2011 outlook.

RadioShack rises

RadioShack's 2.5% convertibles due 2013 traded higher during the session at 103.5 versus a share price of $16.00, a New York-based sellside desk analyst said. But the paper was seen settling at 102.5 Monday, which was essentially unchanged on the day.

Shares of the electronics retailer traded higher in good volume but ended unchanged at $15.83.

RadioShack reported first-quarter profit of $35.1 million, or 33 cents a share, down from $50.1 million, or 39 cents a share, a year earlier.

The most recent quarter included a charge of 2 cents a share for the early extinguishment of debt. Revenue rose 2.1% to $1.06 billion.

Analysts had been expecting the company to earn 35 cents a share on sales of $1.07 billion.

The company said profits were hampered by bad weather and costs tied to paying off other debt early.

RadioShack also said it is planning to sell $300 million of straight notes to mature in 2019 that will be used for general corporate purposes, including possible stock buybacks.

Apollo eyes $200 million deal

Apollo launched a $200 million offering of six-year convertibles after the market close Monday, which were seen pricing on Tuesday.

The Rule 144A offering, which has a $30 million greenshoe, is being sold via joint bookrunners J.P. Morgan Securities LLC, Merrill Lynch, Morgan Stanley & Co. Inc., Deutsche Bank Securities Inc. and Citigroup Global Markets Inc.

The deal was talked at a coupon of 5.625% to 6.125% and an initial conversion premium of 15% to 20%.

Proceeds will be used for new portfolio investments, to reduce debt under the company's revolving credit facility and for general corporate purposes.

Apollo is a New York-based closed-end investment company. It has an existing $200 million of 5.75% convertibles, which priced in January.

The deal, which has been waiting in the wings, was launched Monday given that markets "are very stable," a syndicate source said, regarding the favorable conditions for launching during an otherwise quiet convertibles session.

Mentioned in this article:

Apollo Investment Corp. Nasdaq: AINV

Central European Distribution Corp. Nasdaq: CEDC

Gilead Sciences, Inc. Nasdaq: GILD

Intel Corp. Nasdaq: INTC

RadioShack Corp. NYSE: RHS

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