Clearwire drops on Sprint linkup talk; Kodak steady ahead of ITC ruling; Sino-Forest lower

By Rebecca Melvin

New York, June 20 - Clearwire Corp. convertibles dropped again on Monday, extending last week's slide of the Kirkland, Wash.-based mobile broadband network operator's stock and bonds, amid reports that Sprint Nextel Corp. is linking up with LightSquared Inc. to build out their high-speed mobile broadband network, signaling more headwinds for embattled Clearwire.

Eastman Kodak Co. traded around the same level as Clearwire at 86, which was fairly stable on previous levels as traders look to a follow up ruling of the U.S. International Trade Commission on Thursday of the patent infringement case against Kodak by Apple. Last month, a single ITC administrative law judge ruled that Kodak didn't infringe Apple patents.

More dirt on Sino-Forest Corp. - this time in an article in The Globe and Mail over the weekend - sent the stock and convertibles of the Canadian-Chinese timber company lower, despite the company's public response to the article, calling it an "incorrect portrayal of its businesses."

Ares Capital Corp.'s convertibles, which were gainers last week, were in trade again on Monday, with the Ares 5.125% convertibles trading at 101.25 versus a share price of $15.90, compared to trades at 101.5 versus a share price of $16.05 on Friday.

Overall the convertible bond market was fairly active for most of the day but "pretty benign," a New York-based trader said.

A New York-based convertibles analyst said the market Monday was mixed in terms of price movement, with a second source confirming that characterization, calling the "overvalued stuff" as "in," with the "shorter-dated stuff" that was heavy seemingly finding a trading level.

"The big, liquid names, continued to be heavy, as funds seem to be raising money," the New York trader said.

Meanwhile, equities moved up on the day as investors shook off fears about the Greek debt crisis despite calls for Greece to pass new austerity measures coming from E.U. finance ministers.

The Dow Jones Industrial Average ended up 76 points, or 0.6%, to 12.080.38; the S&P 500 index added 6.9 points, or 0.5% to 1,278.36; and the Nasdaq Stock Market gained 13 points, or 0.5%, to 2,629.66.

Clearwire loses more ground

Clearwire's 8.25% convertibles due 2040 traded down to 86 outright on Monday, and a swap trade was reported at 87 versus an underlying share price of $3.60. That compared to Friday's 88.75 versus an underlying share price of $3.60 and a week ago when the convertible traded at 92 versus a share price of $3.80.

"Sprint making a deal with LightSquared hurts Clearwire badly," a New York-based trader said.

Clearwire's shares traded down another 3% to 5%, languishing at 52-week lows, before actually ending up on the day by a penny, or 0.3%, at $3.61.

Sprint, the third largest U.S. wireless company, is struggling to compete with bigger rivals AT&T and Verizon. It has lost contract customers in 14 of the past 15 quarters and hopes that using LightSquared's network will lessen the load on its own network as data demand climbs.

Reports had LightSquared reaching a 15-year deal with Sprint to share network expansion costs and equipment and to provide high-speed wireless service to the phone company. Under the agreement, Sprint will become a significant customer of LightSquared's 4G LTE network. Sprint was in talks with Clearwire on a similar network deal recently.

Sprint owns a 54% stake in Clearwire, which had 4.8 million wholesale customers and 1.3 million retail customers at the end of the first quarter.

Clearwire has been facing a cash crunch and management turmoil in recent months and has been slower than rivals to deploy the next generation4G wireless.

Kodak mostly steady

Kodak's 7% convertibles due 2017 traded at 86.25 versus a share price of $3.60 in early trade and was later seen at 85.75 bid, 86.75 offered versus a share price of $3.47.

By the close, it was down a little bit from that level at 85.13 on a $1 million-plus trade, a Connecticut-based sellside trader said.

"They really haven't moved," the trader said.

Traders are awaiting a ruling from the ITC later this week to see if a full panel of the ITC will uphold an earlier ruling by a single judge that said Kodak didn't infringe on Apple's patents in making its cameras.

Apple filed a complaint with the ITC, saying that Kodak infringed two of its patents and asking the agency to bar Kodak from importing products containing the technology into the United States. Apple also filed a lawsuit against Kodak.

Apple claimed Kodak was using a patented unified memory architecture and a modular digital imaging technology in several of its cameras.

In addition Kodak filed in January 2010 legal actions against Apple and Research in Motion for patent infringement involving image previews on mobile phones. That case is still pending.

Sino-Forest indicated lower

Sino-Forest's 4.25% convertibles due 2016 were seen at 39 bid, 42 offered at the end of the day versus a share price of C$2.60. That compares to a price of 52 last week.

Sino-Forest's 5% convertibles due 2013 were seen at 47 bid, 50 offered at the end of the day also against the C$2.60 share price. Earlier in the day, the 5% convertibles were 42 bid, 52 offered, but it was difficult to determine exactly where the market was amid not much trading, and that compared to a level last week at 63.

There was a lot of "noise," or markets being quoted in response to requests to buy or sell, but not much real trading action, according to a Connecticut-based trader.

"People are waiting for the other shoe to drop," the trader said.

Meanwhile, shares fell 47 Canadian cents, or 15%, to C$2.72 on the Toronto Stock Exchange after the company responded to an article published in The Globe and Mail over the weekend.

The response was convoluted. It stated: "The chairman of the Gengma Dail and Wa chairman, Xie Hongting, was introduced to the Globe and Mail to address some of the many questions. After the interview with Mr. Xie, the company had its interview during which it became clear there were some factual misunderstandings regarding the company's ownership of trees in Yunnan. The company informed the Globe that Mr. Xie would clarify the relationship between both parties. However, the Globe chose not to wait for Gengma's complete description of its relationship with Sino-Forest."

Regarding Yunnan tree ownership, the company said in response to the Globe article that it entered into the Yunnan master agreement in 2007, which had a target to acquire about 200,000 hectares of standing timber, but a maximum amount is not specified under the agreement. The Globe article used the phrase "up to" 200,000 hectares.

Sino-Forest stock has fallen 85% since the June 2 publication of a report by a short seller, Carson Block of Muddy Waters LLC, that alleged large-scale fraud and overstatement of assets by the company despite company denials of the allegations.

Mentioned in this article:

Ares Capital Corp. Nasdaq: ARCC

Clearwire Corp. Nasdaq: CLWR

Eastman Kodak Co. NYSE: EK

Sino-Forest Corp. Toronto: TRE

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