Convertibles slightly weaker; Salix lower; Alliant Techsystems adds on hedge; DryShips up

By Rebecca Melvin

New York, March 16 - Convertible bonds felt a little weaker on Friday amid light volume due perhaps more to thinly staffed trading desks than to trends in the broader markets, market players said.

"Everyone was at the SSI CrabFeed for outrights," one New York-based trader said, referring to SSI Investment Management Inc.'s annual gathering in California for outright investors and underwriters held Thursday night.

Another sellsider cited the NCAA Tournament games as a distraction to convertible bond trading on Friday.

A third sellsider said, "It felt a little weaker with the bid side not really bidding."

Of names mentioned in trade, Salix Pharmaceuticals Ltd.'s 1.5% convertibles, which debuted in the secondary market Tuesday, traded down 0.375 point as the Treasury market sold off early Friday. But the convertibles firmed up in afternoon trading, a New York-based trader said.

Medivation Inc.'s new 2.625% convertibles traded at 102.5 versus an underlying share price of $70.50, which was a bit higher on a dollar-neutral, or hedged, basis with the underlying shares down a little.

Since issue, the new Medivation convertibles have added 2.5 points to 3 points on a dollar-neutral basis, a syndicate source said.

Also mentioned in trade was Alliant Techsystems Inc.'s 3% convertible, which gained about 0.5 point on a hedged basis as the underlying shares of the Arlington, Va.-based defense company recovered from a sell-off earlier in the week. The selling was sparked by the company's guidance for its 2013 profit and revenue, which was lower than analysts expected.

DryShips Inc. traded up about 2 points on an outright basis to 86.5 to 87, which was on top of gains notched Thursday, with the underlying shares also much higher, a New York-based trader said.

Equities traded flat to weaker on Friday after a weaker-than-expected reading on consumer sentiment. The Reuters/University of Michigan consumer sentiment index dipped to 74.3 in March, its first decline since August and lower than was expected.

Also on Friday, the Labor Department reported consumer prices rose less than expected last month by 0.4% versus expectations of a 0.5% increase. Core prices, excluding volatile food and energy costs, rose 0.1% versus expectations for a 0.2% increase.

The Dow Jones industrial average snapped a seven-day winning streak with its 20-point drop for the day, finishing at 13,232.62. But the stocks put in a strong week. The blue chips were up 2.4% for the week.

The S&P 500 stock index added 1.57 points on Friday to 1,404.17 and also gained 2.4% for the week; while the Nasdaq Stock index slipped a point to end at 3,055.26 on Friday. But for the week, the Nasdaq was up 2.2%.

Alliant adds 0.5 point

Alliant Techsystems' 3% convertibles due 2024 traded at 102.375 bid, 102.875 offered on Friday versus an underlying share price of $54.58, which represented a 0.5 point improvement on a dollar-neutral basis, a trader said.

Alliant shares pared some of their Friday gains but still ended up 33 cents, or 0.6%, to $54.12. They had sold off 6.5% on Tuesday.

The company issued its fiscal 2013 profit and sales guidance, which was below what analysts on average were expecting.

The aerospace and defense contractor said profit for the year ending March 31, 2013 was seen between $6.00 and $6.30 per share on sales of about $4 million to $4.1 million.

Analysts were expecting a profit of $7.09 per share and had projected revenue, on average, of $4.3 billion.

The company has suffered from military spending cutbacks as troops draw down in Iraq.

The fiscal 2012 guidance, the company stood pat, saying that it expects to post a profit of between $7.65 and $7.74 per share for the 12 months ending March 31. Revenue for the same period should be about $4.6 billion.

DryShips extends gains

DryShips traded up to 86.5 and 87 on Friday, which was up 2 points on a 25-cent stock rise, a New York-based trader said.

Shares of the Athens-based shipping company jumped 7.4% on the day to $3.64 in heavy volume.

"It was up yesterday too on higher shares. They were 81 bid, 82 offered on March 14, which was only two days ago," the trader said.

A second sellsider said dry bulk and oil tankers were active.

But overall, the trading day was quiet and volumes were pretty low, he said.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

DryShips Inc. Nasdaq: DRYS

Medivation Inc. NYSE: MDVN

Salix Pharmaceuticals Ltd. Nasdaq: SLXP

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