SanDisk 1.5% convertibles come in on hedge; NetApp trades in line; Western Refining adds

By Rebecca Melvin

New York, April 4 - SanDisk Corp.'s 1.5% convertibles dropped outright on Wednesday and were lower by about a point on a dollar-neutral, or hedged, basis after the Milpitas, Calif.-based memory chip maker cut its first-quarter forecast for sales and earnings, citing weaker-than-expected demand and pricing for components that store data in mobile phones.

Moving in the opposite direction was Western Refining Inc., which saw its convertibles gain outright and add about 0.5 point on a hedged basis as the underlying shares of the El Paso, Texas-based oil refinery group moved sharply up, despite an overall selloff in equities.

Meanwhile, the convertibles of NetApp Inc., which have been an active trader of late, were a little lower outright but trading in line to slightly higher on a hedged basis.

Equities fell for a second day, dragged lower by a weak bond auction in Spain and mixed economic data in the United States, which came on the heels of the Federal Reserve minutes Tuesday that doused hopes for possible more stimulus from the central bank.

Spain sold €2.59 billion of bonds due between January 2015 and October 2020, which was well below the maximum €3.5 billion intended. In addition, yields rose, with the yield on the Spanish five-year bond surging to a near three-month high to 4.45%, which was up 19 basis points.

U.S. payrolls rose by 209,000 in March, after a revised 230,000 gain in February, according to ADP data. But the Institute for Supply Management's services-sector index for March declined to 56% from 57.3% in February, which was weaker than expected.

The Dow Jones industrial average fell 124.80 points, or nearly 1%, to 13,074.75; the S&P 500 stock index lost 14.42 points, or 1%, to 1,398.96; and the Nasdaq stock market dropped 45.48 points, or 1.5%, to 3,068.09.

"My feeling was that things were a bit heavy today, with guys selling, and not much stuff to buy," a New York-based sellsider said.

Volatility, which was a drag on in-the-money names on Tuesday, picked up, but that didn't seem to aid the convertible market, where sellers dominated and thinning trading ranks contributed to fewer buyers.

"There are a lot of people traveling and it's slow this week and it's probably going to be slowish next week," a sellsider said.

Other high-volume names in trade on Wednesday included Gilead Sciences Inc., Amgen Inc. and Newmont Mining Corp.

There was no follow through on positive trading on Tuesday, including Theravance Inc. and Human Genome Sciences Inc.

SanDisk comes in on hedge

SanDisk's 1.5% convertibles due 2017 fell nearly 6 points outright and came in about a point on a hedged basis, according to a New York-based trader.

The longer-dated, 1.5% SanDisk crossed the tape late in the session on swap at 112.30 versus an underlying share price of $44.51.

The paper was moving on a roughly 65% to 70% delta, and that came in from earlier in the week when the delta on that paper was 75%, the trader said.

Some $70 million of the bonds changed hands and some was trading outright and some on swap.

SanDisk's 1% convertible senior notes due 2013, which are due in about a year, were little changed at par with the underlying shares at $44.85 earlier in the session. These bonds were 97.125 versus a share price of $47.00 on Jan. 3.

SanDisk shares fell $5.54, or 11%, to $44.51 in heavy volume.

The SanDisk preannouncement, which on its own didn't look too bad, sparked the selloff as "guys are getting fed up with this company," a trader said.

Another trader mentioned that the weaker numbers are coming from the whole sector, including Micron Technology Inc.

SanDisk said late Tuesday that revenue for its fiscal first quarter ended April 1 will be about $1.2 billion, which was down from an earlier forecast of $1.3 billion to $1.35 billion, and which is below analysts' expectations for revenue of $1.3 billion.

Gross margin will be below 39% to 42%, which was the company's previous prediction.

Results were set to be released April 19.

SanDisk has been trying to win more chip sales from makers of mobile phones and lessen its reliance on revenue from memory cards, such as those used in digital cameras.

NetApp trades in line

NetApp's 1.75% convertibles due 2013, one of the larger, more liquid names in the convertibles space of late, traded near the end of the session Wednesday at 145.25 versus an underlying share price of $44.70.

Shares of the Sunnyvale, Calif.-based data storage company dropped 71 cents, or 1.7%, to $44.71 on the day in light action.

About $20 million of the NetApp convertibles traded on Wednesday and they were in line to a little higher, a trader said.

Lately these bonds have been whipping for lack of other things to trade, the trader said.

Western Refining up on hedge

Western Refining's 5.75% convertibles due 2014 traded as high as 200.625 versus an underlying share price of $20.70 on Wednesday and closed at 200.5 bid, 201 offered versus an underlying share price of $20.25.

On Tuesday, the paper closed at 198 bid, 198.75 offered, versus an underlying share price of $20.00.

Western Refining stock opened up strong on Wednesday, climbing 4% to 5% against a very negative tape, a trader said.

The shares came in a little bit later in the session, but the bonds were still about 0.5 point better on a dollar-neutral basis.

The move up in the shares was related to a play in West Texas Oil against light sweet crude, the trader said.

This play had the stock up and "it stood out in an ugly market," he said. "Hedge funds were buying and outrights were taking profits and selling."

The convertibles trade on a 90% to 95% delta.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Gilead Sciences Inc. Nasdaq: GILD

Human Genome Sciences Inc. Nasdaq: HGSI

NetApp Inc. Nasdaq: NTAP

Newmont Mining Corp. NYSE: NEM

SanDisk Corp. Nasdaq: SNDK

Theravance Inc. Nasdaq: THRX

Western Refining Inc. NYSE: WNR

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