Amgen keeps tracking higher with shares; Xilinx gains on hedge; Kodak retakes 20; AMR up

By Rebecca Melvin

New York, July 19 - Amgen Inc.'s 0.375% convertibles continued to move up in active trade Thursday, tracking higher with the underlying shares of the Thousand Oaks, Calif.-based biotechnology giant, which are at 52-week highs.

The Amgen convertible has changed from "a low risk, low return, boring name to a high gamma trader," a New York-based trader said. The new vol. name would he held on about a 55% to 60% delta, the trader said.

Also in the biotech space, there were buyers of the Gilead Sciences Inc.'s 1.625% convertibles, or the D paper, which is the longest dated, the trader said.

Xilinx Inc.'s two convertible bond issues improved on a dollar-neutral, or hedged, basis after the San Jose, Calif.-based programmable chipmaker reported quarterly profit that topped estimates by 2 cents, but trimmed revenue guidance for the current quarter, citing lack of demand from communications customers.

Bankrupt Eastman Kodak Co. has traded up for the past couple of weeks, retaking the 20 mark on Thursday, up from 18 bid, 19 offered on Wednesday.

Also in the bankruptcy arena, AMR Corp. saw its convertibles continue to push higher, moving up to 69.25 bid, 70 offered versus 67 on Wednesday.

Overall, the convertible bond market was seen as somewhat stronger in the midst of a choppy equity market.

"Stocks couldn't figure out which way they wanted to go today," a New York-based trader said.

But in the broader markets, it appeared that expectations of another round of Fed easing are ramping up, according to a second market source.

"At one point, stocks were up and bonds were up, and that's an indication," the New York-based analyst said.

He pointed to economic data that "wasn't particularly good today" for fostering the expectations. That data included existing home sales that came in lower and a report released by the Federal Reserve Bank of Philadelphia, which showed manufacturing firms in the Philadelphia area continued to report weak business conditions in July.

The Philly Fed said its diffusion index of current activity rose to a negative 12.9 in July from a negative 16.6 in June.

"There's not anyone crazy bullish on the stock market right now, but that said, stocks not going down," the analyst said.

Looking for issuance

Once again there was no primary market activity in convertibles, with some sources voicing regrets that recent new issuers in the straight bond market didn't utilize convertibles.

But with interest rates so low, there's going to be limited interest in issuing a convertible bond, sources said.

It's going to make sense for a stable credit with a vol. stock like those that can be found in the commodities and biotech space, one analyst said.

Overseas, where the convertible primary market is also in the doldrums, there was some expectation of new supply on the heels of rising equities and a continuing "loan to bond shift," creating supply in the high-yield market, which could manifest as convertibles, a London-based convertibles analyst told Prospect News.

"There could be pent up issuance. We had a good first quarter, and then a very quiet second quarter on the back of the uncertain macro environment. We remain hopeful as we muddle through the macro environment, and amid a continuing loan to bond shift," the analyst said.

Amgen tracking higher

Amgen's 0.375% convertibles due 2013 traded up to 108 and were seen at 107.125 bid, 108 offered near the close.

The convertibles remained very active as they have been for the past several sessions.

Shares of the Thousand Oaks, Calif.-based biotechnology company ended little changed at $79.64, which was up a penny. But the shares touched a 52-week high of $80.25 during the session in average volume.

The convertibles are tracking higher with the shares, sources said. But they didn't know what was driving the shares, which have moved up steadily by more than $10 since early June when the share price was about $68.00.

The push higher has changed the convertible from "the most boring name in the universe," which traded at a discount to par, to a vol. trade "in which you can make some money," sources said.

The bond is very short-dated with six months to go until maturity, and it is in-the-money, meaning that it is within its conversion price range.

The paper was on a very low to non-existent delta before and now would be held on about a 55% to 60% delta hedge.

"It's certainly a vol. trade now, as opposed to an IG credit," an analyst said.

Xilinx improves on hedge

Xilinx's 3.125% convertibles due 2037, which is the older Xilinx bond that priced in 2007, expanded about 0.25 point on a hedged, basis, trading at around the 114 mark during the session, which was actually a point lower on an outright basis.

This issue trades on an 87% delta.

Xilinx's 2.625% convertibles, which priced in 2010, traded up about a point on a hedged basis to 124.5 bid, 125.5 offered at the close. This issue trades on about a 65% delta.

Shares of the San Jose, Calif.-based chipmaker slipped 71 cents, or 2.2%, to $31.30.

"It was a vol. move," an analyst said, although "there wasn't a huge move in the stock."

The maker of electronic equipment and systems lowered revenue guidance for the current quarter, citing lower demand from communications customers.

The company expects revenue for the current quarter to fall 4% to 8% from the first quarter, translating into about $536.2 million to $559.5 million of revenue, versus the $586.1 million analysts were expecting.

Xilinx communications customers include Sweden-based Ericsson and Hong Kong-based ZTE Corp.

In reporting the most recent quarter completed, Xilinx earned $129.8 million, or 47 cents per share, down from $154.4 million, or 56 cents per share, a year earlier, and revenue fell 5% to $582.8 million.

Analysts were expecting profit of 45 cents per share on $575 million in revenue.

Kodak retakes 20

Kodak's 7% convertibles due 2017 have been gradually drifting higher, moving up a point on Thursday to 20.

One source said the improvement was based on speculation surrounding potential bids for the company's patent portfolio.

Kodak's recovery basis is a two-step process. First it has to complete the IP auction, which is scheduled to occur in mid-August.

"Once they figure out the proceeds from that, they will likely draft a plan of reorganization and reorganize around different companies," a market source said.

"Unsecured [holders] are still six months away from clarification," the source said.

Kodak is a Rochester, N.Y.-based imaging technology products and services provider that filed for bankruptcy on Jan. 19, 2012.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

AMR Corp. Pink Sheets: AAMRQ

Eastman Kodak Co. Pink Sheets: EKDKQ

Gilead Sciences Inc. Nasdaq: GILD

Xilinx Inc. Nasdaq: XLNX

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.