Cobalt, MGM add; AMR jumps on nod from bankruptcy court; new GSV edges up

By Rebecca Melvin

New York, Sept. 12 - Convertibles were little changed to modestly higher in quiet trade on Thursday as the broader markets switched gears, but put in only modest moves as well, market players said.

The S&P 500 stock index snapped a seven-session winning streak, while bond markets edged upward following recent weakness.

"The market made an interesting swing today, but everything is pretty blah," a New York-based trader said.

A second New York-based trader said the convertible bonds he saw trading Thursday were "marginally higher."

Cobalt International Energy Inc.'s 2.625% convertible, which has become "one of the usual suspects" in the convert market, was active and edged up, the second trader said.

MGM Resorts International was also a little higher in decent trade despite the underlying shares of the Las Vegas-based casino operator dropping lower.

Elsewhere, AMR Inc.'s convertibles jumped higher after the bankrupt Fort Worth, Texas-based parent of American Airlines won court approval to emerge from bankruptcy from judge Sean Lane of the U.S. Bankruptcy Court for the Southern District of New York.

But AMR's exit from bankruptcy hinges on a merger between AMR's American Airlines and US Airways, and that deal is in limbo since the U.S. Justice Department filed a lawsuit in August seeking to block the merger.

In the primary market, GSV Capital Corp.'s newly priced 5.25% convertibles traded at 100 to 101 after the Woodside, Calif.-based investment fund priced an upsized $60 million of five-year notes at the midpoint of talk.

Overall, the markets didn't move that much, a trader said. "Rates and credit are the same, equities are the same: there are not a lot of catalysts, and the calendar is not all that big that people have to shuffle things around."

Cobalt, MGM marginally higher

Cobalt's 2.625% convertibles due 2019 were seen at 105.875 bid, 106.25 offered at the market close versus an underlying share price of $25.83. That was up 0.25 point or so on the day, a trader said.

Shares of the Houston-based oil and gas exploration company added 24 cents, or nearly 1%.

There was no obvious news on the company, but its chairman and chief executive Joseph Bryant was scheduled to present at the Barclays CEO energy-power conference in New York Thursday afternoon.

MGM's 4.25% convertibles due 2015 traded up to 120 bid, 120.5 offered versus the closing price of the underlying shares, which were down 1.2%.

"That was marginally higher," a trader said of the bonds.

AMR active, higher

AMR's 6.25% convertibles due 2014 traded up in active trade to about 103.5 last from 102, according to a New York-based trader.

A second trader said it moved to as high as 104 during the session from 101.5. But was last closer to 103.

The underlying shares that trade over the counter gained 17 cents, or 4.8%, to $3.68.

Bankruptcy judge Lane said that AMR's plan, which hinges on a merger with US Airways, meets the standards of feasibility. But now the company faces the Justice Department's lawsuit, which if successful in blocking the merger, means that AMR would have to go back to the drawing board on a new plan.

"I'm not sure why the bonds moved so much on this," a Connecticut-based trader said. The Justice lawsuit "is really the driving factor."

The trader said that he didn't see it as new news as the court was always expected to approve the plan.

Lane said he based his decision on whether the plan meets standards of feasibility and didn't factor in the Justice Department's law suit.

New GSV edges up

GSV Capital's newly priced 5.25% convertibles due 2018 traded at par to 101, a syndicate source said Thursday afternoon.

The source said that the new bond traded on both an outright and on a hedged basis.

Trading of the new paper was not a dominant theme in the market though given the small, $60 million size of the deal.

GSV shares were volatile, trading all the way down to $11.36, or a 7% drop, and then recovering to a 1% decline, to $12.14 at the close, which was off 13 cents.

GSV's deal was upsized by $10 million to $60 million.

Pricing came at the midpoint of talk, which was for a 5% to 5.5% coupon and 30% to 35% premium.

Citigroup Global Markets Inc. was bookrunner.

The notes are non-callable for life.

About $9.5 million of the proceeds will be used to acquire government securities to be pledged for the exclusive benefit of the noteholders in years one through three. Remaining proceeds are for general corporate purposes, including investing in portfolio companies and paying operating and other expenses.

Based in Woodside, Calif., GSV Capital is an investment fund that focuses on high-growth, venture-backed private companies.

Mentioned in this article:

AMR Inc. Pink sheets: AAMRQ

Cobalt International Energy Corp. NYSE: CIE

GSV Capital Corp. Nasdaq: GSVC

MGM Resorts International NYSE: MGM

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