Duke Energy convertibles active, higher on California settlement; buyers seek Yellow's older 5% issue

By Ronda Fears

Nashville, Dec. 19 - It was a very thin market for convertibles Friday, as expected, with many desks light on staff due to the beginning of Hanukkah at sundown and some folks taking off early for the Christmas holiday.

"There was very little in the way of market flow," said the head convertible trader at one of the bigger hedge funds in New Jersey.

"A lot of desks are short-staffed. There was just nothing, or very little, trading - a few, select names. Pretty much you could say the year is over. There's not going to be much going on next week or after the holidays."

One of those select names to show activity was Duke Energy Corp.

Duke announced Friday agreements to resolve matters before the Federal Energy Regulatory Commission related to its role in the California electricity crisis from January 2000 through June 2002. The company agreed to pay up to $4.59 million to California and electricity consumers in the western United States.

The company, however, noted that it remains a party to FERC's ongoing refund proceeding - a refund case - involving all participants in the California market from Oct. 2, 2000 through June 20, 2001. For that cause, the company has put about $90 million in reserve.

The agreement requires Duke to pay a $2.5 million fine regarding allegations of manipulative bidding practices, physical withholding of power and performing wash trades of natural gas.

In a separate settlement, Duke reached an agreement with FERC staff, which still needs to be approved by the commission, that could absolve it from having to show cause in allegations of market gaming practices in California, and involves additional penalties of up to $2 million.

"Bringing closure to these protracted proceedings is in the best interest of our shareholders," said Fred Fowler, Duke's president and chief operating officer, in a company statement.

"From a business perspective, settlement with the commission will remove the risks and burdens of regulatory uncertainty. And from a practical standpoint, today's action will allow our company and our employees to move forward."

Duke Energy did not admit any wrongdoing in the settlement and still maintains that it acted "appropriately and within the market rules in California" during the situation.

A dealer said the Duke convertibles were very actively traded for most of the session.

While the settlement was not a surprise, he said, it "served to put some of the uncertainty to rest."

Duke's 1.75% convertibles due 2023 at the close were pegged at 102 bid, 102.375, up about 1 point on the day.

The 8.25% mandatory convertible due 2004 gained 0.125 point, or 1.29%, to 13.37 on the New York Stock Exchange on heavy volume as 217,200 shares changed hands versus the three-month running average of 128,329.

The 8% mandatory convertible due 2004 closed up 0.08 point, or 0.58%, to 13.37 on the NYSE, also on heavy volume as 125,500 shares moved versus the average of 93,162.

Duke shares also ended on higher ground, adding 24 cents, or 1.23%, to $19.82. About 4.7 million shares of the common stock changed hands, just above the average 4.68 million.

Yellow Roadway Corp. was another name mentioned to have headed north on buying interest, particularly for the older 5% convertible as opposed to the newer 3.375%. The name has been tracing higher all week.

"If the [Yellow] stock keeps going, it won't be long before that [5%] bond is in the money," said a market source involved with buying the Yellow convertibles.

Yellow's 5% issue due 2023 that was issued in August was quoted just before the close at 131.75 bid, 132.25 offered.

The 3.375% convertible due 2023 that was issued in November was quoted at 112.875 bid, 113.375 offered.

Both of the Yellow convertibles have a nice, high delta - 76% for the 5s and 76.5% for the 3.375s - as well as lots of call protection - through August 2010 on the 5s and November 2012 on the 3.375s.

But, the buyside trader noted that the conversion price on the 5% convertibles is $39.24 whereas the conversion price on the 3.375% convertibles is $46.

For the Dec. 22 week, the market is expecting only one deal, Roper Industries Inc.'s issue that was delayed until Monday.

Roper is pitching $150 million in proceeds of discount cash-to-zero convertible notes talked to yield 4.0% to 4.5%, up 27.5% to 32.5%. The company also is selling 3.955 million shares and negotiating a new $650 million senior secured bank facility.

Roper shares closed Friday off 37 cents, or 0.74%, to $49.36.

Hanover Compressor Co., Inco Ltd. and Eastman Kodak Co. also were mentioned by traders, with no predominant news motivating the moves, which were higher in each case.

As for the $1.1 billion of new paper put into circulation earlier in the week, most were lower on the day on weakness in the underlying stocks, traders said.

Interpublic Group of Cos. Inc. was the exception.

Interpublic's new 5.375%mandatory convertible was quoted by a dealer up another point to 56.625 bid, 56.75 offered. The mandatory closed on the NYSE up 0.92 point, or 1.66%, to 56.56 with 500,000 shares changing hands.

The New York advertising agency's 4.5% convertible bond due 2023, which was issued in March, was quoted up 2.25 points at 151.5 bid.

The underlying stock closed up 40 cents, or 2.66%, to $15.45.

© 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.