Convertibles mixed: EMC better; Amgen little changed to lower; Transocean wavers on weaker oil

By Rebecca Melvin

New York, Nov. 14 - Investment-grade names seemed to dominate what trading activity there was in the convertibles market Friday as chaotic volatility in equities, uncertainty about redemptions and consolidation among financial market players continued as destabilizing themes, sources said.

Investment-grade stalwarts EMC Corp., Amgen Corp., Medtronic Inc. and Transocean Inc. were mixed as their underlying shares swung lower, rallied and then swung lower again.

EMC convertibles looked a little stronger, Amgen was flat to lower and Transocean wavered amid weaker oil prices.

"There's been a flight to quality and to names where at least there is liquid CDS," a New York-based sellsider said.

"It was pretty quiet, especially this afternoon," another New York-based sellsider said.

Some financials, including Bank of America Corp., and auto names were also mentioned in trade.

Bank of America's 7.25% convertible preferreds traded at 690 versus a share price of $17.24, and the autos were weak.

Traders voiced frustration that the current market is providing little if anything on which to depend.

"We don't know who or what is going to be in business: what dealers, what hedge funds, what institutional accounts," a sellsider said. "There has to be some clarity around what the asset class is going to look like before we make decisions."

Thursday's stock market rally, while encouraging on Thursday, was viewed as "more of the same" on Friday, and sources said it did nothing to foster a better outlook for either the secondary or the primary convertibles markets.

Regarding the reopening of the convertibles primary market, a syndicate source said: "We need a lot more ....We need the stock market to go up, we need convertible prices to go up, and more clarity around redemptions and leverage; then we'll see deals again."

More clarity around redemptions promises to come sooner rather than later as we pass the well-watched Nov. 15 mark over the weekend. One source expected to see both a wave of selling and a wave of buying in relation to the 45-day mark to year-end.

"You can't outperform in other areas," a sellsider said, supporting the idea that perhaps fewer-than-anticipated redemptions could spark buying in convertibles.

A convertibles buysider seemed to concur: "The market's cheap. The economy is bad - but not as bad as the markets. Being away from the Street provides a better perspective," he said.

EMC better

A trio of investment-grade twins didn't move dramatically Friday, but were generally weaker except for EMC. Looking at the group together followed a pattern, with the A paper due 2011 tending around 90 to 91, and the B paper due 2013 tending around 85 to 86.

EMC's 1.75% convertible due 2011, or the A paper, traded at 92.5 versus a share price of $10.50 intraday and was seen closing 0.5 point lower at 91.5 bid, 92.5 offered versus lower shares at $9.98.

EMC's 1.75% convertibles due 2013, or the B paper, were seen closing at 86.50, compared to 85 bid, 86 offered Thursday.

Shares of the Hopkinton, Mass.-based data-storage company ended 45 cents, or 4%, lower on the day.

Amgen flat to lower

Amgen was seen flat to lower as its shares ended 2% lower, in step with the overall biotechnology sector.

Shares of the Thousand Oaks, Calif.-based biotech gyrated in average volume.

Amgen's 0.125% convertibles due 2011 were reported on Trace at 89 late in the day. But another source put the Amgen 0.125s at 91 bid, 92 offered at the close.

Amgen's 0.375% convertibles due 2013 were seen on Trace at 86 but were seen by a separate source closing at 88 versus a stock price of $58.23.

On Oct. 28, Amgen's 0.375% convertible due 2013 traded at 85 against a stock price of $57.50.

Medtronic lower

Medtronic shares closed Friday 6% lower at $37.45 amid a generally lower medical-device-company sector.

The Medtronic 1.625% convertibles due 2013, or the B paper, were reported on Trace late at 85.5 versus a share price of $37.45. During the session they traded at 86.5 versus a share price of $38.25.

The Medtronic 1.5% convertibles due 2011, or the A paper, wasn't reported in trade, but it was quoted on Trace at 91.8 late in the day.

Investor bets on the health care sector are currently being placed. One convertibles source said, "People are looking at the better health care names; things they want to set up because of the refinancing risk in other areas like REITs."

But health care, especially in light of the incoming Obama administration, remains a point of speculation. Some believe the Obama administration will be good for health care and others feel that health care reform will force companies to get costs under control and reduce margins, with service-related and device-related companies in particular being affected.

Massachusetts-based Hologic Inc, which concentrates on women's health diagnostics and surgical devices, saw its 2% convertibles due 2037 trade intraday Friday at 57.5 versus a share price of $14.50.

Transocean wavers as oil weakens

At its highest point Friday, Transocean's 1.625% due 2037, or the A tranche, traded at 88 versus a share price of $75.00, according to a sellside trader, compared to 87 versus a share price of $75.00 on Thursday.

But its underlying shares closed significantly lower Friday, and the A convertibles were seen closing at 86.75 versus a stock price of $70.89.

The Transocean 1.5% convertibles due 2037, or the B tranche, traded intraday at 82.25 versus a share price of $75.00, the shares' highest price point. They were seen closing at 81.5 versus a stock price of $70.89.

Shares of the Houston-based offshore oil services company fell $4.29, or 5.7%, for the day

Crude oil for December delivery declined $1.20, or 2.1%, to $57.04 a barrel on the New York Mercantile Exchange.

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