GM hangs in despite strike; AMR falls on earnings report; CFC gains ground; Standard Pacific needs hard sell

By Evan Weinberger

New York, Sept. 24 - General Motors Corp. convertibles, much like the company's common stock, were surprisingly unaffected by the strike that began at 11 a.m. ET Monday. AMR Corp. convertibles were not quite so lucky after analysts raised concerns over the health of the parent company of American Airlines. Meanwhile, EMC Corp. convertibles were mixed on some analysts' upgrades.

The convertibles market appeared to peter out a bit Monday, as traders and analysts reported slowing activity. There was a "softer tone overall," one trader said.

One company stepped up with a new offering Monday. Irvine, Calif.-base homebuilder Standard Pacific Corp. announced the launch of $100 million in convertible senior subordinated notes due Oct. 1, 2012 before the markets opened. The convertibles are expected to price after market close Monday. There is a $15 million greenshoe, and the issue will price at the same time as an 11.5 million share lending agreement with an affiliate of Credit Suisse.

The coupon is talked at 6% to 6.5%, and the initial conversion premium is talked between 20% and 25%.

Standard Pacific plans to use the proceeds to pay down debt on its revolving credit facility and to fund convertible hedge transactions.

In other trading activity, Vishay Intertechnology Inc. slipped despite an analyst upgrade and Countrywide Financial Corp.'s convertibles gained a bit of ground from last week, even as the stock took a fall.

Countrywide's stock wasn't the only one to fall Monday, as American stock markets across the board slipped. The markets began the day up, but their gains were depleted in a slow-motion drip that concluded with the Dow Jones Industrial Average at 13,759.06, a loss of 61.13 points, or 0.44%.

The Nasdaq gave back 3.27 points, or 0.12%, to close at 2,667.95. The Standard & Poor's 500 was the big loser on the day, slipping 8.02 points, or 0.53%, to 1,517.73 on Monday.

"There was a lot more green earlier in the day," one analyst said. "I don't know, people just trying to take a little bit of profit, I guess"

GM convertibles mixed on strike

Detroit-based General Motors, the world's largest automaker, and the United Auto Workers were unable to reach a deal on a new contract before the union's 11 a.m. ET deadline Monday. So the roughly 73,000 workers from around 80 plants walked off the job.

The differences centered on job security, not retiree benefits, as had been expected. The strike marks the first nationwide UAW strike against GM since 1970. Since then, strikes have focused on local plants rather than the company as a whole. GM says it has around 950,000 cars ready to ship to dealers in its inventory, but the Teamsters Union says that it won't cross the picket line to deliver those cars.

GM has been hemorrhaging money in benefits payments to current workers and retirees, and losing market share to Toyota and other primarily foreign rivals in recent years.

Despite not producing any cars, the struggling auto maker didn't see a massive sell-off of stocks or convertibles. GM's 5.25% series B convertible notes due March 11, 2032 (NYSE: GBM) gained 7 cents, or 0.34%, to close at $20.49.

GM's 6.25% convertible senior debentures due July 15, 2033 (NYSE: GPM) closed at $23.53, a give-back of 13 cents, or 0.55%.

GM's 4.5% series A convertible notes due March 11, 2032 (NYSE: GXM) added 11 cents, or 0.54%, to close at $20.47.

And GM's 1.5% convertible senior debentures due May 31, 2009 (NYSE: GRM) lost a mirror-image 11 cents, or 0.40%, to close at $27.10.

GM stock (NYSE: GM) closed at $34.74, a slip of 20 cents, or 0.57%, on Monday.

Standard Pacific a tough sell

Standard Pacific and its bookrunners, Credit Suisse, Banc of America Securities and JPMorgan securities, may have a tough sell on their hands. Standard Pacific announced Monday morning that it will price $100 million in convertible senior subordinated notes due Oct. 1, 2012 and at the same time enter into an 11.5 million share lending agreement with an affiliate of Credit Suisse.

The convertibles, which also come with a $15 million greenshoe, are talked at a 6% to 6.5% coupon and a 20% to 25% initial conversion premium.

And if initial reaction is any indicator, they had better be priced to move. Standard Pacific does make its money by producing homes in the troubled markets of California and Florida, as well as other areas smacked around by the subprime mortgage meltdown.

Add to that continuing credit concerns even following last week's Federal Reserve interest rate cuts and the result is a convertible offering that may need a fair amount of lipstick to attract many eyes.

"I am sure any pricing will be quite cheap," one trader said in an e-mail. "They HAVE to do anything and everything they can at this point to get/stay liquid and hopefully survive thru this cycle."

Standard Pacific plans to use the proceeds to pay down debt on its revolver and to fund convertible hedge transactions.

But with Standard Pacific, a relatively small company with a $455 million market cap, releasing a small issue, attractive pricing may not be enough to get the nod from investors. "Tiny issue, tiny company," a sellside analyst said. "It's not going to change anybody's day."

Standard Pacific stock (NYSE: SPF) closed at $7.05, a loss of $1.05, or 12.96%, on Monday.

Countrywide gains a bit

Calabasas, Calif.-based mortgage lender Countrywide saw its convertibles gain a bit of ground from last week, while its stock continued its see-saw ride and declined Monday.

Countrywide's Libor minus 350 basis point series A convertible senior debentures due April 15, 2037 closed at 92.75 versus a closing stock price of $18.39. They closed Thursday at 92 3/8 versus a stock price of $19.875.

The mortgage giant saw its Libor minus 225 bps series B convertible senior debentures due April 15, 2037 close at 89 7/8 versus a stock price of $18.39 after finishing Thursday at 89.58 versus a stock price of $19.875.

Countrywide stock took a hit Monday, losing $1.22, or 6.22%.

While there wasn't much news to drive the drop, one analyst said a general fall in financials closed the trading day. "It looks like a lot of the financials are starting to sell off big this last hour or so," he said.

AMR not flying high

Dallas-based AMR, the parent company of American Airlines, saw its convertibles and stock price plummet after it gave a less-than-reassuring earnings outlook for the third quarter, and outside analysts dropped their forecasts for the company.

AMR said in a Securities and Exchange Commission filing late Friday that earnings for the third quarter would be down 4% or 5% from the third quarter of 2006.

The stampede out of AMR began Monday.

AMR's 4.5% convertible senior notes due Feb. 15, 2024 closed at 114.951 versus a closing stock price of $20.77. They opened trading Monday at 115.958 versus a stock price of $23.97.

The company's 4.25% convertible senior notes due Sept. 23, 2023 closed at 131.77 versus a stock price of $20.77 after opening trading at 134.326 versus a stock price of $23.97.

AMR stock (NYSE: AMR) was walloped for a $3.49, or 14.39%, loss on Monday.

EMC mixed, Vishay up

Hopkinton, Mass.-based EMC saw its convertibles end the day mixed Monday after analysts from Citigroup and Bear Stearns upgraded their outlooks on the computer and information infrastructure developer.

EMC's 1.75% convertible senior notes due Dec. 1, 2011 closed at 135 versus a closing stock price of $20.51. They opened trading Monday at 137.5 versus a stock price of $19.81.

EMC's 1.75% convertible senior notes due Dec. 1, 2013 moved up to 141 versus a stock price of $20.51 after opening trading at 139 versus a stock price of $19.81.

EMC stock (NYSE: EMC) added $1.48, or 7.78%, on Monday.

Malvern, Pa.-based semiconductor producer Vishay stalled despite a Thomas Weisel Partners upgrade. Vishay's 3.625% convertible subordinated notes due Aug. 1, 2023 closed at 98.625 versus a closing stock price of $12.54. They opened trading Monday at 99.688 versus a stock price of $13.04.

Vishay stock (NYSE: VSH) lost 9 cents, or 0.71%, on Monday.

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