Countrywide bashed on bankruptcy rumors, financials suffer; UAL, AMR, airlines squashed; ISIS surges

By Evan Weinberger

New York, Jan. 8 - Countrywide Financial Corp. was hammered on bankruptcy rumors Tuesday.

The contagion spread throughout the financial sector, with Washington Mutual Inc., SLM Corp. and E*Trade Financial Corp. all getting smashed.

The airline sector was also battered Tuesday, with rising oil futures leading to falling convertible prices for UAL Corp., Continental Airlines Corp. and AMR Corp.

One source of uplift on a dark day was the rise in ISIS Pharmaceuticals Inc. convertibles on a marketing and sales agreement for one of its drugs.

No new issues priced Tuesday, and no new deals were announced as of press time.

Equity markets suffered a late-day collapse Tuesday. The National Association of Realtors announced that its pending home sales index was down 2.6% in November, a sharper fall than had been expected. Markets remained relatively flat as rate cut hopes kept stocks on an even keel. And then AT&T CEO Randall Stephenson warned the Citi Media and Technology Conference in Phoenix of "softness" in the company's consumer business later in the day. That sparked wider recession fears.

All three major indices fell sharply late in the afternoon.

The Dow Jones Industrial Average finished down 238.42 points, or 1.86%, for a 12,589.07 close.

The Nasdaq tumbled 58.95 points, or 2.36%, to close at 2,440.51.

The Standard & Poor's 500 closed at 1,390.19, a drop of 25.99 points, or 1.84%.

Countrywide smashed on bankruptcy rumors

Bankruptcy rumors roiled Countrywide Tuesday.

Shares in the United States' largest mortgage lender plunged more than 20% early in the day as the rumors gathered speed.

Countrywide denied the rumors.

"There is no substance to the rumor that Countrywide is planning to file for bankruptcy, and we are not aware of any basis for the rumor that any of the major rating agencies are contemplating negative action relative to the company," Countrywide said in a statement, according to Reuters.

That stalled the slide for a little while, but the comeback - if being down 15% can be called a comeback - was short-lived.

Countrywide's convertibles were "frigging enormous" Tuesday, according to one trader. They moved firmly into the low 60s, with one of their debentures touching the high 50s at one point.

Analysts and traders reported huge volume in the issues and wild price swings.

In the end, Countrywide's Libor minus 350 bps series A convertible senior debentures due April 15, 2037 closed Tuesday at 63.985 versus a closing stock price of $5.47. They closed Monday at 74.192 versus a stock price of $7.64.

Countrywide's Libor minus 225 bps series B convertible senior debentures due May 15, 2037 closed Tuesday at 62.394 versus a stock price of $5.47. They closed Monday at 69.527 versus a stock price of $7.64.

Countrywide stock (NYSE: CFC) closed down $2.17, or 28.40%, on the day.

Countrywide's stock and convertibles weren't the only things that were hit. Phoenix Partners Group reported that investors were asking for 30% upfront and 5% per year on credit default swaps tied to Countrywide debt.

It was unclear where the bankruptcy rumors came from.

A New York Times story about Countrywide reported that the company may have falsified some documents involving several mortgage holders who had already entered into Chapter 11 bankruptcy, another trader pointed out.

Or it could have been investors with an interest. "It could be someone who shorted," an analyst said.

But eventually, the first trader said, rumors of bankruptcy for Calabasas, Calif.-based Countrywide could come to fruition. This is not the first time that a rumored bankruptcy has led to a fall in the company's stock. "The Fed gets back into cutting rates because the market expects it. Bankruptcies can happen the same way," he said.

Another analyst said that the market has been gullible when it comes to Countrywide rumors, which have yet to come to pass. "I don't know how it can be that people are able to profit from this silliness, but the market takes the bait every time," he said.

Other financials hit hard

Seattle-based savings and loan Washington Mutual's 7.75% series R non-cumulative perpetual convertible preferred stock closed Tuesday at 820 versus a closing stock price of $12.74. They closed Monday at 845 versus a stock price of $13.44.

Washington Mutual stock (NYSE: WM) tumbled 70 cents, or 5.21%, on the day.

Reston, Va.-based student loan giant SLM, better known as Sallie Mae, gave back much of Monday's gains.

Sallie Mae's 7.25% series C mandatory convertible preferred stock due Dec. 15, 2010 closed Tuesday at 928.75 versus a closing stock price of $17.30. They closed Monday at 989.5 versus a stock price of $17.83.

Sallie Mae stock (NYSE: SLM) held up well under the strain, losing a comparatively mild 53 cents, or 2.97%, on the day.

More big losses were seen in struggling New York-based online brokerage E*Trade. The company's 6.125% common equity units due Nov. 18, 2008 closed Tuesday at 3.83 versus a closing stock price of $2.25. They closed Monday at 4.75 versus a stock price of $2.83.

E*Trade stock (Nasdaq: ETFC) plunged 58 cents, or 20.49%, on Tuesday.

Financials "got slapped all around the room," a trader said.

Airlines hit choppy skies

Rising oil futures buffeted airline stocks Tuesday. Recession fears, complete with concerns about cutbacks in non-essential travel, didn't help.

Chicago-based UAL, the parent company of United Airlines, watched its 4.5% convertible senior limited-subordination notes due June 30, 2021 close Tuesday at 101.175 versus a closing stock price of $24.39. They closed Monday at 113.58 versus a stock price of $29.18.

UAL stock (Nasdaq: UAUA) plunged $4.79, or 16.42%.

Houston-based Continental's 5% convertible senior notes due June 15, 2023 closed Tuesday at 113.362 versus a stock price of $17.84 after closing Monday at 125.542 versus a stock price of $20.33.

Continental stock (NYSE: CAL) fell $2.49, or 12.25%, on the day.

Fort Worth, Texas-based AMR, the parent company of American Airlines, saw both of its convertibles fall Tuesday.

AMR's 4.5% convertible senior notes due Feb. 15, 2024 closed Tuesday at 100.914 versus a stock price of $11.74. They closed Monday at 103.3 versus a stock price of $13.29.

AMR's 4.25% convertible senior notes due Sept. 23, 2023 closed Tuesday at 103.299 versus a stock price of $11.74 after closing Monday at 106.567 versus a stock price of $13.29.

AMR stock (NYSE: AMR) fell $1.55, or 11.66%.

ISIS up on marketing deal

An analyst said a marketing deal for Carlsbad, Calif.-based ISIS Pharmaceuticals drove up the price of its stock and convertibles Tuesday.

ISIS announced a distribution and marketing deal with pharmaceuticals company Genzyme Monday night for ISIS' cholesterol-fighting drug mipomersen. The deal could be worth up to $1.9 billion.

ISIS' 2.625% convertible subordinated notes due Feb. 15, 2027 closed Tuesday at 148.54 versus a closing stock price of $18.58. They closed Monday at 120.4 versus a stock price of $14.58.

ISIS stock (Nasdaq: ISIS) surged $4, or 27.43%, on the day.

© 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.