Convertibles mostly quiet again; airlines trade; Avis remains firm; PHH, Gaylord below par

By Rebecca Melvin

New York, Oct. 13 - The convertible bond market didn't gain much steam on Tuesday after a quiet Monday when bond markets were closed in observance of Columbus Day; convertible pricing was called better, however.

The improvement wasn't embraced as a secure move by any means.

"Up on light trading doesn't mean it holds," a New York-based sellside trader said.

A few airline names were in trade again, as they were on Monday. The new UAL Corp. 6% convertibles due 2029 traded at 103.75 versus a share price of $7.30, and they were seen closing at 104 compared to 102.5 on Monday

The new AMR Corp. 6.25% convertibles due 2014 traded at 104.5 versus a stock price of $7.80, which was firm to higher, as were the underlying shares. Pricing was similar for the new Airtran Holdings Inc. 5.25% convertibles due 2016, which traded at 105.25 versus a share price of $5, and which was firm to higher.

Avis Budget Group Inc.'s 3.5% convertibles, which priced last week, were in trade again at a solid 102.25 versus $12.05 for the stock.

But PHH Corp., which priced $220 million of 4% convertibles two and a half weeks ago, traded at slightly below par at 99.75 versus a share price of $18.

Another recent convert that has hung below par is Gaylord Entertainment Co. Its 3.75% convertibles that priced on Sept. 24 weren't seen in trade on Tuesday. But on Monday, they were at 98.25 versus $19.25. And on Tuesday, they would have been below par on a dollar neutral basis since the underlying stock was off about 3%.

Intel Corp. was quiet again ahead of its earnings report, which came after the market close and revealed that the Santa Clara, Calif.-based chip giant recorded a lower profit that beat estimates for the third quarter.

Also coming after the close was news that Conseco Inc. planned to price up to $293 million of convertible senior debentures due 2016 to yield 7%, up 10%. But timing wasn't yet known. The private offering was described as part of a series of transactions aimed at enhancing the company's capital position.

Convert players eye stock markets

Stocks were mixed to weaker on Tuesday after battling weakness on Monday to end mildly higher. On Tuesday, investors were rattled by news that Goldman Sachs shares were downgraded to "neutral" by Meredith Whitney Advisors, which cited the recent rise in share price but noted the investment bank still has strong fundamentals.

"Stocks rolled over pretty nicely'" on Monday, a sellside trader said, noting that there could be a long period in which the major indexes go nowhere.

"I don't know where they could go. We could be in for a long period of nothing in the averages. It could go on for weeks," the sellsider said.

That means the convert market may also be in for a period of malaise as paper has gotten rich and much is seen as fully valued at this time.

In Tuesday's activity, the Dow Jones Industrial Average settled just south of the flat line, down 15 points at 9,871.06; the Nasdaq Stock Market actually nosed into positive territory, ending up 0.75 point at 2,139.89; and the S&P 500 index ended down 3 points at 1,073.19.

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Intel up slightly ahead of earnings

Intel's older 2.95% convertibles due 2035 changed hands at 92.625 near the end of the session, which was up 2.625 points from previous levels.

The newer Intel's 3.25% convertible due 2039 weren't heard in trade, but have been around 110.

Shares of the chip giant ended little changed at $20.49, which was up nine cents.

After the close, Intel reported profit that was down, but better than expected, and its outlook was upbeat.

Intel reported third-quarter revenue of $9.4 billion, which was down $828 million from the third quarter a year ago, but up $1.4 billion from the second quarter.

The company reported operating income of $2.6 billion, which was down $519 million from the 2008 third quarter, but up $1.1 billion from the second quarter using a non-GAAP comparison.

Net income of $1.9 billion, or 33 cents a share, was down $158 million, or 2 cents, from the year-earlier period, but up from the second quarter.

The average selling price for microprocessors was slightly down sequentially, as were inventories, the company said.

Spending at $2.75 billion was consistent with the company's expectation. Restructuring and impairment charges were $63 million, higher than the company's expectation.

For the current quarter, Intel said it expects revenue of $10.1 billion, plus or minus $400 million.

Intel's chief financial officer, Stacy Smith, said demand from consumers for PCs has been strong, but spending by corporations remains weak. He said Intel doesn't expect business spending on PCs to pick up again until next year.

Mentioned in this article:

AMR Corp. NYSE: AMR

Avis Budget Group Inc. NYSE: CAR

Airtran Holdings Inc. NYSE: AAI

Conseco Inc. NYSE: CNO

Gaylord Entertainment Co. NYSE: GET

Intel Corp. Nasdaq: INTC

PHH Corp. NYSE: PHH

UAL Corp. Nasdaq: UAUA

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