AMR, airlines extend losses on volcanic ash problem; Steel Dynamics dips ahead of earnings

By Rebecca Melvin

New York, April 19 - Airline convertibles were active Monday, particularly AMR Corp., which extended losses amid continuing flight disruptions and mounting losses related to the ash plume from an Icelandic volcano that poses a threat to air travel.

Among other carriers in trade in the convertibles market Monday were UAL Corp. and Continental Airlines Inc. Those convertibles were also lower, making a sharp reversal from recent gains related to merger chatter.

Steel Dynamics Inc. convertibles were also a little lower ahead of the Fort Wayne, Ind.-based steel product maker's earnings that were released after the close of markets. The company swung to a profit on higher revenue.

But Amylin Pharmaceuticals Inc. and Hasbro Inc., which also posted earnings on Monday, were quiet in trade, with the underlying shares of Amylin lower by about 2.8% but the underlying shares of Hasbro higher by the same amount.

The convertibles of Qwest Communications International Inc. were active and trading in line with their underlying shares on a dollar-neutral basis. Shares of the Denver-based telephone services company ended the day in the red after sporting an early gain.

Trading overall in the secondary market was thin and the primary market was silent as investors continued to wait and see where the markets are heading after Friday's bombshell that the Securities and Exchange Commission filed a civil lawsuit against Goldman Sachs, alleging that the investment bank engaged in fraud related to the structuring and marketing CDO investments.

Goldman shares extended losses most of the session but jumped into positive territory late in the day after word that the SEC voted only 3-2 to press its case against Goldman.

A late rebound in financials helped the Dow Jones Industrial Average recover losses and end with a healthy gain. But the Goldman situation and volcanic ash affecting European travel in general weighed on markets.

"The market is very slow, likewise in the high-yield and investment-grade markets," a New York-based sellside analyst said Monday.

AMR, other airlines nose lower

AMR's 6.25% convertibles due 2015 traded at 113.75 versus a share price of $8.40 on Monday, according to a New York-based sellside desk analyst.

A second sellsider said he saw the paper higher, and Trace reported a late trade of the AMR 6.25% convertibles at 114. The paper was still down multiple points from Friday.

The new level on Monday was not that different from 10 days ago when the paper traded at 114 versus a share price of $8.75. However the intervening period was marked by gains in airlines on expectations of economic recovery, on better earnings and on merger speculation.

Shares of the Dallas-based parent of American Airlines settled down 38 cents, or 4.3%, at $8.41 on Monday.

While the headache related to volcanic ash from an eruption last week showed signs of easing on Monday, there was still plenty to keep a lid on the outlook, and the Eyjafjallajoekull volcano was reportedly still emitting steam and ash on Monday.

Nevertheless, flight restrictions began to ease in northern and central Europe.

"The AMR issue may be active today due to the relaxation of airspace restriction in some parts of Europe," a New York-based sellside analyst said.

Meanwhile, UAL's 4.5% convertibles due 2021 traded at 100.5 versus a share price of $21.80, which was seen down by about 1.5 points on a 5% slide in the underlying shares. Later the paper was seen at 100.125.

The UAL 6% convertibles due 2015 were not seen in trade. Last Tuesday, the 6% paper traded at 262.

Shares of the Chicago-based parent of United Airlines lost $1.17 on the day to end at $21.66.

Last Thursday, the shares had reached a 52-week high of $23.83.

Continental Airlines' 4.5% convertibles due 2015 traded at 132.25 versus a share price of $22.20. Shares of the Houston-based airline fell $1.00, or 4.4%, to $21.98.

Steel Dynamics weaker

Steel Dynamics' 5.125% convertibles due 2014 were seen ending the session at 121.78, compared to Friday's 123.75 close.

One source said the paper traded early at 122 versus a share price of $17.30, while a second source said it traded late at 121.794 versus a share price of $17.42 on a 67% delta.

Shares of the Midwestern steel producer ended unchanged at $17.52, after dipping during the session.

The steel products maker posted first-quarter net income of $65 million, or 29 cents a share, compared with a loss of $88 million, or 48 cents a share, in the year-earlier quarter.

Revenue almost doubled to $1.6 billion.

Analysts had expected the company to earn 26 cents a share.

Chairman and chief executive Keith Busse said in a news release, "In the first quarter, the company's steel operations gained momentum, producing operating income of $138 million, or $99 per ton shipped, while OmniSource, which benefitted from increased volumes and higher scrap prices, achieved operating income of $43 million during the quarter."

The company said that it sees a gradually improving economy lifting steel demand in a wide range of business sectors, except from construction-related business.

First quarter's strength centered on sheet products and special-bar-quality steels. The flat roll division ran at capacity while "the techs" approached 85% utilization. Both business segments continue to have strong order books, the company said.

Demand for special-bar-quality products strengthened dramatically in February and continued in March, which has resulted in the strongest order backlog ever in that segment.

"We also have seen sequential improvement in backlogs in our other long-products steel businesses, but the structural steel market still remains very challenging as non-residential construction remains weak," Busse said in the release.

Overall, though, we now see a more stable and positive outlook for the coming quarter and second half of 2010," Busse said.

Mentioned in this article:

AMR Corp. NYSE: AMR

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Continental Airlines Inc. NYSE: CAL

Hasbro Inc. NYSE: HAS

Qwest Communications International Inc. NYSE: Q

Steel Dynamics Inc. Nasdaq: STLD

UAL Corp. Nasdaq: UAUA

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