Cemex higher outright, flat dollar neutral; AMR creeps higher; Convertibles quiet overall

By Rebecca Melvin

New York, Dec. 9 - Friday was a low-volume trading day in the convertible bond market without a lot of interesting names to discuss, market sources said.

Tech Data Corp.'s issue of 2.75% convertibles due 2026 was one issue that was trading actively and that was near par as the company has called those bonds for redemption on Dec. 20, one New York-based trader said.

Cemex SAB de CV saw its 4.875% convertibles due 2015, or the old Cemex, trading higher by a couple of points outright, but flat on a dollar-neutral basis, sources said.

Cemex, a high beta name, was thought to have been pulled into trade by news of the agreement in the euro zone for tougher budget rules.

Cemex is one of the more speculative plays in the convertibles market, and those types of names were dominating trade this past week.

Overall, market liquidity has been thin due to a lack of new convertibles issuance and the upcoming year-end, which has encouraged inaction among convertibles players.

But situations have developed. And there are "a lot more interesting scenarios in the market than there were three months ago, and that has piqued the interest of guys willing to do the in-depth credit work," a New York-based analyst said.

Those names, which were trading this past week, included China Medical Technologies Inc., which was trading Friday at 55.5, or higher than in the last few sessions after the bonds dropped sharply.

The cause of the drop was research firm Glaucus Research Group publishing a report alleging that the Beijing-based medical device maker mismanaged the business and defrauded investors. The research firm disclosed that it held a short position in China Medical.

Central European Distribution Corp. was also in trade Friday and looked steady to slightly lower after leaping 24% on Thursday on the possibility of a large investor helping to finance them, a New York-based trader said.

Meanwhile, AMR Corp., which has declared bankruptcy and is another special situation being watched, continued its move higher, changing hands on Friday at 23.25.

"It's been creeping higher all week" by increments of 0.25 point to 0.5 point," an analyst said of AMR.

Otherwise, the market was said to be pretty flat. "Nothing is coming in. It's unchanged to slightly better bid. It's just total volume is $250 million, which is not a lot," a New York-based trader said.

Euro pact lifts equities

But it was a "risk on" day in equities after European leaders agreed on stricter budget rules to help resolve the euro zone financial crisis.

The fiscal agreement cheered investors, but there is likely to be rough waters ahead given that Standard & Poor's has promised downgrades if the scope of the agreements coming out of such summits as concluded Friday don't go far enough. Those downgrades could come as soon as next week, an analyst said.

The broader markets reacted all week to euro news, with equities rising and falling on the prospects for an agreement. On Monday S&P put all of the euro zone nations on negative credit watch, which was a bucket of cold water on the market that day.

Subsequently, equities rallied on Tuesday and Wednesday on optimism for a deal, and then fell on Thursday when European Central Bank president Mario Draghi sent a clear message that forceful intervention by the ECB wasn't likely without a convincing political solution.

Cemex flat dollar neutral

The Cemex 4.875% convertibles due 2015 traded at 61.25 bid, 62.25 offered on Friday, which was up 2 points outright and flat on a dollar-neutral basis, according to a trader.

Shares of the Mexican-based cement giant gained 31 cents, or 6.5%, to $5.07 on light volume.

The move was in tandem with higher stocks in both the United States and Mexico after leaders agreed to measures aimed at getting Europe's financial house in order.

"It's a highly levered industrial production company, as levered as you can get to the macro economy. So in light of the fact that the situation is not deteriorating in Europe, it's going to be better," a New York-based analyst said of Cemex.

AMR creeping up

AMR's 6.25% convertibles due 2014 traded at 23.25, which was up small for the day but up 2 to 3 points on the week.

While there was an expectation held by some at least initially that AMR was going to be able to speed through the bankruptcy court process, there seem to be issues surrounding the case that are thornier than initially thought.

"The AMR bankruptcy is going to be large and complex with a lot of interesting issues like pensions and labor negotiations, and there are a ton of bonds," an analyst said.

"The company was prepared when it filed, rejecting leases right away, and it looked like it was going to push through the bankruptcy process as soon as possible, but there are major hurdles that are going to be determined by the bankruptcy court with a lot of different permutations out there - the first and foremost of which is to negotiate with the unions," he said.

"It could go very quickly. But the company has struggled to negotiate with the unions for three years, and you could see how it could drag on. I think it will take 1.5 years to 2 years," the analyst said.

Mentioned in this article:

AMR Corp. NYSE: AMR

Cemex SAB de CV NYSE: CX

Central European Distribution Corp. Nasdaq: CEDC

China Medical Technologies Inc. NYSE: CMED

Tech Data Corp. Nasdaq: TECD

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