Convertibles quiet ahead of Christmas; AMR trades amid merger chatter; Navistar lower

By Rebecca Melvin

New York, Dec. 21 - Convertible bonds were pretty quiet on Friday, the last full trading day before the Christmas holiday, with an underlying bid, if anything, one trader said, despite lower shares, which fell after a setback in negotiations to reach a deal to avert the U.S. fiscal cliff.

The bond markets have a recommended early close on Monday and will remain closed Tuesday. Equity markets have a shortened session Monday and will be closed on Tuesday.

Generally, higher-quality names held their value, while some lower-credit names with uncertain futures slipped.

AMR Corp., the bankrupt parent of American Airlines, continued to trade near its peak in an ascent that has taken it to as high as 87 from 15. Reports Friday indicate that the company is nearing a merger agreement with U.S. Airways.

Navistar International Corp. was a good bit lower, but not in any significant volume, a New York-based trader said. The bonds traded at 90.75, which was down from 92.25 on Wednesday when the heavy-duty truck manufacturer reported dismal earnings. The company received a rating downgrade Thursday.

Tibco Software Inc. was steady, but quiet after the Lafayette, Ind.-based maker of semi trailers reported a better-than-expected fiscal fourth-quarter profit.

The stalled process in Washington included U.S. House representatives failing Thursday night to vote on a plan put forward by Republican House speaker John Boehner.

The plan calls for tax increases on those who earn $1 million or more a year.

AMR near highs

AMR's 6.25% convertibles due 2014 were seen at 86 bid, 86.75 offered on Friday. The company was said to be close to a potential merger deal, according to reports.

On Dec. 10, the AMR convertible was at 80.125 bid, 80.375 offered.

Rumors of a combination of U.S. Airways and AMR have persisted since AMR filed for bankruptcy in November 2011. For its part, AMR had previously been steadfastly against the merger. In recent months, however, it has shifted to a more amenable view.

There has not been any formal inking of an agreement, however.

Navistar slips

Navistar's 3% convertibles traded at 90.75 on Friday. That was 1.5 points lower than on Wednesday, when they were lower in line with underlying shares.

The Lisle, Ill.-based truck and engine maker posted a fourth-quarter loss of $40.13 per share on Wednesday, due primarily to a one-time $2 billion tax expense. Revenue was down 24% to $3.28 billion, which edged estimates to the upside.

"It's' kind of a broken story. The bonds are too high in my opinion and the risk/reward is not that great. It feels like a sinking ship," a New York-based trader said.

Tibco seen steady

Tibco's 2.25% convertibles due 2032 were still at 94 bid, 94.50 offered versus an underlying share price of $21.80 on Friday.

"They haven't traded. Everything is quiet," a Midwestern-based trader said.

Shares of the Palo Alto, Calif.-based business software company rose $1.62, or 8%, to $22.36 on Friday.

The company reported fiscal fourth-quarter earnings topped analysts' estimates and revenue bettered a downbeat outlook it provided earlier this month.

For the quarter ended Nov. 30, Tibco earned $48.8 million, or 29 cents per share, which was down 6% from $51.9 million, or 30 cents per share, in the same period last year.

Excluding one-time items, the company posted adjusted profit of 42 cents per share.

Revenue rose 2.4% to $296.5 million.

Analysts were expecting earnings of 29 cents per share on revenue of $297.9 million.

The company didn't offer guidance on the current quarter or new fiscal year but said that it's confident of its market position and opportunities for growth going into 2013.

The Tibco convertibles, which priced earlier this year, are down on an outright basis but have done well dollar neutral, or on a hedged basis, on about a 30% delta, the trader said.

"You've done well if you had a short stock position against it, but you would have underperformed outright," the trader said.

Mentioned in this article:

AMR Corp. Pink sheets: AAMRQ

Navistar International Corp. NYSE: NAV

Tibco Software Inc. Nasdaq: TIBX

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