Goldcorp active; DFC Global little changed after weakness; China's Qihoo 360 to price

By Rebecca Melvin

New York, Aug. 27 - Goldcorp Inc. was the top-volume trading name in the convertibles market on Tuesday but was little changed, market sources said, as jittery investors sought safe-haven trades like gold and Treasuries amid heightened concerns about potential U.S. military action against Syria in the wake of last week's alleged chemical weapons attack in neighborhoods outside of Damascus.

The price of gold has been trending up for the past week but jumped 1.6% on Tuesday - amounting to about half of the week's total gain - on the heels of secretary of state John Kerry's strong statements late Monday against the Syrian government.

DFC Global Corp.'s convertibles continued to trade but steadied Tuesday following weakness related to disappointing earnings and the outlook reported by the Berwyn, Pa.-based financial services company last week.

AMR Corp. was also little changed in active trade around par, which was unchanged from Monday. The AMR convertibles moved up all last week from about 92 as investors become "more comfortable" with the stand-alone valuation of the company if its merger doesn't go through.

The convertibles primary market was quiet during the session, but after the market close, Qihoo 360 Technology Co. Ltd. launched an offering of $550 million of five-year convertible senior notes that was talked to yield a fixed coupon of 2.5% with an initial conversion premium of 35% to 40%.

Overall, it was a quiet day, traders said, as light volume remains the hallmark of the last week before the Labor Day holiday and unofficial end of summer. But the broader markets reacted to mounting concerns about potential military action against Syrian president Bashar al-Assad.

Corporate bonds eased in early trading action as spreads were wider. At the end of the day, the yield on the benchmark 10-year Treasury bond was down 3% at 2.721%.

Equities sank. The Dow Jones industrial average fell 170.33 points, or 1%, to 14,776.13, the Nasdaq stock market fell 79.05 points, or 2%, to 3,578.82, and the S&P 500 stock index dropped 26.3 points, or 1.6%, to 1,630.48.

Goldcorp mostly steady

Goldcorp's 2% convertibles due August 2014 traded at 102.3 early on, which was little changed from their previous level.

"I think it has to do more with the move in gold and the stock is up 1.6%," a New York-based sellsider said of Goldcorp's action. Share trading was volatile, with the securities beginning the day higher but ending down $1.35, or 4.3%, to $29.91.

Gold moved up $22.50 an ounce for December 2013 delivery to $1,415.60 on the Comex. Last Tuesday, the price of gold for the same contract was about $1,370.00 an ounce.

Also trading actively was Newmont Mining Corp.'s 1.625% convertibles due 2017. They changed hands at 115.925, according to Trace data.

DFC trades little changed

DFC's 3% convertibles due 2028 traded at 97 bid, 98 offered on Tuesday, which was "relatively unchanged from the other day," a trader said.

DFC shares were up and down but ended the session down 3 cents at $11.02 in active trade.

The bond trades on about a 25% delta and didn't move significantly since the company's disappointing earnings report and outlook sent shares tumbling 27% last week.

But DFC's 3.25% convertibles, which trade on about a 50% delta and which weren't quoted on Tuesday, were said to have lost a couple of points since the report.

Late Thursday, DFC, which provides financial services to unbanked or under-banked consumers, reported net income for its fiscal fourth quarter of 18 cents per share, which was better than the 9-cent-per-share loss in the year-earlier period.

Excluding items, the company earned 49 cents per share for its fiscal fourth quarter, which lagged the year-earlier result of 58 cents per share but was better than the consensus estimate of 47 cents per share.

But revenue was $269.1 million, which was up nearly 1%, missing estimates.

Meanwhile, the company's management suspended profit forecasts for 2014 due to regulatory uncertainty especially in the U.K. where new lending guidelines are being implemented.

Qihoo 360 to price

Qihoo 360 Technology said it planned to price $550 million of five-year convertible senior notes. Market sources said the notes were expected to price Wednesday with a fixed coupon of 2.5% and an initial conversion premium of 35% to 40%.

Qihoo shares lost about 4% in after-hours action. That was after shares jumped 11% on Monday after it reported quarterly results that were better than estimates.

Qihoo provides PC and mobile internet security products in China. Its Rule 144A offering has a $50 million greenshoe and was being sold via Citigroup Global Markets Inc., China Renaissance and UBS as the bookrunners.

The notes will be convertibles into the Beijing-based company's American Depositary Shares, with every two ADS representing three class A ordinary shares.

The notes are non-callable until Sept. 20, 2016 and are then provisionally callable if the underlying shares exceed 130% of the conversion price. There is an investor put on Sept. 15, 2016.

The paper has standard dividend and takeover protection.

Proceeds are earmarked for general corporate purposes.

Mentioned in this article:

AMR Corp. Pink sheets: AAMRQ

DFC Global Corp. Nasdaq: DLLR

Goldcorp Inc. NYSE: GG

Newmont Mining Corp. NYSE: NEM

Qihoo 360 Technology Co. Ltd. Nasdaq: ADS: QIHU

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