Convertibles mostly steady; deep in-the-money names better bid; Nortel remains active

By Rebecca Melvin

New York, May 15 – U.S. convertibles traded quietly Friday with valuations essentially unchanged.

But some deep-in-the-money names remain notably well bid as market players continue to weigh the potential for more buybacks and/or exchange deals.

“Many deep in-the-money names are 0.75 point to a point higher than they were a month ago,” a New York-based trader said. “That’s a pretty big move for bonds that don’t generally move.”

Merrimack Pharmaceuticals Inc. was one such name on Friday. The 4.5% convertibles due 2020 were up 6 or 7 points on an outright basis to 213 on a 2.8% rise in the underlying shares of the Cambridge, Mass.-based biopharmaceutical company.

Market players have been emboldened to add to positions or get into new names in hopes that the issuers of that debt are looking at lowering debt service costs and will do deals to buy back the bonds, the trader said.

Many of the names in trade Friday represented follow-on action from earlier in the week.

The convertibles of bankrupt Nortel Networks Corp. were active again on Friday on the patent library news, a New York-based trader said. Nortel’s 1.75% convertible notes, which came due in 2012, changed hands on Friday at 85, which was up 0.9 point on the day but still down from about par at the beginning of the week.

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