Convertibles still quiet; some sellers step in; AMR, PHH better; Kodak lower; Nasdaq dips

By Rebecca Melvin

New York, Sept. 29 - Some sellers stepped into the convertibles market Tuesday, pulling a few issues with weaker stocks, but leaving pricing overall close to previous levels amid thin volume.

It felt like there was "more for sale than it has in a long while," a New York-based sellside trader said of Tuesday's session.

Others said the market was quiet, and market players would like to see more new issues.

Of the paper that was in trade, several recently priced issues were mentioned, including AMR Corp.'s 6.25% convertibles due 2014, which priced Sept. 22, which were actually called about 0.5 point better on Tuesday; as well as Eastman Kodak Co.'s 7.5% bonds, which priced on Sept. 17 and were 101.75 versus a share price of $4.95 on Tuesday compared to 103 versus a share price of $5.00 on Friday.

PHH Corp. 4% convertibles, which priced Sept. 23, were also in trade. They changed hands at 105.5 versus a share price of $20.25, which was higher with somewhat higher shares but looked to have expanded.

Nasdaq OMX Group Inc. was pulled into trade Tuesday after the stock market company announced weaker market performance statistics for August. But the company's convertibles have held mostly steady despite lower shares.

Equities were weaker on the day after news that the September Consumer Confidence index pulled back to 53.1 from 54.5 in August. Economists had been expecting a reading of 57.0.

Trading in the convertibles market still seems to be dominated by outright players. While there has been a pick up in the level of hedged activity in the market, the improvement still has not pulled it up to pre-financial crisis levels.

In that regard, many players have come back into the market looking for opportunities in small and mid-cap size companies, with people digging for stories.

"Things have richened up significantly, but there are still some nuggets. The value is in the smaller stuff, busted, less liquid names," a West Coast-based sellsider said.

The sellsider said he has both types of accounts, ones that want to put a delta on as well as outrights, and both investors are looking to buy and sell.

Even though spreads have compressed dramatically and stocks have rallied, stock prices are still not where they once were, so there is still dislocation, the sellsider said. "There are a lot of convertibles out there that notionally are 90 to 120, but so many of them have no delta."

AMR adds 0.5 point

The new AMR convertible paper, which bears a 6.25% coupon and is due in 2014, traded at 106 versus a share price of $8.00 on Tuesday, compared to 105.75 versus a share price of $8.02 on Monday.

Shares of the Fort Worth-based airline holding company ended unchanged at $8.00.

The company said on Tuesday that it had completed an offering of common stock and convertible notes to add $830 million to its cash position.

The latest sale, combined with other recent stock and note offerings, have netted AMR $4.2 billion in liquidity and aircraft financing in September, and it expects to end the third quarter with $4.4 billion in cash.

The new liquidity and long-term financing has buttressed the company's financial foundation and added flexibility to its plans, AMR chief executive Gerard Arpey said in a news release.

Shares have still not recovered from last Monday when they closed at $9.03.

Nasdaq mostly steady

The Nasdaq 2.5% convertible senior notes due 2013 traded at 88 versus a share price of $21.85, which shows itself resilient in the face of a 52-cent, or 2.4%, drop in its underlying shares.

In mid-August, the paper traded at 90 versus a share price of $32.125.

The New York-based stock market exchange saw its shares fall after it announced consolidated market performance statistics for its U.S. exchanges for August, which showed a drop of 18% to 1.77 billion for its average daily matched volume for all U.S. equities, compared to a year earlier, and a drop of 29% to 7.2 million for its average daily matched trade count, compared to a year earlier.

Mentioned in this article:

AMR Corp. NYSE: AMR

Eastman Kodak Co. NYSE: EK

Nasdaq OMX Group Inc. Nasdaq: NDAQ

PHH Corp. NYSE: PHH

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