Convertibles quiet; Navistar sees low print after earnings; Medtronic firmer; GM flat

By Rebecca Melvin

New York, Dec. 23 - Activity in the convertible bond market slowed considerably on Thursday, the last trading day before Christmas, to about the level that it is expected to maintain through next week's New Year's holiday.

It will be "more of the same. Probably like today, or at best, like the past couple of days," a New York-based sellside trader said of next week's market action.

Markets are closed Friday in observance of Christmas.

The trader said that Thursday's volume was about 25% of a normal day.

By late morning, $82 million of bonds had traded, according to Trace data, the sellsider said.

The convertible bonds of Navistar Inc. weren't heard in trade Thursday although they printed lower on the Trace data system by about 6 points a day after the Warrenville, Ill.-based truck maker reported lower quarterly earnings due to several factors, including lower truck sales.

Navistar stuck by its outlook for industrywide truck and bus sales in 2011, however, and Barclays boosted its share price target for the company on Thursday.

Rovi Corp.'s convertibles weren't seen in trade either, but the Santa Clara, Calif.-based networking technologies company said Thursday it plans to buy back convertibles and common stock with the proceeds of a new $500 million term loan that it is pursuing. The company also signed a definitive agreement to buy digital processing company Sonic Solutions for $720 million.

Shares of Rovi pared early losses but still closed lower at $57.26, which was down $1.10, or 2%, in heavy volume.

Medtronic Inc. was one of the top volume names of the day, with the longer-dated Medtronic 1.625% convertibles due 2013, or the B paper, up nearly a point in early trades at 100 bid, 100.5 offered, while shares of the Minneapolis-based medical device maker were up about 50 cents at $37.00.

UBS upgraded Medtronic on Wednesday to "buy" from "neutral," citing the stock's attractive valuation, and boosted its share price target to $44 from $37.

General Motors Corp. was higher in early dealings but ended the session nearly unchanged at $51.81, which was up 3 cents. Earlier the paper had traded as high as $52.47.

Molson Coors Brewing Co.'s 2.5% convertibles due 2013 retraced gains notched Wednesday in active trade, slipping back a little more than 3 points to 113 bid, 113.5 offered.

In the broader markets, equities ended mixed in light volume.

"I heard things like, 'We're not trading again in 2010.' People are done for the year basically, or they will be around at the open and the close for housekeeping. A lot of firms are at half staff, and people normally take the week between Christmas and New Year's off because they know it's slow," a New York-based sellside trader said.

Investors don't normally put a lot of risk on at the end of the month, and if they are on a regular calendar year, they aren't going to put on a lot new risk on at the end of the year.

Bond futures were set to close at 1 p.m. ET on Thursday, with bonds closing at 2 p.m. ET and stock markets closed as normal at 4 p.m. ET.

Navistar prints lower

Navistar's 3% convertibles due 2014 traded down more than 6 points to 130 on Thursday as shares recovered some ground from a 3% decline Wednesday, settling down 38 cents, or 0.7%, at $57.56.

The company's said Wednesday that its fourth-quarter earnings declined as the North American truck market has remained weak. But on Thursday, Barclays raised the company's 2011 earnings estimate to $4.05 and maintained its equal weight rating on the company.

Navistar's fourth-quarter earnings fell 55%, coming in at $39 million, or 54 cents a share, down from $86 million, or $1.19 a share, in the same period a year earlier. The latest period included 14 cents of costs for layoffs and other expenses stemming from recently completed contract negotiations with the United Auto Workers union.

Revenue rose 2.7% to $3.4 billion.

The results beat analysts' expectations, as improvement in the company's truck operations reflected the ongoing recovery in the commercial truck-manufacturing industry following a slump that began in 2007.

Navistar forecast that industrywide sales of trucks and buses in the U.S. and Canada in its current fiscal year to Nov. 1, 2011 will be between 230,000 from 250,000 vehicles, which is a 25% increase from 2010.

"I didn't see Navistar. It doesn't really trade a lot," a New York-based sellside trader said.

I don't think a lot of people are going to do much in trading the bonds unless maybe someone will try to pick off someone," the trader said, referring to a situation where a price dislocation presents an opportunity to buy or sell bonds.

"If people are looking to adjust a position, they are more likely to do it with stock in this environment," the sellsider said, referring to the problem of low liquidity in the bonds.

"The convertibles just being less liquid, most people aren't going to want to trade on days like this, unless people are off their mark and the opportunity presents itself to pick off a dealer," the sellsider said.

Mentioned in this article:

General Motors Corp. NYSE: GM, GM-PB

Medtronic Inc. NYSE: MDT

Molson Coors Brewing Co. NYSE: TAP

Rovi Corp. Nasdaq: ROVI

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