High-yield convertibles lower amid illiquidity; Cemex drops; Navistar trades around 44

By Rebecca Melvin

New York, Dec. 14 – High-yield paper was under fire in the convertibles space on Monday with many lower-credit-quality names dropping amid illiquidity, and anything energy-related was bearing the brunt of harsh treatment.

“High yield is getting trashed, and anything energy related is down potentially 5 points,” a New York-based trader said on Monday.

Cemex SAB de CV, which is commodity and emerging-market linked, saw its 3.72% convertibles due 2020 fall to about 73, which was down 3 points on the heels of a 5-point drop on Friday, a New York-based trader said.

Navistar International Corp.’s securities were treading water at about 44 after dropping 15 points on Friday.

But Iconix Brand Group Inc. remained active at pricing that was little changed on Monday as the underlying shares of the New-York-based brand management company dropped.

The Iconix’ 2.5% convertibles due 2016 were seen 91.5 bid, 92.5 offered, which was little changed compared to where they have been trading in recent days.

Iconix shares dropped 51 cents, or 8%, to $6.10 in early trade.

The Iconix 2.5% convertibles were “trading to expectations of a financing to pay them off next June. If they announce a deal, I expect that given this tape, they will go to a 6% to 7% maturity from more than 21% currently,” a New York-based trader said.

Jarden Corp.’s trio of convertible bonds were trading a little better after news that Newell Rubbermaid has agreed to buy the company for $21 in cash and 0.862 of a share in Newell Rubbermaid for each Jarden share. The price represents a 24% premium to where shares had been trading before word of the deal.

Overall, the market, which had already been feeling fragile in the midst of an extended period of depressed energy prices and ahead of a potential rate hike, was roiled afresh by Friday’s news that Third Avenue Management LLC has suspended redemptions of its Third Avenue Focused Credit Fund as it attempts to wind down the $789 million fund.

On top of Third Avenue, there was news of two more funds liquidating, including Stone Lion Capital Partners, which is suspending redemptions, and Lucidus Capital, which is shutting its $900 million hedge fund and returning investors’ money.

“It remains to be seen if this is a warning of more things to come,” an analyst said. How things shake out for the year, “really depends on how things go from here,” he said

The market move so close to year-end has implications not only for the current year but for next year as well. As this year’s results will play a part in determining how allocations are made in the new year, the analyst said.

“It’s a complication,” the analyst said.

As for Monday’s session, the analyst noted that high-yield stock were flattish, and that the convertibles market was a credit story.

Monday’s theme was credit related, rather than equity related, because even though oil and stock prices turned positive at the end of the session following a lower start, the high-yield market did not improve.

Cemex drops

Cemex’s 2.73% convertibles due 2020 were seen at about 73, which was down 3 points on top of a 5-point drop on Friday.

Cemex shares ended down 14 cents, or nearly 3%, to $5.01.

The paper of the Mexican steel producer was vulnerable in that it is commodity-related and emerging-market linked and subordinated, five-year paper, a trader said.

“It imploded quickly,” he said.

He said the latest moves to the downside were exacerbated by many hedge funds not having had a good year to begin with. Market players want to sit tight, but doing so may not be possible, and people don’t want to step in yet and buy anything that has dropped.

Not only has crude oil dropped but natural gas tumbled on Monday to its lowest intraday level since January 2002 after weather forecasts said the mild weather will persist through the end of December.

Natural gas January futures fell as much as 5.6% to $1.879 a million British thermal unit on the New York Mercantile Exchange.

Jarden inches up on takeout

Jarden’s convertibles inched up in line with the move in the underlying stock, an analyst said.

But even though the convertibles did not outperform, it was viewed as a positive development for convertibles players’ portfolios.

“The three converts are pretty sizable, and all the bonds have gone up with the stock,” the analyst said.

At the same time “it is a double edged sword because the news means that the bonds will go away to the extent that the bonds get converted, and will reduce market size.”

Jarden’s 1.125% convertibles due 2034, of which $690 million priced in March 2014, were seen trading between 121.5 to 122.375, which was up a little bit, in line with the underlying shares.

Jarden’s 1.5% convertibles due 2019, of which $265 million priced in 2013, were seen at 145, which was also up modestly, and Jarden’s 1.875% convertibles due 2018 traded at 176.66, also a little higher in tandem with the equity.

Shares of the Boca Raton, Fla.-based consumer products company had been up about $2.00, or 4%, in the early going but closed higher by $1.41, or 2.7%, at $54.09.

Rubbermaid holders will own about 55% of the combined company, which will be called Newell Brands. The tie up is expected to occur in the second quarter.

Mentioned in this article:

Cemex SAV de CV NYSE: CV

Iconix Group Brand Inc. Nasdaq: ICON

Jarden Corp. NYSE: JAH

Navistar International Corp. NYSE: NAV

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