Micron steady despite stock weakness; U.S. Steel steady; Wright Medical up dollar neutral

By Rebecca Melvin

New York, Oct. 5 - The convertible bond market was up in line with gains in the equity markets, but held steady on a hedged basis, traders said. Overall activity lacked energy given tight supply and holders' general resistance to sell paper in an environment of lower-than-anticipated new issuance.

"Technology converts and the whole universe has been strong with higher stocks. They're up dollar neutral, but it's nothing outstanding," a New York-based sellside trader said. "There were no discernible standouts."

Micron Technology Inc. was steady despite pressure on the underlying shares of the Boise, Idaho-based memory chip maker, however.

United States Steep Corp.'s convertibles were active and holding mostly steady as the underlying shares of the Pittsburgh-based steelmaker dropped early but staged a turnaround to end up 58 cents, 1.4%, on the day. The shares had weakened Monday amid a falling U.S. dollar that pressured commodity-related names.

Along with Micron, Ciena Corp. and NetApp Inc. were active in trade, a New York-based sellside analyst said.

"It was a little busier than yesterday, but not super active," a New York-based sellside desk analyst said.

Also in trade, Wright Medical Group Inc., an Arlington, Tenn.-based medical device maker, was better on a dollar-neutral basis on a 4.5% climb in the underlying shares.

"There were lots of bids outright," a New York-based sellside trader said of the Wright Medical convertibles. But, in addition, the paper was higher by about 0.75 point on a dollar-neutral basis. The Wright Medical 2.625% convertibles due 2014 traded at 90.5 versus a share price of $14.42.

The primary market was quiet during the session, but after the markets closed, SL Green Realty Corp. announced that it planned to sell $300 million of seven-year exchangeable senior notes ahead of the market open on Wednesday.

Also Allied Irish Banks plc said it plans to price 26.7 million of contingent notes due November 2010 that will be mandatorily exchangeable into shares of M&T Bank Corp.

The notes, which are being issued as part of the process of disposing of Allied's 22.4% shareholding in M&T Bank, constitute AIB debt instruments, and investors will be issued one note for each underlying M&T share.

Equities rallied during the session after a better-than-expected Institute for Supply Management non-manufacturing report. The services sector index jumped to 53.2 in September from 51.5 in August, fostering the expectation that economic activity picked up in the third quarter. The reading was above the 52.0 median forecast by surveyed economists.

The Dow Jones Industrial Average climbed 193.45 points, or 1.6%, to 10,944.72; the S&P 500 index jumped 22.72 points, or 2.1%, to 1,160.75; and the Nasdaq stock market surged 55.31 points, or 2.4%, to 2,399.83.

Micron steady despite lower shares

Micron's 1.875% convertibles due 2014 traded last at 88.654, which was little changed on the day, according to Trace Data.

Shares of the maker of memory chips, which have been pressured by concerns about weak demand for the company's products, ended down 6 cents, or nearly a percentage point, at $6.93 in heavy volume.

The Micron convertibles had been trading near par at its highs in April.

A UBS analyst said Monday that Micron will likely report quarterly earnings later this week in line or worse than expected as supply growth and PC weakness weighs on memory chip pricing.

The UBS analyst expects a 12% sequential drop in DRAM sales in the quarter, with NAND flash down 2%.

Micron's fiscal fourth-quarter profit estimate is for 30 cents a share, with its fiscal full-year profit estimated at 80 cents to 83 cents.

Nevertheless, technology names have done significantly better due to September's stock rally compared to the summer months.

Whether the rally in stocks will continue is a question that has caused some investors to eye switching to convertibles, which are viewed as a safety play, given that they have downside protection in the form of a solid bond floor.

"Because they have better downside protection, people want to switch to converts," a New York-based sellside analyst said.

"Relative to equity, converts will outperform with a solid bond floor," the analyst said, although he qualified the statement saying that it depends on the convertible name and where it's trading.

Currently high names like Micron and U.S. Steel are trading higher along with stronger shares.

U.S. Steel's 4% convertibles due 2014 traded at 151.5 versus a share price of $42.60 during the session, according to a sellsider. The paper was also said to trade at 150.5, which was flat on the day, while Trace reported a late sale at 152.25, up 1.75 points outright on the day.

Shares of the Pittsburgh-based steel maker gained 58 cents, or 1.4%, to end at $43.00.

SL Green to price

SL Green plans to issue through an operating subsidiary $300 million of seven-year convertibles ahead of the market open Wednesday that were talked to yield 3% with an initial conversion premium of 30%, according to a syndicate source.

The notes will be issued by SL Green's operating partnership and exchangeable into the listed company's common stock.

There is a $45 million greenshoe for the Rule 144A offering, which is being sold via Citigroup Global Markets Inc.

Proceeds are earmarked for general corporate purposes.

The exchangeables are non-callable with no puts. There is no contingent conversion.

Shares of the New York-based real estate investment trust that focuses on Manhattan commercial properties ended the session up $1.67, or 2.6%, to $66.01.

Allied Irish to price mandatories

Allied Irish plans to price extremely short-term convertible paper due in November that will bear no interest and will be exchangeable into shares of M&T Bank Corp.

The offering is subject to shareholder approval later this month.

Morgan Stanley & Co. Inc. and Citigroup are joint bookrunners of the notes, which will be listed on the New York Stock Exchange under the symbol "MTC."

Allied Irish is a financial services company operating principally in Ireland, the United Kingdom, Poland and the United States.

Mentioned in this article:

Allied Irish Banks plc NYSE ADS: AIB

Ciena Corp. Nasdaq: CIEN

Micron Technology Inc. NYSE: MU

NetApp Inc. Nasdaq: NTAP

SL Green Realty Corp. NYSE: SLR

Wright Medical Group Inc. Nasdaq: WMGI

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