Convertibles find footing; high-grade names outperform junk; Mylan drops; Cemex weaker

By Rebecca Melvin

New York, Aug. 3 - Convertibles steadied on Wednesday after steep losses on Tuesday as equities bounced from earlier losses to break a seven-day losing streak. Speculation regarding a new round of stimulus spending began to gain credence.

"They are holding up. They are not better, but they are not going down," a New York-based analyst said of convertible bonds Wednesday.

In general, investment-grade names held up better during the market rout of the last week than high-yield names, market sources said.

Archer-Daniels-Midland Co. saw its points of premium over parity expand, with the 0.875% convertibles trading at 103.5 versus an underlying share price of $29.00 on Wednesday compared to 106.5 versus a share price of $31.85 last week, a New York-based sellside desk analyst said.

The real convertible market casualties were high-yield names, especially those with businesses dependent on U.S. economic activity.

Cemex SAB de CV was notably weaker and perhaps one of the convert space's worst performers, an analyst said.

The debt-laden Mexican cement maker stands to lose business in the face of a U.S. and global economic slowdown, and its underlying shares have slid lower steadily during the last spate of uncertainty, losing nearly 30% since the beginning of July.

Central European Distribution Corp. was also the scene of some ugliness, with the convertibles of the Mount Laurel, N.J.-based vodka maker and beverage distributor tumbling about 7 points to 81 in trade Tuesday before steadying on Wednesday.

Molycorp Inc. was also a place of pain, and MF Global Holdings Ltd.'s new 3.375% convertibles traded lower yet again.

"I'm not surprised since the macro data continues to be weak," a New York-based trader said of the rout.

"It seems kind of sloppy," he said specifically of Wednesday's session. "I'm hearing dealers not really making many markets, fading on things. They are making them a point wide, versus maybe 0.5 point to 0.75 point wide a few weeks ago."

ADM points expand

ADM's 0.875% convertibles due 2014 traded at 103.5 versus a share price of $29.00 on Wednesday. Shares of the Decatur, Ill.-based agricultural commodities company were recovering on Wednesday and were up $1.04, or 3.6%, to $29.64 at the session's end.

ADM's points of premium expanded to 36.6 points from 33 points last week, an analyst said. A second market source said that the ADM move may just have been because it had "nuked down heavy after earnings."

Given the implied vols., investment grade was relatively better compared to high yield, a second analyst said.

Mylan sharply lower

The slide in most convertibles reversed course on Wednesday, but Mylan Inc. was an exception and didn't improve as the session wore on. The underlying shares of the Canonsburg, Pa.-based generic and branded drug maker also faded into the close, ending down by 44 cents, or 2%, at $20.41.

Mylan's 3.75% convertibles due 2015 printed down 19 points at 167.72 in late afternoon, which was down from 169.55 around midday.

Mylan's 1.25% convertibles due 2012 traded earlier at 102.375, which was off less than 0.5 point to 102.1, which was down 0.7 point.

Mylan is deep in the money, and the stock is down sharply this week, a New York-based sellside analyst said by way of explanation of why the convertibles were lower.

Cemex much weaker

Cemex's 4.875% convertibles due 2015, the older tranche of Cemex convertibles, or the five-year paper that priced in March 2010, traded at 80 versus a share price of $6.00 on Wednesday.

Cemex's newer 3.25% tranche A convertibles due 2016, which priced this past March, traded lower than the older paper at 76 versus a share price of $6.00.

Cemex shares closed down, but well off their lows, slipping another 13 cents, or 2%, on Wednesday to settle at $6.20. On July 1, the shares closed at $8.66.

"It's much weaker," a New York-based analyst said, adding that it has been pressured by its stock price and the slower economy.

The analyst said that its credit spread had widened out on the shorter-dated 4.875% convertibles to 1,362 basis points over Libor, compared to 800 bps to 900 bps a couple of weeks ago.

"The stock has done terribly during this period," he said.

Latin stocks fell sharply on Monday on the weak reading on U.S. manufacturing, which fueled recession fears.

MF Global extends losses

MF Global's 3.375% convertibles due 2018 traded at 97 versus an underlying share price of $7.15, compared to 98.5 versus a share price of $7.40 on Tuesday. Intraday on Wednesday the paper was even weaker printing at 95.5, according to Trace data.

Shares of the New York-based broker ended little changed on the day at $7.17, which was up 2 cents.

"MF is definitely lower thanks to the Obama straight bond they issued," a New York-based sellside trader said.

By "Obama straight bond," the trader was referring to a covenant in the bonds that allows the notes to pay an extra percentage point of interest if chief executive officer Jon Corzine leaves the company to take a job in federal government, namely in the Obama Administration, with senate confirmation before July 2013.

MF is selling $325 million of these five-year unsecured notes, which was increased from an initially talked $300 million. The interest rate can also be adjusted if the company's debt rating is downgraded.

Jefferies & Co. is the bookrunner.

MF priced its 3.375% convertibles in an upsized $325 million deal last week.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Cemex SAB de CV NYSE: ADS: CX

Central European Distribution Corp. Nasdaq: CEDC

MF Global Holdings Ltd. NYSE: MF

Molycorp Inc. NYSE: MCP

Mylan Inc. NYSE: MYL

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.