Nielsen trades higher on debut; Kodak drops on earnings miss; Hutchinson Technology steady

By Rebecca Melvin

New York, Jan. 26 - Nielsen Holdings NV's newly price 6.25% mandatory convertibles traded up along with the company's underlying shares on their debut Wednesday.

The information and measurement company priced $250 million of two-year mandatory convertible subordinated bonds late Tuesday concurrently with $1.6 billion of common stock at $23.00 per share in an initial public offering.

There was decent volume in the new Nielsen mandatories, but the paper hadn't generated overwhelming interest from traditional convertibles players, so a lot of the action was from equity investors and elsewhere, a New York-based sellside trader said.

Eastman Kodak Co. was shot down after an earnings miss, with the convertibles down about 10 points outright and 2 points or more on a hedged basis. The Kodak collapse followed on the heels of a drop Tuesday on an unfavorable preliminary decision in its patent lawsuit.

"There really wasn't anything good there; the credit default swaps widened and everything else fell," a Connecticut-based sellside trader said.

Hutchinson Technology Inc.'s convertibles were steady, with the underlying shares up, after decent earnings from the Hutchinson, Minn., maker of suspension assemblies for disk drives.

After the market close, Amylin Pharmaceuticals Inc. posted earnings that represented "a very good beat," according to a New York-based sellside analyst, and set up the Amylin 3% convertibles nicely for yield players late Wednesday and Thursday.

Overall, volume on Wednesday in the convertible bond market was very light, and with another snow storm set to wallop New York late in the day and overnight, some thought winter-weary players were sitting back and maybe heading home early.

"I think people are going home early because of the snow," a New York-based sellside trader said.

In the stock markets, the Dow Jones Industrial Average surpassed 12,000 during the session but slipped back below the psychologically significant mark later on, settling at 11,985.44, which was up 8.25 points on the day.

The Federal Reserve Open Market Committee's decision to hold interest rates steady and its statement that the economy continues to improve albeit slowly was largely ignored by the markets as something that was widely anticipated.

Nielsen mandatory trades up

Nielsen's newly priced 6.25% convertible mandatories due Feb. 1, 2013 traded up to 54 bid, 54.5 offered late in the session against a stock price of $25.60.

The day's move was a gradual ascent, with early trades at 51 and then 52. A mid-session print was 53.90 versus a share price of $25.40.

The newly priced common stock closed at $25.00, which was $2.00 higher than the $23.00 offer price for the company's IPO involving 71.4 million new shares.

The mandatories priced at the rich end of talk, which was for a yield of 6.25% to 6.75% with an initial conversion premium of 15% to 20%.

"Nielsen was definitely a focus, but I didn't see a lot of convert guys going for this," a New York-based sellsider said.

Given that it's a mandatory, there are certain players that won't consider it. But those types of players are fewer than they used to be given the scarcity of new paper and the number of mandatories that are getting done, a second sellsider noted.

Essentially the Nielsen mandatory represents a safe way of owning the equity without the downside risk.

"It's a cheap way to own the stock, and you get the 6.25% yield for two years and upside exposure," the sellsider said, referring to the mandatory's dividend.

While many would say it's just a conservative way for someone to play the equity, another sellsider looking at the scarcity of new issues in the convert market, said, "I don't think people have a lot of choices here; you take what you're given."

Kodak collapses

Kodak's 7% convertibles due 2017 traded down to 88 versus a closing share price of $3.71 on Wednesday, which compared to a close Tuesday at 97.5.

Intra-day, a sellsider reported a Kodak trade at 88.5 versus a share price of $3.75, which compared to 96.5 versus a share price of $4.50 on Tuesday.

The convertibles were down 2 points or more on a dollar-neutral basis.

"A bunch traded," a sellsider said, "And they didn't do well."

Shares of the Rochester, N.Y.-based digital photography company fell 81 cents, or 18%, to $3.71. The CDS widened.

The company reported fourth-quarter earnings of $33 million, or 12 cents per share, compared with $430 million, or $1.36 per share, a year earlier.

Excluding items, the company reported a loss of 37 cents per share, which missed estimates for a 2-cent loss.

Revenue fell to $1.93 billion, missing the consensus forecast of $2.11 billion.

The disappointing report comes after the U.S. International Trade Commission determined that a Kodak patent claim against Apple Inc and Research in Motion Ltd. is invalid.

Hutchinson mostly steady

Hutchinson's 3.25% convertibles due 2026 were at 80.75 at the end of the session, according to Trace data. The paper had traded as high as 81.375.

Hutchinson's common shares ended the session higher by 20 cents, or 6%, at $3.41, and the shares earlier had been up 10%.

The company reported a net loss of $17 million, or 73 cents per share, compared to a net loss of $27.1 million, or $1.16 per share, in the year-earlier quarter.

Revenue was $68.2 million for its fiscal 2011 first quarter ended Dec. 26.

The company's first-quarter shipments of suspension assemblies declined 3.5%, compared to the previous quarter, and was in line with guidance.

Earlier this month, the company began a partial exchange offer for up to $75.3 million of the 3.25% notes.

Investors may decide to receive new series 8.5% convertible senior notes due 2026 or a cash payment of $850 or a combination of the two options. The offer expires at on Feb. 8.

"The earnings maybe are a good chance to take profit off the table for a company that is not doing so well," a New York-based sellside analyst said.

He said that the company's equity market capitalization is slim and it is running out of options.

"The [stock] borrow wasn't set too high going into the earnings," he said, adding that the convert is not very interesting, in his opinion.

Mentioned in this article:

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Eastman Kodak Co. NYSE: EK

Hutchinson Technology Inc. Nasdaq: HTCH

Nielsen Holdings BV Nasdaq: NLSN

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