Convertibles generally quiet; Cobalt adds 0.125 point dollar neutral; Micron paper better

By Rebecca Melvin

New York, Dec. 14 - Trading in the convertible bond market was quiet on Friday.

There was one new issue. Ares Commercial Real Estate Corp. priced an upsized $60 million of three-year convertible senior notes before the market open with a 7% coupon and a 15% initial conversion premium in a private deal.

That deal was not heard by this reporter in the secondary market after pricing.

The deal of the week was Cobalt International Energy Inc.'s $1.38 billion of seven-year convertibles, and those bonds on Friday expanded about 0.125 point on swap, a New York-based trader said.

Bottomline Technologies Inc. was another active name for the week, with that issue, which debuted a week ago, mostly quiet on Friday after expanding earlier in the week and with the underlying shares of the Portsmouth, N.H.-based software company higher by 10% since the new convertible first priced.

Sellers of many deep, in-the-money names caused that segment of the market to continue weaker as low volatility hit valuations, a New York-based trader said.

Alcoa Inc. was one such in-the-money issue that saw sellers, he said.

Exceptions to the rule regarding the weakness in in-the-money names included Micron Technology Inc.'s series C and series D convertibles, which improved on the week.

Elsewhere, Clearwire Corp. continued to trade actively at higher levels after Sprint Nextel Corp. offered to buy the other half of Clearwire that it doesn't already own for $2.90 per share, or about $2.1 billion.

In the distressed area, AMR Corp. continued to push higher, but Molycorp Inc. was erratic, with trades seen at both higher and lower levels.

Moves this past week did not follow trend lines, but were company specific for the most part, meaning that individual company news precipitated much of the trading action, a Connecticut-based distressed trader said.

Overall, the market was muted. "Today, people were not interested," a trader said.

A Connecticut-based analyst said that many convert players were affected by the news of a massacre at a Connecticut elementary school, in which a lone gunman killed 27 people, including 18 children.

Cobalt adds 0.125 point

Cobalt's new 2.625% convertibles due 2019 were a little over 101 with the paper said to have added 0.125 point on a hedged, or dollar-neutral, basis.

Cobalt shares ended the session unchanged at $25.04, after starting the day higher.

"Cobalt was the week's dynamic deal, and was a success. So it did expand," a market player said.

The Houston-based oil exploration and development company priced the $1.38 billion of convertibles in an overnight deal at a 0.75-point discount to par, and the paper traded up Wednesday to nearly 103 outright, before settling back to the 101.25 to 101.50 area.

Clearwire up on Sprint offer

Clearwire's 8.25% convertibles due 2040 remained in the 110 area after jumping from about par on a potential takeout.

Shares of the Bellevue, Wash.-based wireless broadband services provider jumped another 21 cents, or 6.7%, to $3.37, after surging 15% Thursday.

There was speculation that Sprint's initial bid could be sweetened given that the shares were significantly higher than the $2.90 per share offer from Sprint.

One trader surmised that investors must be eyeing the potential that this merger will take quite a while to get done.

"They wouldn't be trading at 110% unless people were expecting a counter bid or they expected one year or two years to settlement," he said.

"You have to think there's more to the story and you may be clipping the coupon for 1.5 years for the 12 points," the trader said.

Mentioned in this article:

Alcoa Inc. NYSE: AA

AMR Corp. NYSE: AAMRQ

Ares Commercial Real Estate Corp. Nasdaq: ACRE

Bottomline Technologies Inc. Nasdaq: EPAY

Clearwire Corp. Nasdaq: CLWR

Cobalt International Energy Inc. NYSE: CIE

Micron Technologies Inc. NYSE: MU

Molycorp Inc. NYSE: MCP

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