Intel dominates trading volume; Qihoo, GT Advanced down outright, unchanged on hedge

By Rebecca Melvin

New York, July 8 – Intel Corp. accounted for a big chunk of U.S. convertibles trading on Tuesday as market players steered toward safer, longer-dated names in the midst of a two-day rally in Treasuries.

The Intel notes were seen moving in tandem with Treasuries and keeping in step on a valuation basis.

“Intel is more or less a Treasury surrogate. There are better sellers if Treasuries go lower, and better buyers if Treasuries go higher,” a New York-based trader said.

Better to buy means that the bid is stronger and the offer possibly nebulous.

There were a few other names of interest in trade, but pricing action was, for the most part, unchanged, or in line with moves in the underlying shares, market players said.

Redwood Trust Inc., which represents one of the cheaper real estate investment trusts, or REITs, in the convertibles space, changed hands amid continuing strength in REIT equities. Redwood shares ended up by a dime.

Qihoo 360 Technology Co. Ltd.’s 2.5% convertibles were trading actively but were unchanged, with shares of the China web search engine down about 5%, a second New York-based trader said.

Vipshop Holdings Ltd.’s convertibles were not seen trading actively although shares of the fellow Chinese internet company were also lower.

Qihoo’s convertibles were called 113 bid, 113.5 offered versus an underlying share price of $88.00.

“They are trading back and forth, unchanged,” the trader said of the Qihoo convertibles.

NQ Mobile Inc.’s convertibles were also active, and trading around the 54 mark as shares of the Beijing and Dallas-based mobile software company continued to hemorrhage following news last week that the scope of its audit has been expanded and the head of its audit panel resigned.

NQ shares were down another 34 cents, or 7.6%, on Tuesday to $4.14. The stock has dropped more than 35% in the past week from $6.37 at the close last Tuesday.

GT Advanced Technologies Inc.’s convertibles traded down, mostly in line with shares of the Merrimack, N.H.-based solar and LED equipment company.

Otherwise there were “dribs and drabs trading,” a New York-based trader said.

PHH Corp.’s 6% convertibles, which are typically very illiquid, traded in the high 190s, or 15 points over parity, which was pretty much where they had been previously.

Shares of PHH, a Mt. Laurel, N.J.-based mortgage and fleet management services company, were up 1.5% to 2% after the company announced an asset sale completion.

“It’s using proceeds to buy shares and clean up its balance sheet. If it’s going to do that, it makes the bonds less attractive,” a New York-based trader said.

Meanwhile, shares of Macquarie Infrastructure Co. LLC surged 11% on the heels of the launch of the company’s $250 million of five-year convertible senior notes that were seen pricing on Wednesday.

“Given that the stock made its move today, the story is not too exciting. If anything the story was more interesting yesterday,” a convertibles trader said.

But there is limited downside, he said.

New York-based Macquarie owns, operates and invests in a diversified group of infrastructure businesses that provide basic services.

Intel, Redwood in trade

Intel’s 2.95% convertibles due 2035 slipped back to 123.50 at the end of the session from as much as 125.5 on Monday and in line with shares of the Santa Clara, Calif.-based chipmaker, which traded off 0.8% on Tuesday.

Intel’s 3.25% due 2039 traded at 152.7 toward the end of the session, which was down 0.9 point.

Intel shares finished at $30.79, which was down 24 cents.

“How much Intel can you trade,” a trader said, lamenting the fact that Intel has led the pack in convertibles pretty consistently in recent weeks.

Meanwhile, Redwood’s 4.625% convertibles traded at 103.875 versus a share price of $19.73, which was Monday’s close, a trader said.

Redwood shares ended at $19.75 on Tuesday.

REITs have held pretty steady from an equity perspective, from a rate perspective,” a trader said.

He said that it wasn’t surprising that the Redwood convertibles were pulled into trade as REITs have been strong, and this is one of the cheaper REITs, he said.

GT slides outright

GT Advanced’s newer 3% convertibles due 2020 were seen in trade at 161.25 versus a share price of $16.50, which was Monday’s close. That was down from an indicated close on Monday at 167, which was down from 181 to 182 previously.

They were “nuking in line,” a trader said, but adding that it was a significant outright move.

Typically bonds might expand on a violent stock move lower like the one that GT Advanced suffered on Monday following a couple of share downgrades. The stock came in 16%. But in this case, the bond only held in.

Downgrades sparked the massive selloff in the stock, the trader said.

UBS downgraded the GT Advanced shares to “neutral” from “buy” but maintained a $22.00 price target based on the expectation that the company will not meet the high end of its $600 million to $800 million 2014 second-quarter sales guidance.

UBS also lowered its 2014 earnings per share target to 12 cents per share from 17 cents.

Mentioned in this article:

GT Advanced Technologies Inc. Nasdaq: GTAT

Intel Corp. Nasdaq: INTC

Macquarie Infrastructure Co. LLC NYSE: MIC

NQ Mobile Inc. NYSE: NQ

PHH Corp. NYSE: PHH

Qihoo 360 Technology Co. Ltd. Nasdaq: QIHU

Redwood Trust Inc. NYSE: RWT

Vipshop Holdings Ltd. Nasdaq: VIPS

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