Central European Media slips after disappointing earnings; MGIC adds; NuVasive in focus

By Rebecca Melvin

New York, Feb. 22 - Trading action in the convertible bond market on Wednesday was dominated by investment-grade names, including Archer-Daniels-Midland Co. and Gilead Sciences Inc., and pricing action wasn't particularly dramatic.

ADM was flat on a dollar-neutral, or hedged, basis, and Gilead was a little bit better again. All three Gilead issues expanded 2 points to 3 points - and then some - since the shares took a hit last week on disappointing drug trial data. One trader said he thought Gilead looked pretty stretched at this point.

Elsewhere, Central European Media Enterprises Ltd.'s convertibles slipped, but looked pretty healthy compared to the hard hit that the underlying shares sustained following news that the broadcaster posted a wider fourth-quarter loss on charges related to writedowns associated with assets in Bulgaria. The underlying shares dropped 18%.

Moving in the opposite direction, MGIC Investment Corp.'s 5% convertibles extended gains Wednesday from Tuesday to trade at 74, a 0.25 point rise from Tuesday, but a 25% climb since the beginning of the year when the MGIC paper stood at 58 bid, 59 offered, a New York-based trader said.

Kinross Gold Co. saw a few trades at basically the unchanged mark as gold prices were in focus and the precious metal closed at a new high on Wednesday.

Grubb & Ellis Co. got a few looks after news that the company filed for bankruptcy, but the tightly held $31 million size issue wasn't seen in trade and was considered a non-starter for many players due to the small amount of paper outstanding.

Nevertheless, one trader said it was "going to be interesting" to see what happens to those bonds in light of BGC Partners Inc.'s planned acquisition of nearly all of the Santa Ana, Calif.-based commercial real estate services and investment management company.

The transaction would be carried out as an asset sale in Grubb & Ellis' bankruptcy case, which has been initiated.

Meanwhile, NuVasive Inc. was being looked at as a name of interest for Thursday since the San Diego-based medical device maker was set to report earnings after the market close on Wednesday.

NuVasive, with two convertible issues, including a 2.75% convertible and a 2.25% convertible, has been "bid only" for a number of weeks since takeover speculation in the biotechnology sector was reactivated with news of Roche Holding's hostile takeover bid for Illumina Inc., a New York-based trader said.

Overall, investment-grade names continued to trade as market players look for opportunities like that which occurred last week with Gilead, the trader said.

"People are looking to tweak around the edges based on asset allocation, and holding and riding here. Hedge guys are more generally prone to act, especially on mispricings or movements. But aside from Gilead, which was a nice situation, there haven't been a ton of money-making opportunities," the trader said.

The "safer," more liquid names were in demand, he said.

A second New York-based trader said, "Today seemed pretty sleepy, with a lot of the activity centered on big benchmark names."

Equities were lower Wednesday, with the Standard & Poor's 500 stock index ending down 4.6 points, or 0.33%, at 1,357.66.

Greece remained at the forefront of news headlines after Fitch Ratings cut Greece's sovereign credit rating to C from CCC and said that the planned bond swap for private debt holders will amount to a restricted default.

CETV slips with share drop

Central European's 3.5% convertibles due 2013, which were the subject of management's comments during the company's earnings call about intentions to refinance or buy back the bonds, were seen at about 95 bid, 96 offered during the session.

Around noon, the bid side of the market was a little lower in CETV, a sellside analyst said. But there was no major price movement or trading.

Central European's longer-dated 5% convertibles slipped a couple of points to trade at 73.75. A recent market in that issue had been 75.5 bid, 77.5 offered.

CETV shares skidded $1.55, or 18%, to $6.95 in heavy volume on Wednesday.

Management said during the call that it was looking at debt and equity-based options to refinance or repurchase its debt in the near term. It said further details could be expected before its next earnings call.

Of the 3.5% convertibles that need to be refinanced or bought back, there are about $130 million outstanding.

"It's not surprising there is a disconnect between the stock and the bonds, given that they are busted," an analyst said.

The television company posted a wider fourth-quarter loss after taking a nearly $70 million charge in some units.

The charge to reflect the impact of the debt crisis in the euro zone periphery was in contrast to a core profit rise.

The company didn't offer a 2012 outlook, saying the year would be challenging and that it remained cautious on the recovery of advertising spending, its main source of income. But it expected to outperform in its markets, which were flat last year overall.

Central European Media's net loss widened to $77.2 million in the fourth quarter from a $25.4 million loss in the same period the year earlier.

MGIC extends gains

MGIC's 5% convertibles due 2017 traded between 73.75 bid and 74 offered, which was up about 0.25 point on the day, following gains on Tuesday on a strong stock move. The shares gave back those gains on Wednesday, but the convertibles held on.

Last week, the MGIC 5% convertibles traded in the mid 60s with the stock at about $4.40, and on Jan. 3, the bonds were 58 bid, 59 offered.

One trader said that the convertibles were "running up with the stock, for the most part."

But the improvement may be linked to talks about an overhaul proposed by regulators for Fannie Mae and Freddie Mac, a convertibles analyst said.

There is a 21-page blueprint for the government restructure of Fannie and Freddie, he said, and there was talk that the new regulation would benefit private insurers.

NuVasive in focus

NuVasive's 2.75% convertibles were seen 86.25 bid, 87.75 offered at the end of the day and ahead of earnings that were expected late Wednesday.

NuVasive's 2.25% convertibles were seen at 98 bid, 99 offered.

NuVasive shares ended the session just slightly lower by 6 cents, or 0.4%, at $15.46 on Wednesday.

The company ended up reporting quarterly earnings that beat estimates by 5 cents, and revenues that were in line. It guided below estimates for 2012 earnings, and shares were unchanged in after-hours trade.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Central European Media Enterprises Ltd. Nasdaq: CETV

Gilead Sciences Inc. Nasdaq: GILD

Grubb & Ellis Co. Pink sheets: GRUB

Kinross Gold Corp. NYSE: KGC

MGIC Investment Corp. NYSE: MTG

NuVasive Inc Nasdaq: NUVA

© 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.