New GM mandatory slips below par; Salesforce gains dollar neutral; new RightNow improves

By Rebecca Melvin

New York, Nov. 19 - General Motors Co.'s mandatory convertible preferred stock issue traded under its 50 par price Friday, underperforming the stock, with activity in the new issue slowing.

The fact that convertibles players lost money on the mega-deal - which debuted in the secondary market on Thursday - cast something of a pall over Friday, and activity was mixed in light volume, sources said.

Salesforce.com was weaker dollar-neutral early in the session Friday but then strengthened through the day to end with a 0.5-point gain dollar neutral, after positive earnings, a West Coast-based sellsider said.

RightNow Technologies Inc.'s new 2.5% convertibles moved up about 0.375 point to 0.5 point on a dollar-neutral basis, along with recovering underlying shares that were up by $1.

Omnicare Inc.'s 3.25% convertibles due 2035 were flat to higher following a move up in good volume on Thursday after the Covington, Ky.-based pharmaceutical services company launched a partial buyback of that paper.

The bonds were seen at 93.5 bid, 94 offered. "The bonds probably have a floor of 93. Who would sell below that when the company could come in and buy more above that," a New York-based sellside trader said.

Looking ahead, any activity in the upcoming holiday-shortened week was expected to come Monday.

"A couple of deals rolled over from today, and you might see them Monday morning or Monday night, but other than that, it will be a short week with Thanksgiving," a New York-based syndicate source said.

He said that the deals that were held on Friday weren't necessarily convertibles deals.

GM lower dollar neutral

GM's 4.75% convertible mandatory preferred traded down to as low as 49.25 Friday. Later the paper was seen at 50.25. And at the end of the session, it was 50.5 versus the closing share price of $34.26.

That compared to 50.5, with the common at $34.21 on Thursday.

That was probably a little lower dollar neutral, a sellsider said at the end of the session.

The paper would be set up on a heavy delta of 90% to 92%, according to a New York-based sellsider.

Shares of the Detroit-based automaker were lower much of the session, but pared losses toward the end of the day to settle up by 7 cents, or 0.2%.

"Everybody got killed on that," a New York-based sellside trader said of the GM mandatories' debut.

"Maybe a lot of people didn't come in because of that," the trader said, referring to the fact that it seemed many convertibles players were out of the office Friday and action was limited.

GM priced the $4.35 billion of 4.75% mandatory convertible junior preferred stock at the tight end of dividend talk late Wednesday. Concurrently, GM priced $15.77 billion of common stock at $33.00 per share.

The GM mandatories were trading in the gray market ahead of final terms at 52.625 bid, 53 offered. Then the listing came Wednesday morning, and an onslaught of selling, predominantly from outrights, weighed on the paper.

"The preferred traded lower on a dollar-neutral basis probably by about 25 cents to 30 cents," the trader said of Thursday and early Friday's performance.

Waiting on borrow

When stock borrow becomes available, it's possible that the GM paper will regain its footing, a sellsider said. That will allow hedged players to come back in and hedge up the name and trade.

Hedge players holding GM would not be trading it much for a loss under 50 on Friday.

One sellsider suggested that the stock will be available to borrow on Monday or Tuesday.

"These things should get better relative to the stock if they are hedged up real good," the New York-based sellside trader said.

Action was robust Thursday but in the doldrums Friday. "A lot of the outrights were flipping out of them. If hedge guys loaded up on them, they are still sitting on them. On a dollar-neutral basis we haven't seen any markets. They're probably trading upstairs; some of the underwriters are probably trading them," a New York-based sellside trader said.

Salesforce.com gains

Salesforce's 0.75% convertibles due 2015 traded at 165.5 bid, 166.5 offered versus a share price of about $133.00 during the session, compared to 148.25 bid, 148.75 offered versus a share price of $115.50 on Thursday.

The Salesforce bonds closed at about 169.25 bid, 167.25 offered, a sellsider said.

"It started out weaker by about half a point dollar neutral. But net-net we saw buyers, and they were probably up about a half dollar neutral at the end of the day," a sellsider said.

Salesforce reported late Thursday third-quarter profit of $1.2 million, or 15 cents a share, compared with earnings of $20.7 million, or 16 cents a share, in the same period a year earlier.

Revenue for the quarter rose 30% to $429 million.

Excluding one-time items, Salesforce would have earned 32 cents a share, which was better than analysts' estimates for a 31-cent-a-share result on almost $410 in revenue.

Shares of the San Francisco-based enterprise cloud computing company surged to an all-time high on Friday as investors bought up the software company after earnings results and analysts boosted price targets for the stock that is already up more than 75% for the year.

Salesforce also said it expects fourth-quarter earnings of 27 cents to 28 cents a share on sales in the $427 million to $449 million range.

Analysts had earlier forecast earnings of 28 cents a share on $424.8 million in revenue.

RightNow up dollar neutral

RightNow's 2.5% convertibles due 2030 moved up to 103.375 bid, 104 offered versus a share price of $25.34 at the close Friday, compared to 101.125 bid, 101.375 offered versus a share price of $24.25 at the close Thursday.

Shares of the Bozeman, Mont.-based software company slid Tuesday and Wednesday after the convertibles deal was launched.

There was both outright and convert arbitrage interest. "We saw convert arb buyers and convert arb sellers," a sellsider said.

The Rule 144A offering was upsized to $150 million from an originally talked $125 million and debuted on Wednesday.

Mentioned in this article:

General Motors Co. NYSE: GM

Omnicare Inc. NYSE: OCR

RightNow Technologies Inc. Nasdaq: RNOW

Salesforce.com NYSE: CRM

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