Convertibles mostly quiet as traders eye upcoming earnings; older Jakks extends losses

By Rebecca Melvin

New York, July 22 - Convertible bonds were mostly quiet in light volume as summer vacation schedules persist and ahead of what was expected to be a heavy earnings news week for convertible names, market sources said.

"Everything is pretty quiet, but earnings will be in full swing this week, so it may be the calm before the storm," a New York-based trader said.

No names were offered up as ones of note in Monday's session. Looking ahead, earnings reports expected this week from such convertible issuers as Illumina Inc., WellPoint Inc., Owens-Illinois Inc. and General Motors Corp. were mentioned as items of interest by one New York-based trader.

A second New York-based sellsider had a list of companies reporting earnings, which highlighted Electronic Arts Inc., Health Management Associates Inc., EMC Corp. and others.

Jakks Pacific Inc.'s older 4.5% convertibles due 2014 extended losses on Monday, trading down to 95.75 in trade, according to Trace data. Jakks shares came off 5% to $6.32.

The Jakks bonds were seen as about 102 last week before the Malibu, Calif.-based toy and leisure products company reported miserable earnings and priced a new issue of $100 million of 4.25% convertible notes. The new notes have not been heard in trade.

USEC Inc.'s convertibles were mostly quiet as shares of the Bethesda, Md.-based enriched uranium producer surged to nearly double, and extending a 29% gain Friday. On both Monday and Friday, the company said it had no comment in response to inquiry from the New York Stock Exchange regarding unusual stock activity.

Technical buying spurred the price of gold upward, and the gold miners were in trade, including Goldcorp Inc. Its 2% convertible due 2014 was among the top-volume names of the day and up about 0.125 point to 0.25 point at 101.3, according to Trace data.

There was no activity in the primary convertible market on Monday.

Equities edged higher by just enough for the S&P 500 stock index to notch its third consecutive record high. The S&P closed at 1,695.53, which was up 3.44 points, or 0.2%, on the day. The Dow Jones industrial average eked out a gain, up 1.81 points, or 0.01% at 15,545.55, while the Nasdaq stock index added 12.77 points, or 0.4%, to 3,600.39.

The Dow was weighed by disappointing earnings from McDonalds Corp. In addition, existing homes sales fell in June by 1.2% to an annual rate of 5.08 million units, the National Association of Realtors reported, which was below economists' estimates.

Older Jakks lower

Jakks' older 4.5% convertibles due 2014 traded lower to 95.5 bid, 96 offered on Monday, which was down from at 97.75 bid, 98.25 offered on Friday.

Jakks shares extended losses as well, dropping another 35 cents, or 5.3%, to $6.32, which was down for a third straight day. The shares dropped 33 cents, or 4.7%, to $6.67 on Friday and plunged 39% on Thursday.

The company reported miserable earnings and reduced its outlook for the rest of the year, citing lower sales and outlining restructuring plans for its third quarter.

Jakks' newer 4.25% convertibles due 2018 were not heard in trade. The $100 million issue priced at the cheap end of talked terms late Thursday.

Before the new deal, the older Jakks convertibles were over par, at about 102.

Proceeds of the new deal were earmarked to repurchase a portion of older Jakks' convertibles, and there were multiple trades early Friday in the older paper at 100.

USEC mostly quiet

USEC's 3% convertibles due 2014 were mostly quiet and seen in the context of about 26 on Monday, although a few odd lots printed on the Trace tape in the area of 28 and 29.

"It's been a long time since I've seen them offered," a New York-based trader said.

The convertibles were quiet despite a dramatic surge in the underlying shares that was at one point well over 100% higher on Monday afternoon.

The shares ended higher by 98% or $5.93 at $11.98.

"The stock is going crazy," a Connecticut-based trader said.

Many sources said they were watching the activity in the shares but didn't know why the spike was occurring. There was speculation that gains in nuclear-oriented shares were forcing traders to cover short positions, resulting in a squeeze higher.

The company wouldn't comment on the unusual activity.

Mentioned in this article:

Electronic Arts Inc. NYSE: EA

EMC Corp. NYSE: EMC

Jakks Pacific Inc. Nasdaq: JAKK

General Motors Corp. NYSE: GM

Goldcorp Inc. NYSE: GG

Health Management Associates Inc. NYSE: HMA

Illumina Inc. Nasdaq: ILMN

Owens-Illinois Inc. NYSE: OI

USEC Inc. NYSE: USU

WellPoint Inc. NYSE: WLP

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