Newell, Newmont, Allegheny, PNC weaker; U.S. Steel up on upgrade; Citi steady to higher

By Rebecca Melvin

New York, Jan. 19 - Many investment-grade, deep in-the-money type names were for sale in the convertible market Tuesday, the day after markets were closed in observance of Martin Luther King Jr. Day.

The weakness may have been due to investors deleveraging or freeing up cash in anticipation of a build in a new issue calendar, sources said.

"Maybe people are expecting a heavy [new issue] calendar and are selling existing bonds," a New York-based sellside analyst said.

But there has not been a lot of new issuance in the convertibles market lately due to an attractive high-yield fixed-income market that has lured potential issuers in that direction.

"So far it's been pretty light, so hopefully it will pick up," the analyst said of the primary market. But unfortunately what he saw as a necessary prerequisite to more convert new issuance - higher interest rates - is not yet a reality.

Names for sale that were active Tuesday included Newell Rubbermaid Inc., Newmont Mining Corp. and Allegheny Technologies Inc., according to a New York-based sellside trader.

PNC Financial Services Group Inc. was another top trading, investment-grade name that was weaker, coming in about 0.125 point, according to a New York-based sellsider.

Yet another high-priced name in trade was United States Steel Corp. Its convertibles moved up 5 points before settling the day up about 3 points at 213 amid a 5% jump in its underlying shares. The jump was attributed to an upgrade from a Deutsche Bank analyst.

Meanwhile, Citigroup Inc. convertible preferreds were steady to higher as the common stock swung lower and then bounced after the New York-based financial services giant posted a narrower fourth-quarter loss that was mostly in line with expectations.

Newell, Newmont, Allegheny for sale

Newell Rubbermaid 5.5% convertibles due 2014 were seen at 190 at the end of the session versus a share price of $15.20, compared to 188.5 versus a share price of $14.91 the previous session.

Shares of Atlanta-based Newell ended up 29 cents, or 2%, on Tuesday after having been as much as 3.5% higher on the day.

"It was those names that modeled out extremely rich that were heavy today," a sellsider said. It was the Newells, the Newmonts, the Allegheny Technologies that all came in for sale, and were 'in' well over a point," the sellsider said.

Newmont Mining's 1.25% convertibles due 2014 settled at about 125.6 compared to 124.8 in the previous session. That failed to keep pace with shares of the Denver-based mining concern, which were up nearly 2% on the day.

Allegheny's 4.25% convertibles due 2014 pulled back a little, ending the session at about 137.5 versus a share price of $47.12. Shares of the Pittsburgh-based specialty steel maker settled higher by $1.41, or 3.1%, at $47.12.

On an outright basis the Allegheny convertibles added about 0.5 point, but that didn't keep up with the jump in their underlying shares. "To tell you the truth, I was surprised they were up," a sellsider said of equities in general Tuesday.

As far as the convertibles were concerned, "Everything was for sale, everything came in," the sellsider said.

Overall volume - estimated at $1.1 billion of bonds, according to a New York-based sellsider - was characterized as light for this time of year. "People weren't being as aggressive as normal on the dealer side, and you got IG quoted low," the sellsider said.

There was good market breadth but not good market depth. There were a lot instances in which there were only one or two trades per name.

"It's almost like everything traded, but not a lot of anything," a sellsider said, describing an environment in which investors don't want to buy in the current market because it is considered rich, but they don't want to sell anything because convertible paper, particularly investment-grade convertible paper, is in short supply.

"The worse thing for a fund is to under-perform based on not being invested. You're paid to invest," the sellsider said.

But on Tuesday, people were selling. "Were they taking off leverage or do they know a big calendar is coming?" the sellsider asked.

U.S. steel trades after upgrade

U.S. Steel's 4% convertibles due 2014 traded at 211.25 versus a share price of $63.60 Tuesday, according to a New York-based sellside desk analyst. Later, the convertibles were seen at 213 after trading at high as 215 during the session.

Shares of the Pittsburgh-based steelmaker rose $3.16, or 5.1%, to $65.20 on Tuesday.

The biggest traders were the high-priced, in-the-money names; with the exception of Vornado Realty Trust. "Maybe people are taking money off the table," a sellsider said.

Deutsche Bank analyst Dave Martin said steelmakers are poised to show significant margin and profit gains as the steel market recovers along with the economy in general.

Deutsche Bank expects 2010 benchmark U.S. hot-rolled coil steel prices to rise 17% to $625 per ton from 2009 prices. In 2011 prices should rise from 2010 levels by another 6% to $660 per ton.

The analyst upgraded the stock to "buy" from "hold" and lifted his price target to $77 from $44. He also raised his 2010 and 2011 profit estimates. He still expects the company to report a loss in the fourth quarter of 2009, "as operating rates remain low and idling costs persist."

Citi prefereds steady to higher

Citigroup's 7.5% convertible mandatory preferreds were seen at 110 on Tuesday compared to 108 on Friday, the most recent previous session.

Citi common stock closed up 12 cents, or 3.5%, at $3.54 after having traded as low as $3.30.

"If anything they moved up a little bit. The stock rebounded, and they didn't move that much," a New York-based sellside trader said of the Citi preferred shares.

Citi 6.5% preferreds were little changed at 29.

The sellsider noted that Citi's preferreds were active on the back of the company's earnings. But the same may be true for Bank of America Corp. and Wells Fargo & Co. convertible preferreds when those companies report Wednesday, given that their preferred shares weren't as recently issued as Citi's.

Citigroup reported a fourth-quarter loss of $7.6 billion mostly tied to repayment of $20 billion in government bailout money. The company said it is starting to see some stabilizing in the number of mortgage and credit card loans that are past due.

Mentioned in this article:

Allegheny Technologies Inc. NYSE: ATI

Citigroup Inc. NYSE: C

Newell Rubbermaid Inc. NYSE: NWL

Newmont Mining Inc. NYSE: NEM

PNC Financial Services Group Inc. NYSE: PNC

United States Steel Corp. NYSE: X

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