Convertibles strengthen; ADM gains on earnings that beat estimates; Merrill, Prudential better

By Rebecca Melvin

New York, Nov. 4 - Convertibles were stronger across the board Tuesday and volume was improved as stock and bond markets rallied and election day polling played out across the country.

"It's not clear what was happening, but it was the biggest election day rally since 1984," a New York-based sellside trader said, adding that "a lot of people were pretty busy trading."

There were bids jumping over each other in some of the more illiquid names, the trader said, describing aggressive bidders moving higher without intervening trades at the lower levels.

With Democratic presidential candidate Barack Obama leading in the polls, some pundits labeled it an Obama rally, but this wasn't generally accepted wisdom among convertibles players.

"Maybe it's a McCain rally," one sellside source countered.

Another sellsider cited news overnight that the U.S. government is coming in to buy more financial paper. "That has helped before," he suggested.

Given that most of Wall Street is not that excited about the way things are going, he said, it is a little surprising to see better confidence. But regardless of the reasons behind the trend, which began in the middle of last week, players have obviously welcomed it given the pain of the previous six weeks.

Archer-Daniels-Midland Co. added after the agricultural-products company reported fiscal first-quarter earnings that more than doubled, and beat estimates, due to lower commodity prices and higher selling prices.

Merrill Lynch & Co. Inc. moved up, trading actively ahead of the open and well into the session.

Medtronic Inc., which was bid-only in the Street, looking for offers, according one sellsider, did trade higher during the session, with the Medtronic 1.5% convertibles due 2011, or the A paper, trading at 95 versus a share price of $40.75.

Prudential Financial Inc. was firm to slightly better as its underlying shares surged $6.53, or 19%, to $41.03.

Transocean Inc.'s A series convertibles were 90 bid, which was up another point, as oil prices climbed on Tuesday.

ADM gains on earnings

Archer-Daniels-Midland 6.25% convertibles closed at about 33 versus a share price of $24.33, compared to about 28.75 versus a share price of $21.11 on Monday.

ADM's 0.875% convertibles due 2014 traded at 86.5 versus a share price of $24.25 during the session.

Shares of the Decatur, Ill.-based agricultural-products processor and ethanol producer jumped $3.22, or 15%, to $24.33 Tuesday.

"Higher prices that the company was able to charge were the key," a sellsider said, quoting the convertibles 3 to 3.25 points higher on the day.

For the quarter ended Sept. 30, ADM earned $1.05 billion, or $1.63 per share, compared to $441 million, or 68 cents a share, in the year-earlier period. The Street was expecting earnings of 69 cents per share.

Sales rose 65% to $21.16 billion, beating handily the Street estimate of $15.98 billion.

The strong performance was attributed to higher average selling prices for its oilseeds products as well as for its corn-based sweeteners, starches and ethanol. Sale volumes were essentially flat.

Higher corn prices and energy costs sent the company's corn-processing unit's operating profit lower by more than half. But that was offset by the oilseeds-processing unit, where the company realized higher selling prices because of delayed U.S. supplies.

Prices for agricultural commodities have come off in the last several months on lower global demand after spiking on high demand.

ADM also planned to announce a joint venture with Brazil's Grupo Cabrera to make sugar-based ethanol.

Merrill active in trade

Merrill Lynch's 0% accreting convertible bonds due 2032 traded at 87 and were seen closing at 86 bid, 88 offered versus a share price of $19.99.

The shares gained $11.05, or 5.5%.

"Merrills were active even before the open," a New York-based sellside trader said. Twenty million traded before the open, and volume was at 40 million at about mid session, the source said.

The higher priced credit of Bank of America Corp. is being priced into the convertible, the trader said.

Bank of America is acquiring New York-based Merrill, the world's largest and most widely recognized brokerage, in an all-stock deal under which Bank of America will exchange 0.8595 of a share of B of A for each Merrill share.

"The market has got a little bit more confidence back," a sellsider said. He guessed that the confidence would continue for a few weeks until the retail sales ahead of Christmas and the holiday season are released.

Medtronic adds

Medtronic's 1.5% convertible due 2011 traded at 95 during the session and was seen printing most often at 93.25 to 93.50, which was up about 0.5 point, compared to about 93 the previous session.

The Medtronic 1.625% convertible due 2013 traded at 90 versus the $40.75 share price. That compared to 87 to 88 in the previous session.

Shares of the Minneapolis-based medical device maker closed down 34 cents, or 0.84%, at $40.35.

"Medtronic was a bid-only, looking for offers. They were not the most aggressive things," a sellside trader said.

Prudential higher

Prudential's floating-rate convertibles due 2036 traded Tuesday at 98.125 in size.

The Prudential floating-rate convertibles due 2037 were seen closing at 91, compared to a previous day's level of 90 to 90.5.

Shares of the Newark, N.J.-based financial services and insurance company jumped $6.53, or 19%, to $41.03. The shares started to rebound after hitting a record low earlier that day at $23.06.

Earlier last week, the company said financial market turmoil drove a third-quarter loss and forced it to withdraw its forecast for the remainder of the year.

Transocean adds another point

Transocean's series A 1.625% convertible due 2037 was quoted at 89.50 bid, 90 offered late in the session, compared to 88 the previous session.

Shares of the Houston-based oil services company gained $6.58, or 8%, to $84.52.

Crude oil for December delivery rose $6.62, or 10%, to settle at $70.53 a barrel on the New York Mercantile Exchange, the highest settlement since Oct. 21.

The move marked a rebound from Monday's 6% drop. Slower demand was expected to cause the Saudis to cut supply.

Mentioned in this article:

Archer-Daniels-Midland Co. NYSE: ADM

Merrill Lynch & Co. Inc. NYSE: MER

Medtronic Inc. NYSE: MDT

Prudential Financial Inc. NYSE: PRU

Transocean Inc. NYSE: RIG

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