RadioShack bounces after weak report; Symantec lower on hedge after CEO ouster; coal lower

By Rebecca Melvin

New York, July 25 - Earnings, outlooks and upcoming earnings drove much of the action in the convertible bond market on Wednesday.

RadioShack Corp.'s convertibles dropped initially but recovered to trade about flat after the Fort Worth, Texas-based electronics retailer reported an unexpected loss and suspended its dividend. The company said it aims to conserve cash and refinance about half of its $375 million of 2013 convertibles within the next few months.

"They have plenty of cash and liquidity. Lots of risk in the long term, but they should be fine on the one-year paper," a Connecticut-based convertibles analyst said.

Symantec Corp.'s convertibles were higher outright, but lower on a dollar-neutral, or hedged basis, after the Mountain View, Calif.-based computer-security software company said its chief executive officer, Enrique Salem, has been fired and replaced with chairman Steve Bennett, who is tasked with the job of improving performance.

Among other issues trading on earnings news, Iconix Brand Group Inc. was a point higher after the New York-based consumer brand owner reported a better-than-expected quarter, and RF Micro Devices Inc. was a point lower after the Greensboro, N.C.-based chipmaker forecast a weaker-than-expected current quarter based on expected lower sales of low-end mobile phones.

Clearwire Corp. was trading actively and little changed in the 63.5 bid, 64.5 offered context ahead of the Kirkland, Wash.-based wireless broadband services provider's earnings release expected Thursday and after shares slid below $1 to a new 52-week low Tuesday following a news report on funding concerns.

Coal names were under pressure as Peabody Energy Corp.'s securities were down again following the release of weaker second-quarter results on Tuesday. The convertibles of Bristol, Va.-based Alpha Natural Resources Inc. and Richmond, Va.-based James River Coal Co. were lower.

Equities traded off into the market close for a mixed session.

RadioShack bounces

RadioShack's 2.5% convertibles due 2013 traded back up to 91 bid, 92 offered Wednesday, which was about where they were on Tuesday, and after they had been 86 bid, 89 offered in the premarket, sources said.

The recovery was linked to word that despite the loss-making quarter, the company is planning to refinance half of the convertibles and fund the rest through cash, a New York-based convertibles analyst said.

"For the refinancing, they could do senior secured borrowing or issue another convertible with a lower strike and a higher coupon," the analyst said.

A New York-based sellside trader said that he personally didn't get involved in the trade as most people he spoke with "were going to sit tight with their positions."

RadioShack shares slumped $1.05, or 29%, to $2.60 in active trade on Wednesday.

The RadioShack convertibles trade outright but earnings on Wednesday were expected to either push them higher or lower.

For the second quarter, the Fort Worth, Texas-based electronics retailer reported a net loss of $21 million, or 21 cents a share, compared with net income of $24.9 million, or 24 cents a share, in the year-earlier period.

Analysts expected a profit of 3 cents a share.

Sales rose about 1% to $953.2 million but missed the average estimate of $970.4 million.

Fitch Ratings downgraded RadioShack's long-term debt rating, citing its recent track record of lossmaking performance.

The company lost $8 million, or 8 cents per share, in the first quarter, versus a 2011 profit of $35.1 million.

RadioShack said it will reduce its debt-to-equity ratio by refinancing about half of its $375 million of 2.5% convertibles notes due August 2013. The company also suspended its dividend to free up cash.

RadioShack had $517.7 million of cash at the end of the quarter, $392.5 million available under a revolving credit facility and $679 million of long-term debt, according to the statement.

Symantec mixed

Symantec's 1% convertibles due 2013 were higher by a point, or 1.6%, to about 102.625 on Wednesday. But the bond was lower by about a point on a hedged basis.

The bonds trade on a low 28% to 29% delta, a New York-based analyst said.

Symantec shares jumped $1.78, or 14%, to $14.96 and had been up as much as 30% during the session on news that chief executive officer Salem had been ousted and replaced by Bennett, saying the company wasn't performing well enough.

Symantec also posted better-than-expected earnings of 43 cents a share on revenue of $1.67 billion. Analysts had forecasted earnings of 38 cents a share on $1.65 billion of revenue.

As for the convertibles' performance, an analyst said, "It shouldn't happen. The numbers look OK from what I see."

Iconix, RF Micro mixed

Iconix's 2.5% convertibles due 2016 traded up about a point at 96 bid, 97 offered as the underlying shares of the brand name clothing company added 81 cents, or nearly 5%, to $17.77.

For its second quarter, Iconix earned $28.6 million, or 40 cents per share, which was down from $41.5 million, or 55 cents a share, in the year-earlier period.

Revenue rose 5% to $93.6 million from $89.3 million in the year-earlier period. That topped estimates for $85.4 million.

Iconix also reaffirmed full-year guidance for adjusted earnings of $1.65 to $1.74 per share on revenue of between $340 million to $350 million.

RF Micro's 1% convertibles due 2014 traded down about a point to 97.

The bonds trade on a low 10% delta.

"There's no delta," an analyst said.

Nevertheless, shares fell 70.5 cents, or 16%, to $3.58.

The chipmaker said it expects revenue in the current quarter to be flat to down 5% from the quarter ended June 30, with revenue of $193 million to $203 million, down from $222 million analysts were expecting.

The weaker forecast was attributed to reduced expectations for sales of lower-end mobile phones.

Coal mostly lower

Peabody Energy's 4.75% convertibles were lower by 0.8 point to 76.419, according to Trace data.

Peabody shares fell $1.50, or 7%, to $19.05, which was on top of an 11% drop on Tuesday.

For the quarter, St. Louis-based Peabody reported weaker net income of $204.7 million, or 75 cents per share, compared to a profit of $284.8 million, or $1.05 per share, in the year-earlier quarter. It blamed weakness on declining demand and low natural gas prices. Electricity generators have substituted natural gas-fired generation for coal-fired generation due to abundant and cheap natural gas.

Alpha Natural's 3.25% convertibles due 2015 traded down a point to 85.25 on Wednesday, and Alpha Natural's 2.625% convertibles due 2015 traded at 80.5, which was down 1.75 points on the day.

James River's 4.5% convertibles due 2015 traded little changed at 28.

"Every coal name has massively underperformed," a New York-based analyst said.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Clearwire Corp. Nasdaq: CLWR

Iconix Brand Group Inc. Nasdaq: ICON

James River Coal Co. Nasdaq: JRCC

Peabody Energy Corp. NYSE: BTU

RadioShack Corp. NYSE: RSH

RF Micro Devices Inc. Nasdaq: RFMD

Symantec Corp. Nasdaq: SYMC

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