RadioShack convertibles rise as investors chase yield; A123 improves on investment news

By Stephanie N. Rotondo

Phoenix, Aug. 13 - A convertible bond trader said that many vacations were planned for the next few weeks of August, which resulted in muted convertibles trading on Monday.

"There's nothing trading," he said, seeing just $200 million in volume just two hours before the end of business.

Some names were still getting played, however.

RadioShack Corp.'s convertible debt was on the rise Monday. A trader said that trend has been occurring for the past few sessions, attributing it to yield-chasing or investor optimism regarding a potential refinancing.

Meanwhile, A123 Systems Inc. was also gaining ground. Last week, the struggling battery maker said that it had reached a deal with a Chinese company for a sizable investment aimed at keeping the company afloat. However, the investment has drawn some critics in the United States.

On the downside, Eastman Kodak Co.'s convertibles got whacked during the session. With the company's patent portfolio auction expected to close late in the day, investors were already concerned about what the results might show, given that initial bids were already well below estimates.

RadioShack improves

RadioShack's 2.5% convertible senior notes due Aug. 1, 2013 were inching higher, according to a trader.

He placed the issue at 90.75 on the bid side. The stock closed down a nickel, or 1.65%, to $2.98.

"Those are getting better every day," the trader said of the bonds, attributing the gains to "either yield chasing" or to an increasing belief that the company will be able to refinance at least a portion of the debt before its maturity next year.

"It's under one-year paper now," the trader noted. "Maybe people think they will [complete a refinancing] sooner than later.

"That would definitely boost the bonds," he said.

With the maturity on the horizon, the trader said that it really comes down to whether or not investors believe the company will be able to successfully refinance the issue or pay it off.

RadioShack is a Fort Worth, Texas-based electronics retailer.

A123 driven by lifeline

A123 Systems' 3.75% convertible notes due 2016 were "better by 2 points," according to a trader.

The trader quoted the issue at 36.625 bid, 37 offered.

The stock lost 3.5 cents, or 6.06%, to end at 55 cents.

The trader said the rise was being driven by news out last week regarding a $450 million investment from Chinese conglomerate Wanxiang Oianchao Co.

The investment would give the Chinese company an 80% stake in the battery developer.

However, the deal is facing scrutiny from U.S. Republicans, given that the company has already received a $249 million green-energy grant from the federal government. Those opposed claim that the company's inability to stay afloat is indicative of the current administration's failed attempt to boost the green energy sector.

A123 has only drawn on about half of the grant funds.

Additionally, some have decried allowing more foreign investments into American companies, citing concerns of an economic takeover.

A123 is based in Waltham, Mass.

Kodak plummets

Eastman Kodak's 7% convertible notes due 2017 fell to levels around 11, a trader said Monday.

"They were down 7 points on the open," he said.

Another market source pegged the debt at around 12.5.

The company's equity dropped 11 cents, or 34.34%, to 21 cents.

The huge loss came ahead of the company's official closure of an auction of patents, which was slated to end at 5 p.m. ET on Monday.

The bankrupt Rochester, N.Y.-based company had previously stated that the portfolio containing over 1,000 patents was valued at around $2.6 billion. However, initial bids were seen between $150 million and $250 million.

"All along, we thought the patents were kind of questionable and kind of questionable ownership," said one trader. With the initial bids coming it at one-tenth or less than the previously estimated value, "it hurts the credibility of the management team," the trader said.

The trader also speculated that the bonds' losses were tied to increasing concerns that "maybe there's a liquidation in store. Maybe there isn't any value except in the cash on the books and [anything received in a liquidation]."

Mentioned in this article:

RadioShack Corp. NYSE: RSH

A123 Systems Inc. Nasdaq: AONE

Eastman Kodak Co. Pink Sheets: EKDKQ

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