RadioShack drops with news of departing CEO; Anixter down; Knight Capital edges lower

By Rebecca Melvin

New York, Sept. 26 - Trading action in the convertible bond market was muted Wednesday by the Yom Kippur holiday, which thinned the ranks of market participants, but the moves in many of the trades that did occur were downward.

RadioShack Corp.'s convertibles dropped a couple of points to about 92 from 94 on Wednesday despite the underlying shares, which bounced and steadied following news that the Fort Worth, Texas-based consumer electronics retailer's chief executive officer James Gooch will leave the company effective immediately.

RadioShack's convertibles fell to as low as 91ish, compared to shares, which bounced back and steadied on Wednesday after falling 14% on Tuesday on news the S&P Midcap 400 index is pulling RadioShack off of its index.

"Bondholders did not take the change of management well, compared to stockholders, which tend to view that kind of thing as positive. But bondholders hate the change, being a conservative investment: that plays out over and over again, and you never know who is correct initially," a New York-based trader said.

Another name with a $2 stock and convertible paper is BPZ Resources Inc., and those bonds were quiet Wednesday after trading 80.125 bid, 80.375 offered on Tuesday, continuing a move upward.

"That issue is fighting back after moving down to about 72 from 80," a trader said of BPZ.

Another issue with $2 shares in trade was Knight Capital Group Inc. The convertibles of the Jersey City, N.J.-based electronic trading firm traded in a round lot at about 90.625, which was a little lower than the 91 level at which they previously traded.

The lower trade was despite a 10% pop in the underlying shares. But the Knight shares had been moving lower, slipping to $2.40 from $2.90 in recent sessions and then back to $2.60 on Wednesday.

Navistar International Corp. traded around 89.5, which was little changed, after finally dropping back in line with the underlying shares.

The Navistar convertibles had held firm pretty well before dropping with the underlying shares of the Lisle, Ill.-based truck and engine maker, which have been going down, a trader said. In the last month, the Navistar stock has traded in a range of $20.00 to $26.00.

"The stock had been going down and the bonds were holding, but buyers finally walked away," a trader said.

Anixter International Inc.'s 1% convertibles were also in trade Wednesday and a bit lower at 107.5 bid, 108.375 offered, compared to a previous level at about 110, with shares of the Glenview, Ill.-based distributor of communications and specialty wire and cable parts down 1% to 2%.

Volatility has been on the rise so far this week, closing Wednesday above 16, and on the heels of hitting low levels in August not seen since June 2007.

An increase in volatility is expected to help boost the convertible market, but Wednesday, given the holiday, was a difficult day to determine that trend, a trader said.

GT Advanced Technologies Inc.'s new 3% convertibles dropped below par on Wednesday after trading up on their debut in the secondary market on Tuesday.

RadioShack falls back

RadioShack's 2.5% convertibles due 2013 traded down to 91ish and then back to 92, but were down from about 94 previously, market players said.

RadioShack shares bounced back from a 10.8% fall on Tuesday to close Wednesday at $2.60, which was up 4 cents, or 1.6%.

Shares fell Tuesday after word that the S&P Midcap 400 index will drop RadioShack and add Lexmark, the information technology company, instead after the market close Friday.

The company has shed 80% of its value in the past year, reflecting its struggle with higher costs amid falling sales, and its market cap has slipped below $300 million.

Until the last few sessions, the RadioShack bonds had been holding around 94 to 95, strengthened by a new bank line the company received several weeks ago.

The new uncertainty around management pushed the convertibles lower, market players said.

The company's chief executive, James Gooch, will step down after little more than a year on the job, as the company angles for the right leadership to address weak sales.

But there is interest in the name at this level, which means a 12.92% yield to maturity in less than one year.

Market players are weighing the company's prospects and what is likely to happen to the one-year convertible paper, which matures August 2013.

"This is one with some hair on it....Liquidity will be questioned as they are looking at some painful quarters if they decide to continue with the rebranding process," a West Coast-based trader said.

A New York-trader said that with the uncertainty the first instinct is to sell. But the paper being down is probably a delayed reaction to the stock being down on Tuesday, he said.

"Ninety-two is a price where these start looking really attractive to accounts," he said.

A third trader said, "I don't know what to make of it, the guy was doing a horrible job. A new CEO could mean a new plan, which could be bad, because these guys don't have a lot of time and liquidity."

The outgoing CEO will be replaced on an interim basis by chief financial officer Dorvin Lively. Lively joined RadioShack in August 2011 from Ace Hardware Corp.

RadioShack has had falling net income for the last two years, and in July, it suspended its dividend after posting a surprise second-quarter loss driven by lower consumer electronics sales and higher selling costs.

Mentioned in this article:

Anixter International Inc. NYSE: AXE

BPZ Resources Inc. NYSE" BPZ

GT Advanced Technologies Inc. Nasdaq: GTAT

Knight Capital Group Inc. NYSE: KNG

Navistar International Corp. NYSE: NAV

RadioShack Corp. NYSE: RSH

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