Convertibles directionless but flow improves; Wild Oats, Rare Hospitality see trade

By Reshmi Basu

New York, Aug. 20 - The convertibles market traded with little conviction Monday as the sector wrestled with a topsy-turvy stock market performance. Nonetheless the session was a marked improvement from last week, which witnessed a sharp sell-off stemming from the credit markets' upheaval.

"Today [Monday] is more like typical fuzzy Monday in the summer - brains not quite focusing yet," said a trader via email.

"Panic seems to have abated but still many folks [are] quite pessimistic in general."

A calmer tone returned Friday after a rare move by the Federal Reserve to cut the discount rate on loans to banks, a decision meant to boost liquidity to cash-starved sectors of the credit market.

Overall, Monday was quiet amid two-way flows.

"It's a little more steady, not as volatile," said a strategist.

"The lack of negative news was kind of perceived as a positive in the scope of what has been happening," he added.

Some sources saw selling. Some saw more selective buying, depending on what time of the day it was and depending on whether or not U.S. stocks were up or down.

"I would say it was kind of a balanced day," noted the strategist.

A late session rally sent stocks higher as the market erased earlier losses. At the close, the Dow Jones Industrial Average was up 42.27 points to 13,121.35, an increase of 0.32%. The Nasdaq inched higher, picking up 3.56 points, or 0.14%, to end at 2,508.59 points. The S&P 500 gave up a smidgeon, losing 0.39 or 0.03% to close at 1,445.44 points.

"There are a lot of quotes out there but not a lot of trade," observed a portfolio manager.

Wild Oats, Rare Hospitality steady

Among the movers spotted Monday, firms that rose on buyout news last week remained range-bound Monday.

Wild Oats Markets Inc.'s convertible cash-to-zero senior debentures due May 15, 2034 closed at 110.38 versus a closing stock price of $17.80 (Nasdaq: OATS).

The trader spotted the issue at 108 5/8 late in the afternoon.

Positive news from the courts about the pending acquisition of the Boulder, Colo.-based company by organic food giant Whole Foods Market Inc. boosted its paper on Friday while Monday's trading was described as steady as the legal news was murkier.

A District of Columbia appeals court order enjoining the merger pending further order. The action was to give the court sufficient time to consider the merits of an injunction.

The convertibles closed Friday at 110.875, a sharp rise from Thursday's 100.625 price.

In other buyout news, Rare Hospitality, the Atlanta-based restaurant chains, which will be bought out by Darden Restaurants Inc, also saw some trading Monday.

Rare Hospitality's 2.5% convertible senior notes due Nov. 15, 2026 fell back Monday, closing at 100.14 versus a closing stock price of $37.37 (Nasdaq: RARE).

It closed Friday at 105.125 versus $37.38.

Meanwhile, Countrywide Financial Corp's convertibles also traded in narrow ranges Monday with a slight uptick.

The mortgage giant's Libor plus 350 bps series A convertible senior debentures due April 15, 2037 were spotted at 87 versus a closing stock price of $19.81. On Friday, the issue ended at 87 versus a closing stock price of $21.43 (NYSE: CFC).

The Libor plus 225 bps series B convertible senior debentures due April 15, 2037 were quoted at 84¾ versus $19.81. They finished Friday at 83.5 versus $21.43.

Boston Properties Inc., a real estate insurance trust (REIT) which owns and develops office buildings in prime markets, was better.

Its 3.75% convertible bond due May 15, 2036 was spotted at 107¼ while the 2 7/8% convertible bond due 2037 was quoted at 91. Boston Properties (NYSE BXP) stock closed at 100.93 on Monday, up $3.32 or 3.50%.

And WCI Communities, Inc. (NYSE:WCI) and affiliates of Carl Icahn Monday announced a new composition for the WCI Board of Directors, which led to indicative higher prices.

Its 9.125% convertible bond due May, 1, 2012 closed at 81¾ versus $7.95 for the stock.

Returning to the overall market, while the tone was improved, the session failed to produce any overall trends for convertibles as many wonder whether there are more legs to the financial crisis.

"The market doesn't know where to go," said a sellsider. "No one wants to make the first move," he added.

Furthermore, some market players say the Federal Reserve's ability to solve the credit crunch is limited, which makes it difficult to get a read on situation, the sellside explained.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.