Kodak adds premium points; Clearwire steady at higher levels; Medtronic, Amgen, EMC firm

By Rebecca Melvin

New York, Aug. 22 - Eastman Kodak Co.'s convertibles were roughly unchanged, but better in terms of points of premium over parity, in active trade on Monday as the underlying shares of the Rochester, N.Y.-based digital photography company sank as much as 15% during the session.

Kodak's shares pared their losses though, ending the session down by 8.6%, as volatility related to the future prospects for the company continues.

Clearwire Corp. was steady at higher levels in active trade in a continuation of action from last week, when the convertibles spiked to more than 70 from 50 on buyout speculation regarding the beleaguered Kirkland, Wash.-based mobile broadband network provider.

The overall convertibles market was described as pretty quiet, especially compared with last week's action, but Kodak and Clearwire were the focus of some moves in afternoon trading.

Shengdatech Inc.'s convertibles weren't heard in trade, with the paper last offered at 30 and traded in the high 20s, a New York-based trader said.

The Tai'an City, China-based maker of nano-precipitated calcium carbonate and coal-based chemicals filed for bankruptcy last week.

Salesforce.com Inc. saw its high-78%-delta convertibles trade a little lower in line with the underlying shares. The Salesforce.com 0.75% convertibles closed at 143.635 versus an underlying share price of $110.86, an analyst said. That compared to trades at 177 and 174 earlier Monday.

The San Francisco-based company develops cloud computing applications for businesses.

Investment-grade names continued to dominate convertible bond trading on Monday as they did on Friday when the market was shedding risk amid heightened worries about the debt crisis in Europe.

Medtronic Inc. was steady but active ahead of its first-quarter earnings report expected to be posted ahead of the market open on Tuesday.

Amgen Inc.'s 0.375% convertible due 2013 traded little changed at 98.3 and 98.4 with the stock between $52.20 and $53.00.

Shares of the Thousand Oaks, Calif.-based drug giant closed at $52.31, up by 0.3%, or 33 cents.

EMC Corp.'s 1.75% convertible due 2013 was at 138.35, with the EMC common stock adding 1.7%, or 35 cents, to close at $20.63 on Friday.

Hopkinton, Mass.-based EMC is an information technology infrastructure company.

"It's probably because investors don't know what to do with their cash," a New York-based convertibles analyst said regarding the emphasis on investment-grade trades. "Yields initially widened with stocks coming down, but now they've started to come back in."

Short-dated, reasonably high-yield names with maturity in two to three years are in notable demand subsequent to the Federal Reserve's announcement that it intends to keep interest rates unchanged at near 0% until at least through the middle of 2013.

"If you're getting next to nothing for the next two years," the analyst said, referring to Treasury bonds, "why not get 2% to 3% [yield] instead [with convertibles]."

Kodak active

Kodak's 7% convertible due 2017 traded at 66.5 versus a share price of $2.75 early Monday and were later seen at 66 ish. That compared to 68.5 versus an underlying share price of $3.05 on Friday.

Given the downward move in the underlying shares, one trader said he would have expected the convertibles to have traded lower at 64 bid, 65 offered. They were doing better than he expected, he said.

"I think people are closing out swap positions against the straight bonds; the straight bonds haven't moved as much as the convertibles," the trader said.

Expecting a negative outcome for the company ultimately, he said he would be short the convertibles and long the bonds. "I think the converts are going to get smoked and so is the stock," he said.

Nevertheless, on Monday the Kodak convertibles' points of premium over parity expanded to 29 points Monday from 27 points on Friday. So on a negative stock move, they gained, which is what convertibles players are aiming for, the trader said.

The company's stocks and bonds climbed sharply last Wednesday following a bullish report on the value of the company's patents.

Analysts in that report were valuing the company's suite of patents at about $3 billion, significantly more than the company's current market capitalization.

Kodak said in July that it is willing to sell its 1,100 digital imaging patents and was considering "strategic alternatives."

Whether Eastman Kodak can find a buyer for its patents remains to be seen. And whether it can get a good price for the patents is uncertain as well.

Clearwire steady

Clearwire's 8.25% convertibles were seen at around 70 bid versus an underlying share price of $3.20 early Monday, when shares jumped about 10%.

Clearwire shares settled little changed, up 2 cents at $3.03, however.

The stock has been volatile amid speculation about the prospects for the company, including a potential buyout. There was an unconfirmed report last week that Sprint, which already owns 50% of Clearwire, might make a buyout bid.

"If that deal comes through, that's significantly credit positive," an analyst said.

Nevertheless, the convertibles were "pretty flat" on Monday but higher following a big bump up last week on the buyout talk.

"Again, it's gambling on other people's decisions," a New York-based trader said, referring also to the Kodak situation.

Clearwire's convertibles jumped to as high as 74 bid, 75 offered last week after languishing at about the 50 mark, sources said.

"The stock is moving around so much and making quick moves. There's the possibility of financial restructuring; there's uncertainty," one trader said.

He said there was a significant amount of short interest in a stock trading at $3.00.

"It could blow up in your face on any headline. It's tough to like it," a trader said.

Medtronic flat

Medtronic's 1.625% convertible due 2013 traded little changed but actively just shy of par.

The short-dated instrument has a strike at $54, and the stock is currently at $31.00. It has a 1.7% yield to maturity. The paper doesn't trade on delta.

The consensus estimate is for earnings per share of 79 cents on revenue of $3.98 billion for the Minneapolis-based medical device maker, which missed estimates last quarter.

Goldman Sachs downgraded Medtronic to "neutral" from "buy" on Aug. 9. Goldman expects Medtronic estimates to move lower and cites a lack of catalysts for its downgrade. It has a $37.00 price target on the shares.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Clearwire Corp. Nasdaq: CLWR

Eastman Kodak Co. NYSE: EK

EMC Corp. NYSE: EMC

Medtronic Inc. NYSE: MDT

Salesforce.com Inc. NYSE: CRM

Shengdatech In. SDTH.PK

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