UAL dips but ends higher on debut; Spansion recovers some; U.S. Steel, BorgWarner soften

By Rebecca Melvin

New York, Oct. 2 - UAL Corp.'s newly priced 6% convertibles due 2029 dipped below par on their debut Friday as equities fell. But later the new paper recovered in tandem with stocks to end around 101.75 bid, 102.25 offered versus a share price of $7.30, market players said.

The session overall ended about unchanged after recovering from early weakness. But many names were still seen softer.

"Things are a little softer than usual," a New York-based sellside trader said, with a lot of dealer activity. But stocks' recovering was a "good sign," the sellsider said, adding that it bode well for next week.

UAL's 4.5% convertible paper edged a little lower, while the UAL 5% convertibles held mostly steady, marking a continuation of Thursday's trend in those two existing issues.

Spansion Inc. recovered some ground after steep losses amid news that the company will soon file a plan of reorganization that looks to favor senior debt holders.

Industrial stalwart United States Steel Corp. extended its decline, ending the day about 5 or 6 points lower. And auto parts maker BorgWarner Inc. was also slipping in price.

Advanced Micro Devices Inc., which has seen its two convertible issues notch terrific run ups for the better part of this year, was also softer.

But MannKind Corp.'s convertibles and stocks were higher on news that a phase 3 study of its inhaled insulin drug showed no significant changes in pulmonary function and sustained glycemic control.

Stocks fell early Friday on disappointing unemployment data, but they managed to pull out of the tailspin to end with only modest losses.

Non-farm payrolls fell by a worse-than-expected 263,000 jobs during September. Economists had been expecting a loss of just 175,000 jobs. The increase in job losses caused unemployment to increase to 9.8% from 9.7%.

Financial equities provided some support to the broader markets.

UAL dips, but ends higher

UAL's newly priced 6% convertibles opened higher but then sunk below par to about 99.75 in the early going.

"They came off with stocks," a sellsider said.

The new UAL paper got to as high as about 102.75 or 103 before settling back to 101.75 bid, 102.25 versus a share price of $7.30.

Chicago-based UAL, the holding company for airline United Air Lines Inc., priced an upsized $300 million of 20-year convertibles after the close of markets Thursday at par to yield 6% with an initial conversion premium of 20%.

Initially the deal was going to be $175 million in size. The greenshoe was upsized to $45 million.

UAL also priced 19 million of common stock at $7.24 for a $137.56 million total.

J.P. Morgan Securities Inc., Morgan Stanley & Co. Inc. and Goldman, Sachs & Co. were joint bookrunners of both offerings.

Spansion regains some ground

Spansion's 2.25% convertible bonds due 2016 traded to as low as 22 bid, 26 offered from a level of about 44 but later traded around 25 bid, 30 offered.

News that the Sunnyvale, Calif.-based maker of flash memory products has a preliminary plan to exit bankruptcy sent the bonds lower because it looks like their recovery isn't going to be as good as the senior debt is going to get.

"Spansion was a big one today," a sellsider said. "It looks like the seniors are going to be getting a very nice deal. So the converts came off."

But the equity wasn't trading at zero, which is what one would think they'd be worth, the sellsider added.

Under a draft plan of reorganization filed with the Securities and Exchange Commission, the floating-rate noteholders would receive $100 million in cash plus post-bankruptcy interest, a total of 14.5% of the common stock of the reorganized company, $250 million principal amount of 4.75% convertible senior secured notes due 2016 and $225 million principal amount of 10¾% senior secured notes due 2014.

The company said the new convertible notes can be converted into 24.9 million shares of new common stock at a purchase price of $10.01 per share.

Holders of unsecured claims would receive 85.5% of the new common stock.

In addition, Spansion said a pool of common shares will be reserved for issuance under an employee equity incentive plan.

Certain details of the plan are still being worked out, but the company said it will file soon. It hopes to emerge from Chapter 11 bankruptcy late in the fourth quarter or early in 2010.

Solid credits, others soften

U.S. Steel's 4% convertibles due 2014 were seen trading at 149 at the end of the session, down from nearly 156 on Thursday. Shares of the Pittsburgh-based steelmaker shed $1.51, or 3.6%, to $40.75.

Everything is softer, a sellsider said, when asked if it was mostly lesser credits that were getting hit this week.

"I think credit names are a little softer, as well as some higher delta names. Earlier in the day it was probably UAL related, plus macro factors, now it's just Friday afternoon," a New York-based sellsider said.

BorgWarner's 3.5% convertibles due 2012 were seen ending the day at 118, down from about 120.63 in the previous session. Shares of the Auburn Hills, Mich.-based auto parts maker ended lower by 90 cents, or 3%, to $27.85.

AMD's 5.75% convertibles due 2012 were seen closing at 82.4 from 83.63, while the AMD 6% paper was seen trading at the close at 72.34 compared to 73.75 on Thursday.

AMD shares were down Friday despite the Semiconductor Industry Association's data that showed global chip sales rose 5% in August.

SIA said worldwide sales of semiconductors in August were $19.1 billion, compared with $18.2 billion in July, marking a sixth consecutive month of sequential growth.

"AMD is down, EK is down. There is a lot of stuff down. There was a lot of Street stuff, with dealers kicking back and forth," a sellsider said about convertibles trading.

"I have a feeling that we will firm up a little. Confidence has not turned down yet," the sellsider said.

MannKind adds

MannKind's 3.75% convertibles due 2013 were seen ending the day at about 76, which was up from 74 on Thursday, according to a pricing source. Shares of the Valencia, Calif.-based drug developer gained 40 cents on the day, or 4.4%, to $9.60.

The company said that Afresa, its inhaled insulin powder, showed no significant change in pulmonary function and sustained glycemic control in adult patients with type 2 diabetes over four years of continuous treatment, according to phase 3 data presented Friday.

It was one of the day's more active names, a sellsider said.

Afresa is a novel, ultra rapid acting mealtime insulin therapy with an action profile that mimics mealtime related early insulin release.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

BorgWarner Inc. NYSE: BWA

MannKind Corp. Nasdaq: MNKD

Spansion Inc. Pink Sheets: SPSN

UAL Corp. Nasdaq: UAUA

United States Steel Corp. NYSE: X

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