Convertibles little changed; AMD expands slightly; New York Mortgage to price five-year bond

By Rebecca Melvin

New York, Jan. 17 – U.S. convertibles traded little changed for much of the first day of the holiday-shortened week on Tuesday despite a drag on stocks, which closed lower again, but off session lows.

The Dow Jones industrial average and Nasdaq stock market have traded down for four of the last five trading days.

Financial markets were closed on Monday in observance of the Martin Luther King Day holiday.

Some of the convertible market’s recent new issues like Veeco Instruments Inc.’s $300 million of 2.7% convertibles and Two Harbors Investment Corp.’s $250 million of 6.25% convertibles, both of which priced last week, were unchanged on the day, a New York-based trader said.

The Veeco 2.7% convertibles traded at 100.125, which was down 0.875 point on an outright basis but in line with the underlying shares, which traded down 45 cents, or 1.6%, at $26.95.

Overall “there’s not much going on in the space right now,” the trader said. “If anything, there are some long-only [players] net topping up on things. They are net buyers, but nothing material.”

The trader said many market players are gearing up for the imminent earnings season and any potential preannouncements that companies put out ahead of those reports. Market players are also waiting for a pickup in the new-issue market, he said.

Advanced Micro Devices Inc.’s convertibles traded down on an outright basis but improved slightly on a swap basis, as shares of the Sunnyvale, Calif.-based semiconductor company fell 7%. There was no particular news behind the drop in the securities, a trader said, noting that the convertibles were slightly better by 0.125 point to 0.25 point on a swap basis, compared with the shares.

New York Mortgage Trust Inc. launched a $100 million offering of five-year convertible senior notes that was expected to price after the market close.

The New York real estate investment trust’s convertible deal was being priced at a 4% discount to par and was being talked at a coupon of 6% to 6.5% and an initial conversion premium of 10% to 15%.

The 3.75% convertible bond of fellow REIT Spirit Realty Capital Inc. bounced around in active trade in the second half of the session. Dallas-based Spirit’s convertibles were seen trading between 105 and 106.25 as the underlying shares pulled higher by 2% to $11.25.

Market players looked askance at the New York Mortgage deal’s price discount, noting that an original investor discount isn’t something that happens often in the convertibles market.

It’s likely the company doesn’t wasn’t to pay a bigger coupon and is offering a discount in lieu of that, a trader said.

Currently the stock dividend on New York Mortgage Trust stock is 14%, the trader noted.

There has been other recent new paper in mortgage finance in the convertibles market, including Two Harbors’ 6.25% convertibles, which debuted on Friday. The $250 million Two Harbors convertibles traded at 100.3 with shares that were little changed at $8.80 on Tuesday.

AMD edges up on swap

AMD’s 2.125% convertible notes were down on an outright basis but edged slightly better on a swap basis as the common stock underlying the bond extended losses following a swoon last week.

There was no specific news cited for a drop in the common stock on Tuesday, but the move helped the bond expand about 0.125 point to 0.25 point, a trader said.

There are mostly outright players going into the name ahead of earnings, the trader said.

Prior to last week’s pullback, the AMD stock and bonds had been moving higher since Jan. 5 after the company unveiled preliminary details of its Vega GPU architecture, which will boost PC gaming possibilities as well as professional design and machine intelligence that has been held back by traditional GPU architectures.

The AMD bond, which is currently the only AMD convertible outstanding, traded at 143 with the underlying stock at about $9.93, which was down about 6% on the day.

Shares of the Sunnyvale, Calif.-based semiconductor maker ended a bit lower, closing down 76 cents, or 7%, at $9.82.

The trade was representative of mean reversion, a market source said, or the theory that prices and returns will eventually move back to the mean or average.

New York Mortgage on tap

New York Mortgage, a New York-based real estate investment trust focused on mortgage-related assets and financial assets, said it planned to price $100 million of five-year convertible senior notes in a public offering via bookrunner Nomura Securities International Inc.

The deal was seen pricing at 96% of its par price after the market close on Tuesday and with a 6% to 6.5% coupon and 10% to 15% initial conversion premium, according to market sources.

The registered, off-the-shelf deal has a $15 million greenshoe. The notes are non-callable and will be physically settled.

Proceeds will be used to acquire targeted assets and for general working capital purposes, which may include the repayment of debt.

On the heels of the deal launch, New York Mortgage shares were off slightly and they closed down 43 cents, or 6.3%, to $6.37.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

New York Mortgage Trust Inc. Nasdaq: NYMT

Spirit Realty Capital Inc. NYSE: SRC

Two Harbors Investment Corp. NYSE: TWO

Veeco Instruments Inc. Nasdaq: VECO

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