Convertibles quiet; School Specialty paper extends gains; Standard Pacific flat to higher

By Rebecca Melvin

New York, Feb. 1 - Convertibles were quiet Friday despite a strong rally in equities in which the Dow Jones industrial average closed above 14,000 for the first time since October 2007.

"We think guys are doing a lot of stock trading," a New York-based sellsider said about convertibles players on the first day of the new month.

Volume is light, a second source said about convertibles trading, and with the rally in stocks it was possible that some convertibles players were caught flatfooted and underperformed the market depending on the deltas on which the individual bonds were held.

Over the course of Thursday and Friday there appeared to be some short covering in the stocks of some distressed convertibles names.

Among distressed names that saw a stock pop Thursday were Central European Distribution Corp., Suntech Power Holdings Co. Ltd. and RadioShack Corp.

A New York-based analyst said Friday that for his part, he didn't see any discernible trends. "I don't see anything consistent; things are relatively stronger, as they have been."

School Specialty Inc., which landed in bankruptcy court earlier this week and therefore has "a life of its own," moved up again, trading as high as 37 before back tracking a bit to 35 bid, 36 to 37 offered, sources said.

Homebuilders were something of a theme this past week, another trader said. On Friday, Standard Pacific Corp. saw its 1.25% convertibles trade flat to up slightly as the underlying stock price took a dive, the New York-based trader said.

Meanwhile, Advanced Micro Devices Inc. was trading flat at 95.75 bid, 96 offered, which was steady on Thursday when they moved lower by about a point from 96.625 on Wednesday, a Connecticut-based trader said.

Some market players expressed disappointment that there was no new issuance to speak of this past week following a good supply that priced the previous week. There were no good theories as to why the primary market was quiet. But for January overall there was $4.38 billion in 12 deals in U.S. new issuance.

On Friday, issuers shied away from even the investment-grade market following release of unemployment numbers for January by the Labor Department in which the unemployment rate ticked up to 7.9% from 7.8% while U.S. employers added 157,000 jobs.

The Labor department also said the economy added an average of 181,000 jobs a month last year, better than the 153,000 pace originally reported, as it revised higher initial readings for November and December.

Elsewhere on the economic front, the Institute for Supply Management's January manufacturing purchasing managers' index rose 2.9 points to 53.1, which was more than economists had expected, and the highest level since April 2012.

School Specialty improves

School Specialty's 3.75% convertibles due 2026 traded up to 37 on Friday and were later seen a little lower at 35 bid, 36 to 37 offered. That was higher than 33.5 on Wednesday.

"The market is 35 bid," an analyst said. "It's a wide market. It's a distressed name, so it's not going to trade 0.5 point wide."

School Specialty's shares gained a penny, or 11%, to $0.1140.

The bonds have moved up from the upper 20s when the company first filed for Chapter 11 protection on Monday.

The rise may be due to speculation, an analyst said, that a potential bidder will emerge in the bankruptcy auction that will provide some synergies, allowing the financially strapped school supplies concern to pare expenses.

"People are assuming that a strategic guy will get in there with a lot of overlap," the analyst said.

Right now, School Specialty has pretty high corporate overhead and a full sales force, and maybe some of that could be wrung out if a company in the same sector materializes for the auction, the analyst said.

Right now a hearing on the auction bidding procedures is set for Feb. 11, he said.

The Greenville, Wis.-based education company develops curricula and provides supplies for elementary, middle and high school educators. The court approved $25 million in debtor-in-possession financing to be provided by Bayside Capital Inc., an affiliate of global private investment firm H.I.G. Capital.

Standard Pacific edges up

Standard Pacific's 1.25% convertible senior notes due 2032 traded at 124.626 versus an underlying share price of $8.08 as of Friday afternoon, a trader said. That pricing looked flat to up about a teeny on a dollar-neutral, or hedged, basis.

Shares of the Irvine, Calif.-based homebuilder ended down 37 cents, or 4.5%, to $7.93. They bounced at the open but slid steadily into the close.

"The stock took a dive. The range on the stock was tricky, but they are up about a teeny, if anything," a trader said.

The company reported higher revenue and earnings on Thursday, which were boosted by a large tax benefit.

Net income was $286.8 million, or $1.22 per share, for the three months ended Dec. 31. That compares with net income of $8.7 million, or 4 cents per share, in the year-earlier period.

Excluding a $454 million tax benefit stemming from the reversal of a portion of the company's deferred tax valuation allowance, the company earned 8 cents per share.

Analysts had forecast earnings of 7 cents per share on revenue of $377.5 million.

For full-year 2012, Standard Pacific earned $306.6 million, or $1.44 per share, compared with a loss of $9.3 million, or 5 cents a share, in 2011. Full-year revenue grew to $1.24 billion from about $883 million.

Mentioned in this article:

Advanced Micro Devices Inc. NYSE: AMD

Central European Distribution Corp. Nasdaq: CEDC

RadioShack Corp. NYSE: RSH

School Specialty Inc. Nasdaq: SCHS

Standard Pacific Corp. NYSE: SPF

Suntech Power Holdings Co. Ltd. NYSE: STP

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