Hertz trades up after deal to buy Dollar Thrifty; Akorn firms; Navistar gains as CEO retires

By Rebecca Melvin

New York, Aug. 27 - The convertible bond market saw muted action on Monday as the pre-Labor Day lull continued. In the lead up to the holiday weekend, this week is likely to see thin volumes, sources said.

Another factor cited for dampening market action this week is the upcoming annual symposium of the Federal Reserve in Jackson Hole, Wyo., at which Federal Reserve chairman Ben Bernanke is scheduled to speak Aug. 31.

"I think investors are holding their breath until Jackson Hole," a Connecticut-based analyst said.

Meanwhile, Hertz Global Holdings Inc. saw its convertibles stronger in elevated volume, along with gains in its underlying shares, after M&A action over the weekend. The Park Ridge, N.J.-based auto rental company has inked a deal to acquire Dollar Thrifty Automotive Group Inc. for about $2.3 billion, or $87.50 per share, which was an 8% premium to Dollar Thrifty's closing share price on Friday.

Rival car rental company Avis Budget Group Inc., based in Parsippany, N.J., was also improved on Monday. Avis' 3.5% convertibles due 2014 were not heard in trade, but according to Trace data those bonds also rallied up, trading last at 126.427, which was up 4.9 points on the day. Avis shares gained 3.3% to $16.51.

Akorn Inc., which is not a name generally heard trading, printed at flat to higher levels on Monday. Piper Jaffrey published a note in which it reiterated an "overweight" rating on Akron with a $21 price target, saying the Buffalo Grove, Ill.-based pharmaceutical company is well positioned to meet or exceed 2012 guidance.

Navistar International Corp.'s convertibles were also better on Monday, trading up to 91.25, which was a gain of 0.875 point, as investors cheered news that the Lisle, Ill.-based truck and engine maker's chief executive officer Daniel Ustian will retire immediately. Lewis Campbell, former chairman, president and chief executive of Textron Inc., was named to the board of directors and as interim chief executive.

On Friday, Navistar was under pressure once again on news it lost out to Oshkosh Corp. on an important military light vehicle contract.

Newmont Mining Corp. saw a pair of its convertibles trade during the session at flat to higher levels as underlying shares of the Greenwood Village, Colo.-based gold and copper mining company were higher to start the day but slumped into negative territory in afternoon dealings. Newmont shares have struggled this year in step with the general sector as the "safe haven" trade has abated.

Royal Gold Inc.'s 2.875% convertible due 2019 traded up about 0.5 point outright to 111.875, according to Trace data, while shares of the Denver-based precious metals royalties company also slumped back late in the session following earlier strength.

Gold and gold-related names are getting a look as market players weigh the potential for another rounds of monetary stimulus coming from the Federal Reserve.

Equities ended the session mostly lower, as has been the trend of late for Mondays. But the Nasdaq market eked out a small gain.

Hertz up on Dollar Thrifty deal

Hertz' 5.25% convertibles due 2014 were seen trading in somewhat elevated volume at as high as 191.308 early on, or 191 versus $15.15 in early trade.

Before the acquisition news, the Hertz convertibles were seen at about 171, according to a market source.

Hertz shares added $1.06, or 8%, to $14.21 in heavy volume on the day.

Another source said he had had the paper at 159 versus an underlying share price of $11.96 at one point.

Meanwhile Trace data was reporting the convertibles trading at 187.512 at 1:13 p.m. ET, which was up 16.59 points on the day.

Shares of Tulsa, Okla.-based Dollar Thrifty climbed 7.5% and touched a 52-week high of $87.09 on Monday. Its shares have climbed about 174% since April 2010 when Hertz first offered to buy the company for $1.2 billion.

Standard & Poor's said it placed its ratings on Hertz and its major operating subsidiary Hertz Corp on Creditwatch with negative implications.

The agency said it based these actions on the company's planned Dollar Thrifty deal.

Traders said the Hertz convertibles saw some extra activity on the news.

Akorn firmer

Alorn's 3.5% convertibles due 2016 traded at 169.787 versus an underlying share price of $13.48 during the session, according to a New York-based trader.

A second trader said his firm had the Akorn convertibles at 168 versus an underlying share price of $13.25. And he said the paper trades on an 85% to 88% delta.

Trace had the paper up 3.645 points at 172.

Shares of the Buffalo Grove, Ill.-based pharmaceutical company gained 13 cents, or nearly 1%, to $13.43 in average volume.

Navistar strengthens

Navistar's 3% convertibles due 2014 traded at 91.25 on Monday, which was up from 90 bid, 90.5 offered on Thursday and Friday.

Navistar shares outperformed the market, ending up 34 cents, or 1.5%, to $23.32 in lighter than average volume.

Investors seemed to cheer news that the company's chief executive officer is retiring effective immediately and concurrently leaving the board of directors, according to a company release.

Navistar is trying to right itself after a failed generation of diesel engines has taken a toll on the company's balance sheet, customer relationships and long-time suppliers.

Gimme Credit analyst Vicki Bryan wrote in a note published Monday that last week's "crushing" loss of the U.S. Army joint light vehicle development contract "probably was the last straw" for the former chief executive.

"...if Navistar can't convince the U.S. Army to believe in it now, at this critical juncture, how will it win now vital military contracts pending from Canada and Saudi Arabia?" Bryan wrote.

Navistar has also become a target of activist investors, with about 45% of its outstanding stock held by three big investors: billionaire investor Carl Icahn, hedge fund MHR Fund Management and asset manager Franklin Resources Inc.

The convert, which has a 20% delta and a $50 strike price, is currently busted, but only has two years left to maturity.

Mentioned in this article:

Akorn Inc. Nasdaq: AKRX

Avis Budget Group Inc. NYSE: CAR

Hertz Global Holdings Inc. NYSE: HTZ

Newmont Mining Corp. NYSE: NEM

Navistar International Inc. NYSE: NAV

Royal Gold Inc. Nasdaq: RLGD

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