Terdyne convertible could lose 9 points of premium on call: Citigroup analyst

By Ronda Fears

Nashville, Jan. 21 - Teradyne Inc.'s convertible could be called the "rose bouquet" bond, suggested Citigroup Global Markets convertible analyst Lynn S. Hambright. But it is not without thorns - namely the October call that threatens to erase 9 points of premium.

The Teradyne 3.75% convertible due 2006, trading at 129 with the stock at $30.69, is a solid credit and has lots of positive attributes, she said in a report. But, she added, she "can't get past the October call."

"We like the credit, the Teradyne story, the Greeks [Gamma 0.7705; Vega 0.3549; Delta 71.1%] and the chunkiness opportunity that the tech market affords, and we suspect there will be opportunities between now and October to gamma trade," Hambright said in a report.

"However, in the near term, we need to minimize our risk. We think it is logical to us that the company would choose to call the bonds and we are unsure of how the converts would trade should investors become more cautious."

Teradyne has an analyst meeting scheduled for Feb 3, and Hambright suggested clients consider stepping aside until after the event.

"We suspect the company culture argues for calling this bond given no real history of debt other than this convert," Hambright said.

"Additionally, losing money and having to borrow isn't the historical norm. This past period of negative net income was no doubt disappointing for a company that took great pride in being profitable in any environment."

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