Pressprich: Millennium 4%, Kulicke & Soffa 0.5%, Teradyne 3.75% may be targets for reverse hedging

By Ronda Fears

Nashville, March 12 - Reverse hedging can provide off-the-beaten-path opportunities for convertible investors to boost returns in a tough market, under the right conditions, and R.W. Pressprich & Co. has created a quantitative screen for this purpose.

"With convertible valuations at fair value to slightly rich, and the equity markets taking a lot of bonds to higher dollar prices, the reverse hedge makes sense with regard to those situations where you're not so close to your bond floors," said Darren Johnson, convertible trader at Pressprich.

Pressprich searches its database of convertible securities to determine whether an issue possesses certain characteristics that lead to better reverse hedge candidates. The list produced is not a recommendation but identifies issues that deserve closer scrutiny for their reverse hedge legitimacy.

Issues that recently appeared to be legitimate candidates, the firm said, are the Millennium Chemicals 4% issue due 2023, Kulicke & Soffa 0.5% convertible due 2008 and Teradyne 3.75% issue due 2006, to name a few.

R.W. Pressprich has several other quantitative screens that scan for and identify issues for opportunities such as attractive synthetic puts, swaps from straight debt to convertible or vice versa and possible undervalued credits for outright or hedge investors.

In some instances, fundamental credit research reports also are issued on specific companies, such as the report on Millennium Chemicals on March 8.

The owner of common stock sells a convertible security short because he or she believes the premium over conversion parity will drop so he or she can close the position at a profit.

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