AMR stumbles after Justice moves to block merger; new Rambus edges up outright, on swap

By Rebecca Melvin

New York, Aug. 13 - AMR Corp.'s 6.25% convertibles due 2014 dropped more than 10 points outright and traded actively near the day's lows Tuesday after news that the U.S. government and a handful of states filed a lawsuit to block the bankrupt carrier's proposed merger with US Airways Group Inc.

At a minimum, the Department of Justice's opposition will delay the planned merger that has been on tap since the beginning of the year and will put AMR's bankruptcy case on hold. At most, it could cause the tie up to be scuttled.

"Guys took it on the chin today if you were outright," a New York-based trader said regarding how the bond-price move affected outright holders of the AMR convertibles.

Elsewhere, Rambus Inc.'s newly priced 1.125% convertibles due 2018 edged up on both an outright and dollar-neutral, or hedged, basis after the Los Altos, Calif.-based technology licensing company priced an upsized $120 million of five-year convertible notes toward the rich end and at the rich end of talk.

Rambus' existing 5% convertible, which has a short duration and is seen as a cash surrogate, wasn't heard in trade and was last seen at about 103.

Overall, traders said the name of the day was AMR. It accounted for about 10% of the day's volume, according to Finra's Trace data.

Tesla Motors Inc. and Dendreon Corp. were also active as has been the case for the convertibles of these companies for the last several sessions. Dendreon remained steady against another 6% decline in the shares of the Seattle-based biotechnology company, which have been slumping since disappointing earnings last week.

Equities reversed early losses, ending the session fractionally higher. Economic data, including retail sales, was strong. U.S. retail sales in July were $424.5 billion, edging up 0.2%. But that was still weaker than the 0.5% rise that analysts were expecting.

As for how convertibles are doing in the current market, one New York-based trader said, "Things are inching up on a valuation basis."

AMR drops on Justice suit

AMR's 6.25% convertibles due 2014 traded down about 12 points to 104 from 115 to 116 on Tuesday.

AMR's over-the-counter traded shares fell $2.64, or 45%, to $3.17. The company has been in bankruptcy court since November 2011.

"News came out that the US Air merger should be declined because of antitrust issues, and that has impacted the bonds," a New York-based trader said.

The bonds, which are still up significantly for the year, traded all over the place, a second trader said. But they were mostly changing hands around the lows at 104. The bonds started the year in the mid-80s.

"Now it's a question of valuation and timing," the second trader said. "It's going to take longer and it's going to be a big fight."

A third trader said that AMR news was a surprise and the bond was the main focus of the market.

The Justice Department said that it wanted to block the merger of the parent of American Airlines and US Airways because it would hurt competition.

Attorney general Eric Holder said in a statement, "This transaction would result in consumers paying the price - in higher airfares, higher fees and fewer choices."

European Commission antitrust regulators approved the transaction earlier this month conditionally on the carriers relinquishing a pair of takeoff and landing slots at London's Heathrow Airport.

AMR and US Airways say the merger is necessary if they are going to compete with the two other merged heavyweights in the airline industry, Delta Air Lines Inc., which is the result of the merger of Delta and Northwest Airlines in 2008, and United Continental Holdings Inc., which is the result of United's and Continental's merger in 2010.

"We believe that the DOJ is wrong in its assessment," AMR and US Airways said in a joint statement Tuesday, and they vowed to mount a counter offensive to try to get the merger through.

In the meantime, AMR's bankruptcy proceeding is on hold although a bankruptcy court hearing was scheduled for Thursday to confirm AMR's plan of reorganization.

Rambus adds on debut

Rambus' newly priced 1.125% convertibles traded up to 101.5 bid, 102.25 offered, versus an underlying share price of $8.84 during the session and were seen at 102 bid, 102.75 offered at the close, according to a syndicate source.

The bonds at that firm were being traded almost exclusively on an outright basis.

The first quote was seen up about 1.25 points on a swap basis if one assumed a delta of about 65%.

"They priced near the rich end and traded up," a trader, who was not involved in the name, said.

The technology licensing company priced an upsized $120 million of five-year convertible notes at par to yield 1.125%, with an initial conversion premium of 35%.

The Rule 144A offering was initially talked at $100 million in size.

Pricing came toward the rich end and at the rich end of talk, which was for a 1% to 1.5% coupon and a 32.5% to 37.5% premium.

The deal has a greenshoe of $18 million, which was upsized from $15 million. J.P. Morgan Securities LLC, Citigroup Global Markets Inc. and Jefferies LLC were the joint bookrunning managers of the deal.

The notes are non-callable with no puts. There is takeover and dividend protection.

Proceeds will be used for working capital and other general corporate purposes, which may include financing potential acquisitions and strategic transactions, and repayment of debt, including Rambus' existing 5% convertible senior notes due 2014.

Mentioned in this article:

AMR Corp. Pink Sheets: AAMRQ

Dendreon Corp. Nasdaq: DNDN

Rambus Inc. Nasdaq: RMBS

Tesla Motors Inc. Nasdaq: TSLA

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