GT Advanced bonds pop on Apple pact; Yahoo! gains on hedge after earnings; Red Hat slips

By Rebecca Melvin

New York, Oct. 22 – Convertibles remained firm on Wednesday as equities swung lower after a higher start, market players said.

“The market’s going to settle in here, and I think guys are getting ready to put money to work,” a New York-based sellsider said, noting that many convertibles players are flat for the year so far and eyeing year-end.

Trading volume was elevated, but the market didn’t feel as busy as the volume figures suggested, the sellsider said.

GT Advanced Technologies Inc. was the name of the day. That company’s two convertible bond issues popped – marking the second straight day of gains and more than doubling the securities’ pricing earlier this week.

News that the bankrupt Merrimack, N.H.-based solar and LED equipment company inked an agreement with Apple Inc. improves the prospects for recovery for bond investors.

Elsewhere, Yahoo! Inc.’s 0% convertibles due 2018 traded up on an outright basis and expanded about 0.125 point on a dollar-neutral basis after the internet company posted earnings that were better than expected. Yahoo! shares gained 4.5%.

Red Hat Inc.’s 0.25% convertibles due 2019 slipped 0.25 point on a hedged basis early Wednesday, a New York-based trader said.

Tesla Motors Inc.’s 1.25% convertibles were active but unchanged.

The Tesla bonds “are up a tiny bit in the last week,” a sellsider said. “But it’s a name that’s likely to be creeping up in the next couple of weeks.”

Around midday, the broader markets, including equities, oil and gold, turned lower.

The Benchmark West Texas Intermediate crude for mid-December delivery dropped 2.4% to $80.49 a barrel. The slide came after the U.S. Energy Information Administration said crude oil supplies were at their highest levels since July.

As for equities, one convertibles trader said, “They came in a little bit.”

GT Advanced pops

GT Advanced’s 3% convertibles due 2020 changed hands at 43 early in the session, according to Trace data, and closed at 43.125, according to a trader at one New York-based bank. That was more than double from 21 where those bonds traded on Monday.

GT Advanced’s shorter-dated, 3% convertibles due 2017 traded at 45 early Wednesday, which was up 16.25 points on the day, according to Trace data. Those bonds closed at 43.375, the New York banker said, and they also traded on Monday around 21.

The two bonds were among the most actively traded issues of the early session.

“Apple’s claim is being satisfied by the sale of the furnaces only. So the convert holders get the value of the solar business,” a Connecticut-based trader said.

A second trader said that GT Advanced’s obligation is only $439 million, and the rest will be collateralized with the sale of the furnaces.

“They popped with recovery that will be higher than where they were,” a trader said of the bonds.

He wasn’t surprised that the issues were as actively traded as they were. (About $50 million of each changed hands, sources said.) “People were waiting for the information and they got some news,” he said.

This trade was a big win for holders who bought the notes at as low as 19; and it isn’t finished yet. “There is still clarity to be had as far as what gets pushed down to the senior unsecured convertibles,” a trader said.

A second source said the question remains how viable the rest of the business is.

The company’s Chapter 11 bankruptcy protection filing shocked convertibles players, who said there were no warning signs of any problems significant enough to precipitate a bankruptcy filing.

But Apple decided against using a synthetic sapphire-screen material for its smart phones and other devices, which it had helped GT Advanced begin to produce.

“No one thought that Apple would walk away,” a New York-based sellsider said.

Yahoo! notches slight gain

Yahoo!’s 0% convertibles due 2019 ended the session around 104.125 midmarket, versus a closing share price of $42.00. That was up less than a point on an outright basis and better on a hedged basis by about 0.125 point, a trader said.

Shares of the Sunnyvale, Calif.-based company rose $1.82, or 4.5%.

There was big volume in the Yahoo! convertibles, and “they moved up a little,” the trader said.

A gain of $6.3 billion from the sale of Alibaba Group Holding Ltd. shares last month boosted Yahoo!’s third-quarter profit to $6.77 billion.

The $6.88 billion represented $6.70 per share for the just-completed quarter, which compared to $297 million, or 28 cents per share, for the year-earlier period.

Revenue rose to $1.15 billion from $1.14 billion. Search advertising jumped 6% to $450 million, excluding traffic costs. But display ad revenue dropped 6% to $396 million.

“It doesn’t generate that much money,” a convertibles trader said of the company.

Mentioned in this article:

GT Advanced Technologies Inc. Nasdaq: GTAT

Red Hat Inc. NYSE: RHT

Tesla Motors Inc. Nasdaq: TSLA

Yahoo! Inc. Nasdaq: YHOO

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