Convertibles firm despite mixed underlying shares; short-dated, yield names strengthen

By Rebecca Melvin

New York, Jan. 8 - Despite the underlying shares of convertible bonds in focus Tuesday trading decidedly mixed, convertible bond pricing was by and large better, sources said.

Demand for safe, short-dated, yield paper has been ongoing, and that has spread to some of the "junkier" names, a New York-based trader said.

"I would say it's more of the same: converts across the credit spectrum over the past week have improved," the trader said.

There was also decent volume behind it too, sources said. And that was welcomed in the market even though much of it was in the large, investment-grade names that tend to trade every day, and especially since there was no new issuance on Monday or Tuesday to help move things along, they said.

Contrary to new paper coming into the market, a lot has been coming out, including Transocean Inc.'s 1.5% series C convertibles, which were called on Monday. The amount outstanding of the Vernier, Switzerland-based oil and gas services company's issue was about $62 million.

But there have been many issues that have left the market in the past quarter, a trader said, and next month the Amgen 0.75% convertibles, which were atop the volume charts on Tuesday, will also be "going away," having a maturity date of Feb. 1, 2013.

Of the short-dated yield names in focus, SanDisk Corp.'s older 1% convertibles due May 15, 2013 were busy against shares of the Milpitas. Calif.-based flash memory maker. The shares were down as much as 1.7% during the session, but pared losses to end lower by only 18 cents at $45.11.

Rambus Inc.'s somewhat longer-dated 5% convertibles due June 2014 were also getting some attention and trading around par with shares ending higher by 4 cents, or 0.8%, at $4.93.

Nash Finch Co.'s 1.631% convertibles due 2035 were also getting a look and indicated at about 46.68.

"Money seems to be flowing into short-dated, yield names to give [market players] a bit of time to look for fresh ideas," a New York-based trader said.

THQ paper active, higher

Meanwhile, THQ Inc., which was busy Monday, continued to gain on Tuesday amid news out of the bankruptcy court on its debtor-in-possession financing and bid procedures tied to a planned $60 million asset sale.

THQ reached a deal with creditors and its bidder on bid procedures and DIP loan terms on Monday. The bonds traded up to 18.25 on Tuesday from about 16.375 on Monday, which was also higher on the day.

USEC Inc.'s 3% convertible senior notes due 2014 have also been improving in the last few sessions, trading up to about 40 on Tuesday from 34 to 35 a month ago, one trader said.

There was a news release Tuesday that uranium prices in 2013 may be on the upswing as demand picks up from China and Japan. Speculation that uranium demand is on the rebound has been gaining momentum since Japan's Liberal Democrat Party regained power, the release said.

Bank names rally

Also in the convert space on Tuesday, some bank names rallied. Wells Fargo & Co.'s 7.5% convertible preferred shares were seen up, and KeyCorp's 7.75% perpetual convertible preferred shares were indicated at 127, according to a New York-based trader.

On the other hand, some in-the-money names felt heavy, but not by amounts significant enough to cause concern, and "tone is pretty positive despite the market being down on the day," the trader said.

In addition, some of the action was on razor thin margin. The Spartan Stores Inc. 3.375% convertibles, which were called last week, were being quoted "pennies wide and that's called paper," a New York-based trader said.

The Spartan trade was also small in size, with the redemption for just the $57.4 million principal amount outstanding. The redemption is six weeks away on March 1. The company said it plans to fund the redemption with available cash and borrowings under its revolving credit facility.

The notes can also be converted prior to redemption at a rate of 28.296406 shares per bond. Spartan Stores is a Grand Rapids, Mich.-based grocery distributor.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

KeyCorp NYSE: KEY

Nash Finch Co. Nasdaq: NAFC

Rambus Inc. Nasdaq: RMBS

SanDisk Corp. Nasdaq: SNDK

Spartan Stores Inc. Nasdaq: SPTN

THQ Inc. Pink Sheets: THQI

Transocean Inc. NYSE: RIG

USEC Inc. NYSE: USU

Wells Fargo & Co. NYSE: WFC

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