Big cap, investment-grade names dominate convertibles trading: Amgen adds, Transocean mixed

By Rebecca Melvin

New York, Jan. 4 - Trading in the convertibles market Monday was fairly quiet and heavily oriented toward big cap, investment-grade names, something market sources said was to be expected on the first session of the week and of the new year, as equities moved up on higher oil, gold and copper prices and a lower dollar.

There were "no surprises," a New York-based sellside analyst said of Monday's session.

Both of Amgen Inc. convertible issues were in trade and among the highest volume names. The shorter-dated Amgen paper of 2011 was up about 0.25 point outright to 99.227, and the longer-dated Amgen's of 2013 were up 0.5 point at 100.75 as the company's shares added $1.15, or 2%, to settle at $57.72.

Transocean Ltd., another big, liquid name was also active, as was Medtronic Inc. The Transocean series C 1.5% convertibles due 2037 were down 0.25 point outright at 96.375, but the pricing stands near its high of the past year.

The Transocean series B convertibles, also 1.5% paper due 2037, were up at 97.75, and the Transocean series A 1.625% convertibles due 2037 were lower by 0.673 point outright at 98.452.

Meanwhile, Freeport-McMoRan Copper & Gold Inc.'s 6.75% mandatory convertible preferreds due May 2010 traded at 118.25 versus $83.32, compared to 120.5 versus a share price of $84.75 on Dec. 1.

Copper prices rose to a 16-month high as a strike began at a Codelco mine in northern Chile, the world's second largest, and manufacturing in the United States and China expanded in December.

Gold prices for February delivery climbed $22.10, or 2%, to $1,118.30 on the New York Mercantile Exchange's Comex unit, the biggest gain for a most-active contract since Nov. 3. Gold futures rose 24% in 2009, reaching a record $1,227.50 an ounce on Dec. 3.

There was no action on the primary front on Monday, contrary to a new trend that was developing at the end of last year.

The market sorely needs new issuance to revitalize trade, but there doesn't look to be a lot of hope in sight that things will turn around right away from the environment in the second half of 2009, when high yield markets were on fire and took many would-be issuers away from the convert market.

The latest casualty may have been Brocade Communications Systems Inc., a convert issuer, which announced Monday that it would offer, subject to market and other conditions, up to about $600 million in senior secured notes in a Rule 144A private placement.

Brocade has an existing $175 million convert issue due later this year and the $3.3 billion market cap "surely would be large enough for a split issuance, but apparently it's not to be," a New York-based sellside trader noted Monday. "Many traditional issuers in the space opted for the corporate market as the year wore on."

Trends running in the convert market are for low issuance, accelerated retirement and financing in alternative markets. It seems to be tied to "an unwillingness" currently to dilute equity, the sellsider said.

December return 3.85%

December marked a strong return of 3.85% for convertibles, after a 3.71% return in November, according to Barclays Capital equity-linked research published Monday.

The strong performance was driven by rallies in both equities and high-yield credit, the Barclays analysts Venu Krishna, Manoj Shivdasani and Peng Cheng wrote.

The S&P 500 Index posted a 1.93% positive return for the month, while the Nasdaq composite was up 5.87%, and the Russell Small Cap index gained 8.05%. High yield credit, according to the Barcap high yield index was up 3.28%, compared to the bank's investment grade index, which gained only 1%.

For all of 2009, the BarCap Convert Composite returned 50.72%, which was second only to the BarCap high yield index, which was up 58.21% for the year, and outpaced the 26.47% gain of the S&P 500 by a significant amount.

December new issues priced right

New issues in December continued to be priced attractively, with an average cheapness of 4.02%, Barclays' equity-linked and convertibles research analysts reported Monday.

Average cheapness in 2009 finished at 4.06%, the highest since 2000, compared to 3.23% in 2008, the Barclays analysts wrote.

December organic growth was negative at minus $0.95 billion. Net organic growth for 2009 was negative $18.1 billion, compared to negative $3.9 billion in 2008 and $37.2 billion in 2007.

Only 2005, with a negative $22.0 billion, had lower net growth.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Brocade Communications Systems Inc. Nasdaq: BRCD

Freeport-McMoRan Copper & Gold Inc. NYSE: FCX

Medtronic Inc. NYSE: MDT

Transocean Ltd. NYSE: RIG

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.