Shorter-dated high-grade names in trade; Transocean, Medtronic, Symantec in line; PPL up

By Rebecca Melvin

New York, June 24 - The convertible bond market saw some selling on Thursday, but pricing was in line with underlying shares, not lower, as a flight to quality by crossover buyers boosted demand for shorter-dated investment-grade convertible paper, market sources said.

Higher-quality names like Transocean Ltd., Amgen Inc., Medtronic Inc., EMC Corp., and Symantec Corp. were mentioned in trade.

"Crossover buyers are swallowing as much paper as they can, and convert accounts are selling into it," a New York-based trader said.

PPL Corp., which priced $1 billion of mandatory convertibles late Tuesday, remained active and extended gains, along with its higher underlying common stock on Thursday.

Also mentioned in trade on a day that was described as having "not much going on" was Avis Budget Group Inc. and a few airlines, including AMR Corp. and UAL Corp.

Avis' 3.5% convertibles due 2014 were in trade at 95.5 versus a share price of $11.00. But at the close of markets, the paper was seen lower at 94.35, compared to 95.3 on Wednesday.

With stocks selling off, there are above-par names getting closer to par, one trader said, and that begs the question of whether those names that change profile, or became less stock sensitive, will find outright buyers step in to support them.

Some traders think convertible paper would have to become a lot more bond-like with a lot higher yields for outrights to step in. Others said the focus is on duration, with demand in the shorter-dated paper and with things getting iffier the longer out one goes.

Equities weaken

Equities slumped on Thursday, ending at their lows for the day, as investors worried about the prospects for economic recovery in light of questionable, if inconclusive, economic data.

The Commerce Department reported that initial claims for unemployment benefits fell to a seasonally adjusted 457,000 last week, which was better than the previous weekly tally and slightly better than forecast, but still not good enough to signal improved hiring.

A second report showed orders for durable goods fell for the first time in six months in May, down 1.1% for big ticket goods orders.

The latest reports come a day after the Federal Open Market Committee stood pat on its key Federal Funds interest rate, leaving it unchanged at 0% to 0.25%, and noted that "financial conditions have become less supportive of economic growth."

The Dow Jones Industrial Average fell 145.64 points, or 1.4%, to 10,152.80; the S&P's 500 index lost 18.35 points, or 1.7%, to 1,073.69; and the Nasdaq composite index fell 36.81, or 1.6%, to 2,217.42.

Symantec in line with shares

Symantec's 0.75% series A convertibles due 2011 were down 1.125 points to 99.125 at the end of the session, according to Trace data.

A sellsider had reported an earlier trade at 100.5, versus a share price of $14.60 for the Symantec A paper, while a third pricing source put the close for the Symantec As at 99.8.

The Symantec 1% series B convertibles due 2013 were not mentioned in trade but were seen settling at 103.1, compared to 103.7 on Wednesday.

Shares of the Mountain View, Calif.-based security software maker ended at their lows for the day, down 33 cents, or 2.2%, at $14.42.

The series A paper's recent slip below par comes to a name that has been a pretty big, high delta name with a lot of stock sensitivity. In January, the Symantec 0.75% convertibles, or the As, were at about 112 to 113.

A sellsider said that Symantec was among the names sought after by crossover buyers.

Transocean mostly steady

Transocean As traded around 97, or not much changed, as shares fell $3.01, or nearly 6%, to $49.75. After the market close, Trace data had the Transocean As last at 97.5.

Transocean's 1.5% convertibles due 2037, or the C paper, traded at 83.625, which is a 9.07% yield to put.

A judge refused on Thursday to stay his decision that blocks the Obama administration from enforcing a six-month moratorium on deepwater oil drilling after the Gulf of Mexico oil spill.

U.S. district judge Martin Feldman in New Orleans rejected the administration's request for a stay that came Wednesday.

PPL extends gains

PPL's newly priced 9.5% mandatory convertible, with a $50 par, traded at 52.25 versus a share price of $25.30 on Thursday, compared to 51.45 versus a common share price of $24.75 on its debut on Wednesday.

Shares of the Allentown, Pa.-based utility spent the majority of Thursday in positive territory but slumped lower into the close, to shed 16 cents, or 0.64%, to $24.74. Earlier the PPL stock had been as high as $25.49.

This paper was seen being hedged up by convertible arbitrage players, sources said, even though the low volatility electric sector and the fact that it's a mandatory would seem to make it unappealing to hedge players.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

AMR Corp. NYSE: AMR

Avis Budget Group Inc. NYSE: CAR

EMC Corp. NYSE: EMC

Medtronic Inc. NYSE: MDT

PPL Corp. NYSE: PPL

Symantec Corp. Nasdaq: SYMC

Transocean Ltd. NYSE: RIG

UAL Corp. Nasdaq: UAUA

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