Convertibles lower outright for August, start September little moved; Ford Motor in trade

By Rebecca Melvin

New York, Sept. 1 - A handful of the bigger, liquid convertible names were trading Wednesday, but overall market action was muted and pricing mostly unchanged from last week, even as month-end marks came in lower on an outright basis.

"People were digesting the marks from yesterday, month-end," a New York-based sellsider said.

The convertibles market was down 1.3% on an outright basis for August, as the underlying equities fell more than 6%, according to the Bank of America Merrill Lynch convertibles index.

August performance was the typical "de-risking" type, where equities underperformed and Treasuries and high-grade bonds outperformed. Convertible bonds came in somewhere in between equities and Treasuries-high grade, an analyst said.

Ford Motor Co. was higher outright, but looked to have come in slightly on a hedged basis, after the Dearborn, Mich.-based automaker reported lower August sales along with the other U.S. automakers, which reported mostly lower sales from the year-earlier period.

Transocean Ltd. was mixed to little changed, with shares of the oilfield services company sharply higher on light volume. There were rumors of takeover bids as well as a federal court ruling that rejected the U.S. government's request to dismiss an industry lawsuit challenging its deepwater oil and gas drilling moratorium.

Massey Energy Co. convertibles were unchanged amid positive data that lifts the prospects for the Richmond, Va.-based coal producer. The company's convertibles have struggled since its deadly April 5 mine blast.

Another sellsider said Wednesday was characterized by players' attempts to get desired pricing before trading ranks diminish for the upcoming long holiday weekend and ahead of desks ramping back up next week.

"There was a lot of noise, but not any real trades that I can see. People were trying to get stuff done at their levels, and basically regurgitating what they went out with last week," the New York-based sellsider said.

Ford lower on hedge

Ford Motor's 4.25% convertible senior notes due 2016 traded at 142.5 versus a share price of $11.65 on Wednesday, according to a New York-based sellsider.

Trace data put the Ford convertibles last at 142.812, which was higher outright by 3.835 points on the day.

But depending on the market delta, it means that the Ford paper may have been lower by 0.375 point, according to a New York-based sellsider.

"I looked at two trades. It looks like someone went in and out on $5 million of bonds on an 89 hedge. Today's trade was about 0.375 point lower than if I nuked the stock on an 89 delta. But that might not be indicative of the market delta, and the market makers could have been playing with the bid/offer to get the stock commission," the sellsider said.

Ford Motor's older convertibles, the Ford 4.25% convertibles due 2036, were also at 142 and change, with that paper higher by 4 points, according to Trace.

Ford's common shares added 32 cents, or 2.9%, to $11.61 on Wednesday.

Ford August auto sales fell 11% to 157,327 vehicles from a year ago, and the company said it now intends to produce about 570,000 cars and trucks in the fourth quarter, down from 574,000 a year ago, as it tries to keep supply in step with demand.

Most U.S. car makers reported lower sales in August. General Motors Co. said it sold 185,105 cars and light trucks in August, down 25% from August 2009. Toyota Motor Co., Honda Motor Co., and Nissan Motor Co. also reported lower sales. But Chrysler Group LLC reported a 7% increase in August sales to 99,611 vehicles.

Transocean little changed

Transocean's 1.5% series B convertibles due 2037 were last at 95.25 on Wednesday, which looked basically unchanged from Tuesday.

Transocean's 1.5% series C convertibles due 2037 traded at 92 and were called fractionally higher outright.

Shares of the Vernier, Switzerland-based company jumped $3.43, or 6.7%, to $54.33 in light volume on Wednesday.

Hornbeck Offshore Services Inc. and other drilling companies sued the U.S. government on June 7 after it first ordered a halt to deepwater drilling in the Gulf of Mexico following BP Plc's well rupture that killed 11 workers and caused the world's worst offshore oil spill.

As a result of Louisiana-based Hornbeck's lawsuit, U.S. District Court judge Martin Feldman in New Orleans blocked implementation of the drilling ban on June 22. The Obama administration issued a second drilling moratorium and asked that the lawsuit be thrown out.

Feldman said in his 20-page ruling on Wednesday that the administration's new moratorium offered "no substantial changes" from the first one and denied the motion to dismiss the Hornbeck lawsuit.

Massey trades unchanged

Massey's 3.25% senior unsecured convertible bonds due 2015 traded Wednesday at 87 versus a share price of $28.75, compared to a trade Tuesday at 87 versus a share price of $28.80, according to a sellsider.

Shares of the Richmond, Va.-based coal producer jumped $2.01, up 7%, at $30.77 in heavier-than-average volume.

Robust economic data on China's industrial sector indicated that the prospects for metallurgical coal producers are better. A rise in the August ISM manufacturing index also supported the coal makers' prospects.

Overall, the market's active convertibles were spurred by the action in the equities markets.

"You could look to the equity market" to see some of that activity mirrored in the converts action, a sellsider said.

Mentioned in this article:

Ford Motor Co. NYSE: F

Massey Energy Co. NYSE: MEE

Transocean Ltd. NYSE: RIG

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