Convertibles extend gains: Qwest, Kodak, Tyson gain; LifePoint active; Ford, GM rise on sales data

By Rebecca Melvin

New York, Jan. 5 - Convertible bond prices continued to strengthen overall on Monday - the start of the first full week of 2009 - as buyers lifted many still beaten-down names either in actual trades or through higher bids.

"It's a continuation of year-end, when we thought people were just trying to mark themselves up," a New York-based sellside analyst said. "But it's only buyers; there are very few things being offered at all."

Supply in the convertible bond market contracted considerably in the last quarter, and this contraction is contributing to recovering prices, sources say.

Since Dec. 22, the market has gained considerably, said a New York-based sellside director of trading.

"The market changed hugely in the past week or so," he said. "It goes back to the same supply story I've been pounding on ... supply is affected in two ways, the absolute amount of paper as well as price. If you can't replace paper at or cheaper than you can sell it, then you're unlikely to be a seller."

Supply has been contracting primarily due to buybacks by issuers, which were taking advantage of the price slump of October and November to reduce outstanding paper. Natural maturities and a lack of new issuance have also contributed to a smaller universe of outstanding convertibles.

Names cited in trade on Monday at better levels included Qwest Communications International Inc. and Eastman Kodak Co.

Tyson Foods Inc. saw its convertibles jump about 7 points outright, with NASD Trace reporting a late trade at 83.594, compared with an earlier trade reported by a sellsider at 76 versus a stock price of $8.25.

National Retail Properties Inc. was also better, although other financials appeared weaker, including Wells Fargo & Co. series L paper, which is the old Wachovia Corp. convertible preferreds. The Wells Fargo paper traded at 775 intra-session, a sellsider said, compared to 780 on Friday.

LifePoint Hospitals Inc. was active.

General Motors Corp. and Ford Motor Co. convertibles also ended higher after new sales data that was lower but not as low as expected.

The lack of sellers crimps liquidity right now, but higher pricing could give rise to more positive liquidity in the long run and should help restart the new issue market, a director of convertibles trading said.

Qwest, Kodak add, LifePoint active

Qwest's 3.5% convertibles due 2025 printed a lot with an 86 handle Monday and looked to go out at 86.687, according to sellsiders, although NASD Trace reported at trade as high as 88, compared to 85.5 on Friday.

This compared to Qwest paper in the upper 70s to 80 in mid-December.

Qwest paper, which was trading in the Street most of the day, traded up simply because it was being offered, while other paper was just being bid up, sellsiders agreed.

Another sellsider said: it "feels like [convertibles are] catching up to the equity market rallies over the last week when people were out."

Shares of the Denver-based communications company settled down 21 cents, or 5.7%, at $3.48 on Monday.

Eastman Kodak's 3.375% convertible bonds due 2033 traded at 84 on Monday, which was up from a previous level of about 80, according to a pricing source.

Shares of the Rochester, N.Y.-based digital imaging company gained 23 cents, or 2.5%, to $7.10.

LifePoint Hospitals' nearer-dated 3.5% convertibles due 2014 were seen closing at about 68.2, compared with Friday's 67.9.

LifePoint's 3.25% convertibles due 2025 were seen ending at nearly 73 compared to 71.6.

Trading in the name was characterized as active.

Shares of the Brentwood, Tenn.-based rural hospital owner and operator added 39 cents, or 1.7%, to $23.62.

Tyson gains despite lower shares

Tyson's 3.25% convertibles due 2013 traded late in the session at 83.594 versus a stock price of $8.79, compared to about 81 previously.

Shares of the Springdale, Ark.-based poultry, beef and pork producer closed down 56 cents, or 6%.

On Monday, Tyson chief executive Dick Bond resigned effective immediately; and Leland Tollett, a former chief executive, was expected to step in to handle interim chief executive duties, the company said.

No specific reason was cited for the sudden departure other than Bond intends to "pursue other interests."

Tollett is a former chief executive from more than 10 years ago and is 71 years old, analyst Craig Hutson of GimmeCredit wrote in a research note Monday.

"The CEO void occurs at a critical time for Tyson, which has struggled operationally and is expected to report very weak results for its fiscal 2009 first quarter ended in December," Hutson said.

"Its credit ratings have been under severe pressure and it has pledged 'substantially all' of its assets as collateral to the banks. The stock declined 42.9% last year. Although Tyson's performance did not improve during Mr. Bond's tenure, we believe he made several positive changes to move the company in the right direction," Hutson said.

The analyst said that considering Tyson's long history of weak corporate governance, he would support efforts to fill the CEO position with an external candidate.

GimmeCredit is an independent corporate bond research firm.

GM, Ford higher after sales data

GM's December U.S. sales totaled 220,030 vehicles, which was down 31.4% from a year earlier but better than the 41% decline that many were expecting.

The GM 6.25% convertibles due 2033, the GPMs, settled up 7.5% at 3.72, compared to shares, which ended at $3.71, up 6 cents, or 1.6%.

Ford said its December auto sales were down 32.4% year over year, which was in line with the consensus forecast. Although sales continue to slump, Ford estimated its market share increased 70 basis points to 14.6% from a year ago.

Ford's 4.25% convertible due 2036 ended at about 30.25, compared to 28 on Friday. Shares of the Dearborn, Mich.-based automaker ended up 12 cents, or nearly 5%, at $2.58.

Mentioned in this article:

Eastman Kodak Co. NYSE: EK

Ford Motor Co. NYSE: F

General Motors Corp. NYSE: GM

LifePoint Hospitals Inc. Nasdaq: LPNT

Qwest Communications International Inc. NYSE: Q

Tyson Foods Inc. NYSE: TSN

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