AMD convertibles retreat on profit margin worries; Rayonier dips on miss; Blackstone flat

By Stephanie N. Rotondo

Seattle, May 2 – Earnings season continued to be a key driver of the convertible bond market on Tuesday.

Advanced Micro Devices Inc.’s 2.125% convertible notes due 2026 were falling further away from parity in the wake of the company’s earnings release.

Though the results were mostly in line with expectations, warnings about lower gross profit margins had investors scurrying for the door.

Rayonier Advanced Materials Inc.’s 8% series A mandatory convertible preferred stock (NYSE: RYAMPrA) was also losing ground after the company posted results that fell short of expectations.

That being said, the company did increase its 2017 cash flow guidance by $10 million.

Away from earnings, a new issue from Blackstone Mortgage Trust Inc. was seen trading right around the discounted issue price on Tuesday.

The $250 million sale of 4.375% convertible senior notes due 2022 priced late Monday with an initial conversion premium of 15%. In addition to pricing at the cheap end of talk, it came at a discounted price of 99.

One trader pegged the paper in a 98.5 to 99 context.

Another trader said the issue was up 0.25 point.

“They were not that active as far as new issues go,” the second trader said. “I think holders were pretty concentrated.”

The company’s shares waned 35 cents, or 1.13%, to $30.67.

Given the deal’s cheapness, one market source opined that the deal was not geared toward traditional convertible bond players.

“It’s not convertible guys that I think this is really suited for,” the source said. “It would be good for a bond fund, to get the equity exposure.”

Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, BofA Merrill Lynch, Barclays and J.P. Morgan Securities LLC are the joint bookrunners.

The convertibles are contingently convertible prior to Feb. 1, 2022 and are convertible at any time after that date.

Proceeds will be used to originate and purchase additional commercial mortgage loans and other target assets and investments consistent with its investment strategies and investment guidelines, and for working capital and other general corporate purposes, including repayment of debt, the company said in a press release.

Blackstone Mortgage is a New York-based real estate investment trust.

AMD in decline

Advanced Micro Devices’ 2.125% convertibles took a beating on Tuesday in the wake of the company’s warning that gross profit margins in the current quarter could be lower than expected.

One market source called the paper down nearly 36 points outright, trading just north of 151.

Another source saw the bonds ending just south of 152.5, though he noted that the convertibles were trading between 159.5 and 160.5 for most of the day.

Earlier in the session, a trader saw the issue at 161.5 bid, 161.75 offered, a loss of 25 points. With the underlying equity down $2.40 at that point, “parity is 30 points lower than it was yesterday,” the trader said.

The stock eventually ended off $3.30, or 24.23%, at $10.32.

The first-quarter results were about in line with expectations, as net loss narrowed 33% to $73 million and sales rose about 18% to $984 million. However, warnings that gross profit margin would likely be lower for the current quarter – thus probably resulting in yet another loss – had investors concerned that turnaround efforts were not going as well as they had hoped.

Rayonier misses expectations

Rayonier’s 8% mandatory convertible preferreds finished off $4.49, or 4.47%, at $95.88, after the company reported earnings late Monday.

The company’s equity retreated $1.03, or 7.8%, to $12.18, on well above average trading.

For the first quarter, the cellulose producer reported earnings per share of 15 cents on revenue of $201 million.

Analysts polled by Thomson Reuters had expected EPS of 18 cents on revenue of $208.8 million.

Though the results missed expectations, the company did upwardly revise its cash flow guidance.

Cash flow from operations is expected to be $150 million to $160 million. Adjusted flows are forecast between $90 million and $100 million.

The company also said that it expects to see full-year net income toward the higher end of its $41 million to $48 million guidance.

Mentioned in this article:

Advanced Micro Devices Inc. Nasdaq: AMD

Blackstone Mortgage Trust Inc. NYSE: BXMT

Rayonier Advanced Materials Inc. NYSE: RYAM

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