Morning Commentary: United States Steel convertibles drop with shares; Illumina active

By Rebecca Melvin

New York, Dec. 20 – United States Steel Corp.’s 5% convertibles were trading down along with the underlying common shares of the company on Friday in strong volume, according to a market source.

The U.S. Steel notes, which are due in 2024, were seen down more than 2 points on an outright basis to about 116 at late morning. The paper started the day around 118.75 and was last at 116, with the bulk of trades getting done in the area of 117.

U.S. Steel shares were also down and last off $1.10, or 8.2%, at $12.25. The shares had dropped in after- hours trading on Thursday, having closed the session at $13.35. At the market close, the Pittsburgh-based steelmaker announced that its fourth quarter results will be worse than expected and that it planned to slash its dividend, suspend stock repurchases, suspend some operations, and lay off some workers.

In two news releases, the steelmaker said it now expects to report an adjusted loss of $1.15 a share in the fourth quarter, which is a greater loss than the 62 cent per share adjusted loss previously forecast.

The company is reducing its quarter dividend to a penny a share from five cents and is halting buybacks. It is also planning to shutter a plant near Detroit starting April 1, 2020. The shutdown will involve 1,545 workers. But the final number of employees who will be impacted by the idling of the plant will be less, the company said.

U.S. Steel also adjusted its capital spending forecast for 2020, lowering it by $75 million to $85 million. Shares dropped as much as 3% in after-hours trading following the announcement.

Elsewhere in convertibles, a pair of Illumina Inc. convertibles were trading with shares moving up on Thursday into early Friday.

The Illumina 0.5% notes due 2021 were up nearly a point to 137.5, according to Trace data. The Illumina 0% notes due 2023 were seen up 0.6 point to 110.66.

Illumina shares were up $3.26, or 1%, at $328.53.

Tesla Inc.’s convertibles, which have been a feature of trade this past week, as the underlying shares passed the $400 per share mark, were notably quiet. Only the Tesla 1.25% notes due 2021 were seen to have traded early Friday, and they were at 125.40 with the underlying shares around $404.00. The Tesla 2% notes and Tesla 2.375% notes did not appear to have traded, according to a market source.

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