AMD, Novell convertibles gain, but market trades mostly lower; oil prices weigh on airlines

By Rebecca Melvin

Princeton, N.J., July 12 - The convertibles market was mostly lower Tuesday, including airline convertibles, which appeared to retrace Monday's gains. But some energy names continued to shine and Advanced Micro Devices Inc. gained in active trading, as did Novell Inc.

Late in the session the market strengthened in tandem with a rally in stocks; but overall volume was off, traders said.

"I've got traders scrambling for something to do," a sellside trading desk supervisor said. "They're going out to customers saying, 'Give me a name, and we'll see what we can do.'"

Later a sellside shop trader said, "Things got better towards the end of the day."

A report on global convertibles showed that currency and weak valuations hit returns for the second quarter in all major regions, including Europe, Asia, Japan and the United States. That left the global market 5.8% smaller at the end of the period compared to the first quarter, according to the report by Merrill Lynch.

Airlines lose updraft

While the overall sector was weighed down by resurging oil prices, which promise to bulk up costs for the carriers, the convertibles of Continental Airlines Inc. were notable losers, down a point to as much as two points, amid news on the tape that regional carrier JetBlue Airways Corp. will begin flying from Newark, N.J., the airport which is Continental's regional hub.

The move could eat into Continental's market share, a New York sellside desk analyst said.

JetBlue said that as of Oct. 5 it will begin flying out of Newark to Florida, including the cities of Fort Lauderdale, Orlando, West Palm Beach, Tampa and Fort Myers.

JetBlue also said in a Securities and Exchange Commission filing that its operating margins will be lower than expected for the second half of the year if jet fuel prices remain at $1.68 a gallon during that time. The company's initial outlook was based on the assumption of jet fuel at $1.45 a gallon, according to the filing.

Continental's 5% convertible due 2023 traded at 90 early in the session, versus a stock price of $14.29, according to one sellside shop, a drop of more than 2 points compared with pricing Tuesday.

Another sellside shop quoted the Continental 5% convertible at 91 bid, 91.5 offered in trading, versus Continental's closing price on its shares of $14.10. Those prices compared with a quote for Continental's 5% convertible Monday at 91.9 bid, 92.3 offered.

Continental's 4.5% convertible due 2007 was down 0.33 point at 87.72 bid, 88.22 offered.

JetBlue, which wasn't a big name in convertibles action Tuesday, saw its stock slide 50 cents, or 2.4%, to $20.23.

The 4.25% convertible issue of AMR Corp., parent of American Airlines, slid 1.5 points in trade to 88.741 bid, 89.241 offered. The carrier's 4.5% convertible due 2024 held up better, but still lost more than half a point, and was quoted at 77.193 bid, 77.693 offered. AMR's shares lost 19 cents, or 1.5%, to $12.48.

The convertibles of Northwest Airlines Inc., which led the sector higher on Monday, were also off a little more than half a point. Its shares sank 23 cents, or 4.9%, to $4.51.

Northwest Airlines seemed to by buoyed Monday by traffic analysis from CreditSights, which showed that the Eagan, Minn.-based carrier had outstripped competitors in terms of load factor growth in the Atlantic in June.

On a 9 cent decline in its stock price, the convertibles of Delta Air Lines Inc. eased a little more than a ½ point. One sellside shop quoted Delta's 2.875% convertible due 2024 at 33.614 bid, 34.114 offered, compared with 34.277 bid, 34.777 offered on Monday. Its shares closed Tuesday at $3.40.

AMD, Novell add points

The convertibles of Advanced Micro Devices added as much as 1.5 points in active trading Tuesday as news on the tape described raids by European antitrust regulators of the offices of rival chipmaker Intel Corp.

Advanced Micro filed a lawsuit two weeks ago claiming that Intel used its market dominance to bully computer makers away from using AMD chips. A statement from the European Union head office said the inspections involved its antitrust officials and national competition authorities.

Later Sunnyvale, Calif.-based AMD released a statement on the raids: "Today's dawn raids should come as good news to consumers across Europe," said Thomas M. McCoy, the company's executive vice president, legal affairs and chief administrative officer.

"Every computer user has a strong interest in ensuring that the full truth about Intel's anti-competitive abuses is revealed and corrected. The European Commission dawn raids show that Intel cannot and should not escape the scrutiny of antitrust officials around the world," McCoy said.

Early in the session, Advanced Micro's 4.75% due 2022 traded at 103, compared to 102.639 bid, 102.889 offered on Monday. Later a Chicago-based buyside trader said both the 4.75% and the 4.50% due 2007 were up about 1.5 points.

AMD shares closed up 36 cents, or 1.89%, to $19.37

The convertibles of Novell extended gains Tuesday as its stock headed north. Early the Waltham, Mass.-based software company's 0.5% convertible due 2024 traded at 85, according to a sellside trader. Later it appeared to gain 0.5 point to one point to trade at 85.5 bid, 86 offered, compared to 84.5 bid, 85 offered on Monday.

"It's modeling up cheap even at this level," a sellside trader said, suggesting that the company may be "starting to stabilize" and investors are finding it attractive.

Oil keeps energy sector higher

Although few energy names traded in the convertibles market Tuesday, according to several traders, those issues that did climbed as crude oil prices jumped again, after easing slightly for several sessions.

The oil-price jump came ahead of U.S. oil-and-product inventory data due Wednesday and amid concerns that another storm brewing could yet wreak havoc with production in the U.S. Gulf.

Also a government report surprised the market with news that as much as 96% of production in the Gulf of Mexico was shut by Hurricane Dennis.

Crude oil for August delivery gained $1.70, or 2.9%, to $60.62 a barrel on the New York Mercantile Exchange. In all, oil is up 53% from a year ago.

While few energy convertibles traded, the high oil price has kept many convertibles in the oilfield services and oil sectors consistently gaining for more than a week.

The 7% convertible preferreds of Amerada Hess gained 2.8 points Tuesday, according to a New York sellside shop, which put the issue at 99.5 bid, 99.7 offered, compared to 96.7 bid, 96.9 offered Monday. Shares of Amerada Hess jumped $3.53, or 3.14%, to $116.

Minus currency, some gains

Global convertible markets shrank in the second quarter of 2005 due to difficult market conditions prompted by a strong dollar and more downward movement in implied volatility, according to data compiled by Merrill Lynch for its G300 Global Convertible Index.

The conditions led to lower issuance and lower valuations in the four major regions into which Merrill divides the world's convertibles markets: Europe, Asia, Japan and the U.S.

The G300 Global Convertible Index returned minus 1.4% for the second quarter, despite support from bond and equity markets, the Merrill Lynch report said. Total market size decreased 5.8% to $521 billion, down from $553 billion.

But excluding the currency effect, convertibles were up 1% for the second quarter, with U.S. convertibles showing a 0.5% increase as U.S. stock markets improved.

Without currency effects, Asia was the top performing region, gaining 2.1%. But Japan and Europe still fell 3.4% and 3.9%, respectively, according to the report's executive summary.

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