Navistar convertibles gain, stock falls on Icahn investment; Illumina paper improves

By Stephanie N. Rotondo

Portland, Ore., Oct. 17 - It was a subdued day for the convertible bond market Monday, but traders reported that the space held its ground even as the equity markets plunged.

"The equity market is just so volatile," a trader said. "When you're off a hedge, it's hard to get things done."

Still, he said there was "firmness in the market," though most of the action was centered on higher-quality paper that provided investors an adequate exit strategy if needed.

"I'm not really seeing bids [for higher-yielding, riskier credits]," he said.

Navistar International Corp.'s convertibles were trending upward on news that billionaire investor Carl Icahn had purchased a stake in the commercial and military vehicle producer.

Illumina Inc.'s convertibles were also higher, even as analysts were lowering their price targets on the common stock.

Navistar up on Icahn news

Around midday, a trader saw Navistar International's 3% convertible notes due 2014 trading around 108 versus a stock price of $39.40.

Toward the end of the day, another trader said the issue was a "tiny bit better" at 107.5625 versus $38.90 on the stock.

The stock closed at $39.19, down $2.32, or 5.59% on Monday.

In a regulatory filing put out Thursday, Icahn said he had acquired a nearly 10% interest in the common stock on "the belief that the shares were undervalued at current levels."

Icahn's purchase makes him the second-largest shareholder in the Warrenville, Ill.-based company.

Illumina convertibles climb

Illumina's 0.25% convertible senior notes due 2016 were trading at 75.75 versus a stock price of $26.60, according to a trader.

That was better than the 75.125 offered versus a $26.49 stock price that he saw last week, he said.

Another trader placed the issue at 76 versus a stock price of $26.30.

On Monday, analysts from Barclays Capital lowered their price target on the San Diego-based developer, manufacturer and marketer of life science tools and integrated systems for the analysis of genetic variation and function.

The target was dropped to $35 from $65, and the analysts deem the stock "overweight."

Last week, Goldman Sachs also cut their price target, to $28. That followed cuts from Wedbush Securities and Auriga the week before.

Mentioned in this article:

Illumina Inc. Nasdaq: ILMN

Navistar International Corp. NYSE: NAV

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