Convertibles quiet; Cemex slips with stock; James River 4.5% adds; Penn Virginia to price

By Rebecca Melvin

New York, Oct. 9 - The convertible bond market Tuesday was quiet, given a lack of macro catalysts and name-specific news, and as tight supply continues to have a dampening effect on the space, market sources said.

"It feels like if you bid too high, you would buy them, and if you offered too low, you would sell them. The only way to get anything on the tape is to be wrong," a New York-based trader said.

Big traders were the large, investment-grade names like Gilead Sciences Inc. and Intel Inc., and the large, but non-investment grade, deals of Cemex de SAB de CV were also trading actively.

For Gilead and its ilk, there were no interesting price moves, a trader said. But Cemex convertibles dropped a couple points outright as its underlying shares slipped 2.5% through the afternoon.

Coal names were in focus on the equity side, but the convertibles were quiet, a Connecticut-based trader said.

James River Coal Co. wasn't among the names on Goldman Sachs' downgrade list of other coal names, and its 4.5% convertibles printed higher at 42.25, compared to 39.25 bid, 40 offered previously, as the underlying shares jumped 10%.

Alpha Natural Resources Inc. saw its shares jump 7%, but the convertibles were quiet.

NetApp Inc.'s 1.75% convertibles due 2013 printed down 0.5 point at 109.74 in continuing elevated action from last week. Shares of the Sunnyvale, Calif.-based data storage company were off 1%.

In the primary arena, Penn Virginia Corp. was in the market with a $50 million offering of convertible preferred shares, which launched late Monday along with a concurrent offering of common stock.

The Penn Virginia offering was talked to yield 5.5% to 6% with an initial conversion premium of 20% to 25% and was seen pricing after the market close on Thursday.

Penn Virginia's existing 4.5% convertibles were not heard in trade as there are only about $5 million left outstanding as the deal after the issue was tendered in early 2011.

Market sources said the convertible market was exceedingly quiet, and unexpectedly so for the second day of the work week.

Meanwhile, attention was beginning to focus on earnings season, which got underway after the market close with the release of Alcoa Inc.'s earnings.

The Pittsburgh-based aluminum producer beat analysts' expectations, posting earnings of 3 cents a share, and bettering the expectation for flat profit. But the company lowered its 2012 demand outlook.

The in-the-money Alcoa 5.25% convertibles due 2014 traded at 152.1 on Tuesday, which was up 0.5 point on the day.

Penn Virginia to price

Not much focus was turned toward the registered Penn Virginia deal as it has a couple of days until terms are fixed and it is also small at $50 million in size.

The depositary shares represent a fractional ownership of interest in a share of convertible perpetual preferred stock, or preferred equity, and the offering will be made concurrently with an offering of 12 million shares of common stock.

The underwriters have an over-allotment option for up to $7.5 million additional preferred equity depositary shares and 1.8 million additional shares of stock.

Credit Suisse Securities (USA) LLC is acting as the active bookrunner and stabilization agent and RBC Capital Markets and Wells Fargo Securities are the passive bookrunners. Capital One Southcoast Inc. and Scotia Bank-Howard Weill are co-managers.

The Radnor, Pa.-based oil and gas driller will use the proceeds to repay the remaining outstanding borrowings under its revolving credit facility and for general corporate purposes.

The perpetual preferreds are non-callable with forced conversion after five years at the company's option if the stock is 30% above the conversion price.

The shares have physical conversion settlement and change-of-control and dividend protection.

James River 4.5s improve

James River's 4.5% convertibles due 2015 were last at 42.25, which was up 2.75 points from Monday but still down from a year ago when they were above 80.

James River's 3.125% convertibles due 2018 traded at 33, which was down 0.625 point from Monday.

James River's shares jumped 31 cents, or 10%, to $3.37 on Tuesday.

A Connecticut-based trader said that trading was very quiet in the convertibles. But the paper likely traded on swap in the past few days, a second trader said.

"I suspect 6.5 points is how they traded up from 5.5 earlier [last] week," the trader said of Friday's action.

Any rally in James River or Alpha Natural stock could be significant as they have high levels of shares sold short.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Cemex de SAB de CV NYSE: ADS: CX

Gilead Sciences Inc. Nasdaq: GILD

Intel Inc. Nasdaq: INTC

James River Coal Co. Nasdaq: JRCC

NetApp Inc. Nasdaq: NTAP

Penn Virginia Corp. NYSE: PVA

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