Nabors falls in line on profit warning; Ford climbs with sales numbers; Sirius, XM marked higher on news

By Kenneth Lim

Boston, Jan. 3 - Nabors Industries Ltd. and Ford Motor Co. dominated activity on Wednesday, as the convertible bond market eased into the new year on a mixed bag of news.

Nabors fell outright as its stock stumbled over a profit warning and concern over a stock options probe.

Ford rose early in the day, after sales figures for December emerged higher than the company expected.

Market volume in general was relatively slow, as expected for the first full day of trading after a long break. Sirius Satellite Radio Inc. and XM Satellite Radio Holdings Inc. were unmoved despite positive news on earnings and speculation about a merger, while DOV Pharmaceutical Inc. was untouched after the company said it did not have enough cash to satisfy a tender offer for its convertibles.

"It's kind of steady," a sellsider said. "I think people are kind of getting back into the swing of things after the quasi off day yesterday. Tomorrow will be a little busier, and I don't want to say that things will only pick up next week, but it should get more active."

Nabors falls on profit warning

Nabors' 0.94% convertible due 2011 lost about 1.5 points outright on Wednesday, in line with a drop in the stock after the company warned that it may miss estimates for its fourth quarter.

The convertible traded at 94 against a stock price of $28 on Wednesday. Nabors stock (NYSE: NBR) closed at $28.05, a loss of 5.81% or $1.73.

"The whole energy complex was down today," a sellside convertible bond analyst said. "The [Nabors] bonds were kind of in line, maybe a touch better on the vol, but for the most part mostly in line."

Nabors said Wednesday that it expects fourth-quarter earnings per share of 95 cents to $1, below Street expectations of about $1.11. For 2006, Nabors sees earnings per share between $3.53 and $3.58, short of consensus estimates of $3.70.

Nabors, a Hamilton, Bermuda-headquartered land-based oil and gas drilling contractor, said slower activity in North America was the main reason for the slowdown. The news came a week after Nabors reopened an internal probe into its stock options granting practices. The new investigation was started after a report in the Wall Street Journal alleged that Nabors allowed its chief executive to backdate his stock options.

"It's been a week for them," a buyside convertible bond analyst said. "The stock's come down about 9% since Christmas, but this was always a volatile stock to begin with.

"I'm not sure how big of a problem that options stuff is going to be. Holders of the 0.94s will probably be most interested in how that plays out, but it looks like guys aren't expecting too much out of it."

A sellside convertible bond analyst said the profit warning was not a major mover for the convertibles.

"I don't think it's really a problem for their credit," the sellside analyst said. "They'll miss estimates, but it's still $1 per share. It doesn't really change the credit."

Ford up early on sales

Ford's recently issued 4.25% convertible due 2036 improved about a point early Wednesday, buoyed by positive reactions to December sales figures.

The convertible traded at 108.5 versus a stock price of $7.65. Ford stock (NYSE: F) closed unchanged at $7.51.

"We saw a lot of Ford," a sellsider said. "The stock was moving because of the December sales figures."

Ford saw total vehicle sales drop 12.8% to 233,621 units in December, with relatively larger percentage declines from its trucks. Despite the declines, Ford described December as a positive month, with the declines expected after Ford pulled the Taurus passenger car line.

"First of all, none of these really make a difference to the credit," a sellside convertible bond trader said. "But what's good for the stock is good for the credit. I think the market feels a little more optimistic about the company's potential restructuring. There's still a lot of interest out there for the new Ford convertibles."

Sirius, XM muted on news

Sirius Satellite Radio and XM Satellite Radio shrugged off positive subscriber figures and a speculative report on the possibility of a merger between the two rivals.

Neither Sirius's 3.25% convertible due 2011 nor XM's 1.75% convertible due 2009 saw significant trading on Wednesday, although they were marked higher. Sirius was marked at 100.25 bid, 100.5 offered against a stock price of $3.77, up by 1.5 points. XM was marked at 85.375 bid, 85.875 offered, about a quarter-point higher outright.

Sirius stock (Nasdaq: SIRI) closed at $3.74, up by 20 cents or 5.65%. XM stock (Nasdaq: XMSR) was 5.26% or 76 cents higher at its close of $15.21.

Sirius said late Tuesday that it had more than 6 million subscribers as at end-2006, within its forecast of 5.9 million to 6.1 million. Sirius also said it may have been free cash flow-positive in the fourth quarter, a first for the New York-based satellite radio provider.

A report in the New York Times also said that a merger between Sirius and Washington-based XM could be possible, the latest drop in a pool of speculation surrounding the two companies.

"XM hasn't traded for a week or two, but they were indicated up with the whole merger talk and the New York Times piling on the idea of a merger," a sellsider said. "It's not new, but...there's still a lot of debate whether in a merger you're going to get a change of control put [for XM]."

The sellsider said that depending on how the merger was done, holders of XM convertibles may not get to put back the convertibles at par. But a merger was likely to be positive for XM convertibles nevertheless.

"Regardless of whether you get a change of control put, it's going to be good for the companies," the sellsider said. "There's still a little room to go on the near term."

DOV seeks restructuring

DOV Pharmaceutical's 2.5% convertible due 2025 was untraded on Wednesday, as the company sought to restructure that debt after it announced that it cannot afford to buy back the tendered security.

The convertible last traded in November at about 45. DOV stock (DOVP) closed flat at 27 cents.

DOV said Wednesday that it cannot afford to repurchase the $67.8 million worth of convertibles that had accepted its tender offer, and is in default. DOV was required to make the tender offer for the $70 million outstanding convertible series because of its indenture obligations.

DOV said an ad hoc committee of convertible holders have agreed not to take action to remedy the default until Jan. 16. In the meantime, DOV seeks to pay convertible holders $212.50 in cash plus convertible preferred stock for every $1,000 principal amount of the convertible under a proposed restructuring deal.

DOV is a Somerset, N.J.-based drug developer whose products were expected to treat chronic back pain, insomnia, depression, alcohol abuse and hypertension. Its key product, Bicifadine, was found ineffective for treating chronic lower back pain in late-stage trials in April.

A sellside convertible bond trader said nobody has been looking to buy DOV's convertibles for some time. The latest development only adds to the company's problems, the trader said.

"It says here their drugs were for insomnia, pain, depression, alcohol abuse, anxiety," the trader said. "These are all things that they would certainly have a need for at this time. Sounds like they're going to be using a lot of their own drugs."

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