Convertibles mixed in thin trade: NatCity eases but Wachovia edges higher; Transocean slips lower

By Rebecca Melvin

New York, Dec. 24 - The convertible bond market was mostly quiet during the holiday-shorted session on Christmas Eve, with much of the trading volume amounting to trimming positions shortly after the stock market open and well ahead of the early 1 p.m. ET close, sources said.

"It's getting very quiet. We had calls around the open," a New York-based sellsider said at around 11 a.m. ET.

It appeared that a good chunk of activity Wednesday continued to focus on names noted in either Monday's or Tuesday's session.

National City Corp. convertibles, which had been gaining ground recently, took a break, falling back to about 89 from highs in the low 90s. Investors had been eyeing progress toward the official closing of the regional bank's merger with PNC Financial Services Group Inc.

NatCity shareholders Tuesday added their stamp of approval to that of PNC shareholders.

Wachovia Corp. convertible preferreds were moving in the opposite direction - upward - as investors looked to add the name after Wachovia shareholders Tuesday approved the merger with Wells Fargo. & Co., bringing it another step closer to reality.

ProLogis extended gains notched Tuesday - but the rise didn't keep pace with its stock, which surged 31.5% in heavy volume - after upgrades from Deutsche Bank and Wachovia analysts.

On Tuesday, ProLogis convertibles were active after the Denver-based real estate investment trust said it will sell some Asian assets for $1.3 billion to reduce debt.

The convertibles of Transocean Inc., which saw their underlying shares hit a 52-week low on Wednesday, were lower, as oil prices fell on a government report showing a bigger-than-expected increase in U.S. supplies of gasoline and distillate fuel, a category that includes heating oil and diesel.

Ford Motor Co. traded at 1.5 points over parity, or about 24.30, a sellsider said.

NatCity eases

National City's 4% convertibles due 2011 traded at 89.75 bid, 89.875 offered, compared to 90.25 bid, 90.75 offered Monday, traders said. On Tuesday, the paper was seen even higher, at 92 and change.

Traders said they weren't sure why the bonds dropped back.

"Accounts telling me, 'Gee you were so right saying to buy NCC 4 at 60!'" one happy sellsider said.

Shares of National City closed higher by 4 cents, or 2.4%, at $1.69 in thin volume.

NatCity shareholders approved the PNC deal on Tuesday.

Earlier this month, the Federal Reserve said the buyout - which was announced Oct. 24 - was doable, provided PNC acts on a Justice Department order to sell 61 NatCity branches in western Pennsylvania, where PNC is based.

Through the $5.6 billion deal, PNC will acquire all outstanding shares of NatCity in exchange for 92 million PNC shares.

PNC is a Pittsburgh-based diversified financial services company.

Wachovia seen rising further

Wachovia's 7.5% series L convertible perpetual preferreds were trending up, with the market seen at 720 bid, 740 offered. The shareholder vote putting the merger one step closer was cited for the reason.

"It was approved by shareholders; it's going to happen, and now it's an obligation of Wells Fargo," a sellsider said, and agreed with another trader that the Wachovia preferred will probably trade up higher to 95 with the new year.

Earlier this month, the Wachovia's convertible preferreds were in the mid 500s.

Wachovia is a Charlotte, N.C.-based bank being taken over by Wells Fargo & Co.

ProLogis extends gains

ProLogis' 2.25% convertibles due 2037 traded up to 45 from about 42 on Tuesday.

The paper traded at the 42 level with the shares at $11, but on Wednesday ProLogis shares surged to $13.28, up $3.18, or 31.5%.

The REIT focused on industrial distribution properties received upgrades from analysts at Wachovia (outperform from underperform) and Deutsche Banc Securities (buy from hold) after it said it was reducing debt by selling operations in China and property fund interests in Japan.

In its latest financial report, the company said it had about $11.1 billion of debt as of Sept. 30.

A Wachovia research note published Wednesday cheered the "new-found aggressiveness" at ProLogis to improve liquidity now rather than later.

The ProLogis 2.25% convertible due 2037 had been in the low 30s earlier this month.

ProLogis' 2.625% convertibles due 2038 and ProLogis' 1.875% convertibles due 2037 weren't heard in trade.

As previously reported, the company said Tuesday that will sell its operations in China and property fund interests in Japan to affiliates of GIC Real Estate, the real estate investment arm of the Government of Singapore Investment Corp., for $1.3 billion in cash.

The assets are being sold at a 4% to 6% discount to book value, and closing is expected in January 2009. Proceeds will be used to reduce debt.

One convertibles trader who suggested that the REIT may do more buybacks and holders could get something in return for an offer.

Transocean edges lower

Transocean series A 1.625% convertible due 2038 traded Wednesday at 87.25, down from 87.75 bid, 88.125 offered earlier in the day and on Tuesday.

The Transocean's series C 1.5% convertibles due 2037 traded at just a tiny bit over 76, compared to 76.75 bid on Tuesday, a sellsider said.

"I did see some markets in the Street," the sellsider said of the Transocean converts. Transocean's series B 1.5% convertible due 2037 weren't heard in trade.

Another sellsider said the name was probably down slightly with the stock lower, but not a whole lot was trading.

Shares of the Houston-based offshore-drilling services company hit a 52-week low, settling at $42.24, which was down $1.21, or 3%, on the day, in light volume.

The current stock level represents a 10-year low for the company, which corresponds to slowing of the global economy and to weaker oil prices.

Crude oil for February delivery on Wednesday fell $1.31, or 3.4%, to $37.67 a barrel at 12:49 p.m. on the New York Mercantile Exchange. Prices have declined 74% from a record $147.27 on July 11.

But Standard & Poor's on Monday raised its outlook for Transocean Inc. to stable from negative, citing strengthened credit measures, continued backlog growth and reduced debt in the past year.

Transocean has a BBB+ corporate credit rating and an A-2 short-term rating from Standard & Poor's.

S&P's credit analyst Jeffrey Morrison said the company's backlog of contract revenue topped $41 billion as of October, its free cash flow backlog is around $18 billion and its debt leverage and cash flow protection measures have improved and should continue to make gains in 2009.

Morrison also said the company will maintain ample liquidity in the near term, but that its credit strengths are tempered by a higher debt burden related to its 2007 merger with GlobalSantaFe Corp.

As of Sept. 30, the company had $4.2 billion liquidity in cash, short-term investments, a five-year revolving credit facility and a 364-day facility, which was renewed in November.

Mentioned in this article:

National City Corp. NYSE: NCC

ProLogis NYSE: PLD

Transocean Inc. NYSE: RIG

Wachovia Corp. NYSE: WB

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