Freeport-McMoRan, Nabors, Peabody, Transocean lower as commodities fall; Countrywide, BofA stay flat

By Kenneth Lim

Boston, April 29 - Commodity and energy names slipped on Tuesday in a mostly lackluster market as investors remained cautious ahead of the Federal Reserve's interest rate decision Wednesday.

Freeport-McMoRan Copper & Gold Inc.'s mandatory convertible preferreds fell about 7 points outright with its stock as gold prices slumped on the strong U.S. dollar.

In the energy sector, Nabors Industries Ltd., Transocean Inc. and Peabody Energy Corp. also retreated as their stocks fell.

Countrywide Financial Corp. had a muted response after the company reported a first-quarter loss, but observers said its convertibles and stock were getting support from an expected takeover by Bank of America Corp. Bank of America's convertible, meanwhile, was also little changed on Countrywide's results.

The convertible market remained sluggish on Tuesday as investors were unwilling to take significant bets with the Fed's interest rate decision expected Wednesday. The Fed is widely expected to cut interest rates.

"Nothing's going on," a sellside convertible trader said. "Everyone's waiting to see what the Fed's going to do. It's like a five-day weekend for us. This week hasn't even started."

Freeport-McMoRan slides

Freeport-McMoRan's 6.75% mandatory convertible preferred due May 2010 lost about 10 points outright on Tuesday as commodities names across the board took a beating.

The Freeport-McMoRan preferred traded at 161 against a stock price of $112 on Tuesday. Freeport-McMoRan common stock (NYSE: FCX) fell 4.39%, or $5.08, to close at $110.72.

Freeport-McMoRan is a Phoenix-based copper and gold mining company.

"It's a mining company, so its stock is going to rise and fall with the price of whatever it's mining," a sellside convertible analyst said. "If gold is down, FCX is down."

Gold futures dropped to a four-month low on Tuesday as the U.S. dollar improved and crude oil prices fell amid expectations that the Fed was moving inflation to its top priority.

But the poorer stock and commodity prices were non-events for Freeport-McMoRan's credit, the analyst said.

"It doesn't matter," the analyst said. "This is a stock story. The converts are so far in the money, the credit doesn't matter. I suppose some of the outright guys might be a little upset about this, especially since it's coming near the end of the month, but it's really not a big deal. It's normally a volatile name anyway, and remember that it's like double what it was at the start of last year, so I don't think anyone's really hurt here."

The analyst said Freeport-McMoRan remains a solid company.

"It's a pretty solid name," the analyst said. "They have some legal problems in Indonesia. I'm not sure if that's resolved, but overall I don't think there's anything major hanging over them. Especially after they got Phelps Dodge, you're looking at one of the largest, if not the largest, copper and gold producers in the world. I think the biggest risk is maybe if copper and gold prices are leveling off, then you might see the stock's growth come down a bit, but if you're a convert holder you're collecting on the interest anyway, so you're still doing OK."

Energy names slip

With commodity prices lower, energy-related plays also retreated outright.

Nabors Industries' 0.94% convertible due 2011 declined about a point to trade at 106.5 against a stock price of $38.375, while its zero-coupon exchangeable due June 15, 2023 also slipped a point to 112 versus the same stock price. Nabors common stock (NYSE: NBR) closed at $37.30, lower by 2.81%, or $1.08.

Nabors is a Hamilton, Bermuda-based oil and gas land drilling contractor.

Transocean's 1.625% convertible due 2037 decline by 2 points to trade at 110.75 versus a stock price of $147.50, while the common stock (NYSE: RIG) closed down by 3.44%, or $5.24, at $146.98.

Houston-based Transocean is an offshore oil and gas drilling contractor.

Peabody Energy's 4.75% convertible due 2066 fell about 4 points to trade at 110 versus a stock price of $60.50. Peabody common stock (NYSE: BTU) dropped 5.25%, or $3.35, to close at $60.50.

Peabody is a St. Louis-based coal mining company.

Countrywide unrattled

Countrywide's convertibles were quiet on Tuesday as convertible holders shrugged off the company's report of a first-quarter loss.

Countrywide common stock (NYSE: CFC) closed at $5.85 on Tuesday, up by 0.34%, or 2 cents.

The Calabasas, Calif.-based mortgage lender reported a first-quarter loss of $893 million, or about $1.60 per share, as the company incurred $3 billion of charges set aside for credit-related losses. Analysts had been expecting a profit of about 2 cents per share.

The loss likely affected convertible holders only in the sense that it could affect Bank of America's planned acquisition of Countrywide, a convertible analyst said.

"Really, at this point it's whether you believe the Bank of America deal is going through or not," the analyst said.

A sellside trader said the Street continues to think a deal will happen.

"There's a bit of uncertainty, but overall I think guys think it's going to happen anyway," the trader said. "One problem is that things are obviously in a mess at Countrywide, and it looks like not everybody's sure how big of a mess we're talking about. I think somebody mentioned that Bank of America could offer an even lower price. That would be bad for the stockholders, but it's good for the credit."

Bank of America's 7.25% perpetual convertible preferreds were unchanged at 105 against a stock price of $38.125. Bank of America common stock (NYSE: BAC) closed at $37.86, lower by 0.84%, or 32 cents.

Bank of America is a Charlotte, N.C.-based commercial bank.

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