Smithfield Foods trades in line; SandRidge, Globalstar, RadioShack add; Sino-Forest on tap

By Rebecca Melvin

New York, Dec. 10 - The convertible market was steady to higher on Thursday as equity indices notched gains amid mixed economic data, including favorable trade numbers.

SandRidge Energy Inc. was a couple of points higher compared to previous levels, trading on the heels of successful pricing for the Oklahoma City-based natural gas and oil company's $450 million of straight debt.

SandRidge was the first issuer to plunge into the convertibles primary market last January after a three-and-a-half month hiatus following the post Lehman Brothers bankruptcy market meltdown.

Also higher were the Globalstar Inc. 5.75% convertibles due 2028, which traded at 62 versus a closing share price of $0.94, marking an expansion from previous levels.

The not-so-liquid RadioShack Corp. convertibles looked to be up 2 points with its shares settling more or less flat.

Smithfield Foods Inc. convertibles traded in line with their underlying shares after the hog and pork producer reported a quarterly loss and said U.S. hog production may have to fall another 5% to maintain the industry's recovery from near-collapse, according to a New York-based sellside desk analyst.

Ciena Corp., the Linthicum Heights, Md.-based network services provider, also reported earnings, and its convertibles held mostly steady despite an 11% drop in their underlying shares. The shares were down due to a wider-than-expected loss for the company's fiscal fourth quarter and full year amid higher costs.

Ciena's 0.875% convertibles due 2017 were seen at about 58.5, which was down 2 points from previous levels; and Ciena's 0.25% convertibles due 2013 were seen at about 75.94, although they weren't reported to have traded, according to Trace data.

Also in trade were the liquid EMC Corp. convertibles, which were down about a point with its shares off 1.8%.

Whether Citigroup Inc. is going to issue a convertible as part of its equity raising to repay TARP funds remains uncertain. A source at the bank said that there has been nothing announced yet.

In addition, Dubai development company Nakheel's convertible paper remained below 50 ahead of a maturity upcoming next week.

Because Dubai is already talking with holders and it is likely it is going "to have to hammer something out even if they defaulted," the Nakheel convertibles are seen to be worth at least 50, a New York-based sellsider said.

In the primary market, Sino-Forest Corp. wasn't heard in the gray market ahead of final terms expected to be fixed to its planned $400 million of seven-year convertible bonds after the close. Those bonds were talked to yield 3.75% to 4.25% with an initial conversion premium of 30% to 35%.

Smithfield Foods in line

Smithfield's 4% convertibles due 2013 traded at 103.25 versus a share price of $16.85 on Thursday, which was unchanged dollar neutral.

"It's not too different from where they opened. We're trading them a little bit today," a sellsider said.

Smithfield shares ended the day lower than the price used for initial trades, down 53 cents, or 3%, at $16.33. And according to Trace data, Smithfield was last at 102.062.

The Smithfield, Va.-based pork and meat producer reported a fiscal second-quarter loss of $26.4 million, weighed down by its hog production unit. The fresh-pork and packaged-meats businesses were both profitable.

The company said that the industry overall had cut production by at least 3%, and maybe as much as 5%, to maintain pricing power.

Smithfield's loss was $26.4 million, or 17 cents a share, for the quarter ended Nov. 1, compared with a prior-year profit of $1.7 million, or 1 cent a share. The year-earlier loss from continuing operations was 23 cents a share. Revenue decreased 14% to $2.69 billion.

Excluding a higher tax rate and other items, Smithfield lost 26 cents per share, a smaller loss than expected.

Sino-Forest models cheap

Sino-Forest's planned $400 million of seven-year convertible bonds were not seen in the gray market ahead of final pricing, market sources said.

The deal modeled 5.8% cheap at par at the midpoint of talk, using a credit spread of Libor plus 600 bps and a vol of 40%, according to one New York-based sellsider.

The common has a hard borrow for some, the sellsider said, adding that he had heard a 2% rebate from one account.

"That takes the cheapness down to 1.7%," the sellsider said.

Another pricing source used a credit spread of Libor plus 750 bps and a 35% vol, and they called the deal a buy across the price talk.

Additionally, the sellsider pointed out, the stock has to be converted to U.S. dollars and then the premium applied to get the convert price.

The older Sino-Forest 5% convertibles due 2013 were seen at 112.5 bid, 115 offered versus a share price of $17.69.

"They model about 1.5% cheap assuming a normal borrow and almost 1% rich with a stock rebate of negative 2%," the sellsider said.

Mentioned in this article:

Citigroup Inc. NYSE: C

Ciena Corp. Nasdaq: CIEN

EMC Corp. NYSE: EMC

Globalstar Inc. Nasdaq: GSAT

RadioShack Corp. NYSE: RSH

SandRidge Energy Inc. NYSE: SD

Smithfield Foods Inc. NYSE: SFD

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