Massey Energy trades to 104.5; leisure paper firms on jobs data; Tyco edges higher after mistrial

By Ronda Fears

Nashville, April 2 - A surprise uptick in new jobs, with lowered expectations as a backdrop, didn't overwhelmingly excite convertible players, but coupled with lower gasoline prices it helped fuel buying in leisure issues - airlines, hotels, cruise ships and the like.

Of course, with Tyco International Ltd. such a big, fluid name in convertibles, the news that a mistrial was declared in the trial of two former executives caused heads to turn. There naturally was a good deal of traffic in the bonds, but traders said both bonds were range-bound ahead of earnings season.

New deals made a bigger splash than anticipated during the week, helping to boost issuance figures slightly ahead of year-ago levels, and most of the fresh paper was steadily higher.

Massey Energy Co. was the final addition, and it moved up 4.5 points from par out of the chute. The $150 million issue was printed with a 2.25% coupon and a 48% initial conversion premium - at the tight end of yield talk of 2.25% to 2.75% and in the middle area of premium guidance of 45% to 50%.

Hedge fund sources said there was some scrambling early in the day to offset a dive in Treasuries that caused a sharp backup in yields, and some also had to balance a spike in the dollar. Compounding the swing in bonds, volatility in stocks plunged.

"We've been feeling some pain over the last month or so. Well, we're losing money but we've not made much either, probably up about 50 basis points," said a buyside trader at a hedge fund in New York.

"There's a lot to juggle right now."

Airline paper takes off on jobs

A few of the leisure issues found buyers after the jobs report showed a better-than-expected gain in new jobs, but traders noted that the gains generally involved names that were already popular for one reason or another.

"The [jobs] data wasn't really so spectacular. You have to remember that everyone had ratcheted down their estimates, which is what made this report look so good," said a convert trader at one of the bulge bracket firms.

"Besides that, there was a slight increase in unemployment claims, too, so taken together this is nothing to jump up and scream about."

Airline stocks as a whole closed near a three-week high Friday, gaining force in part from better traffic figures from American Airlines Inc. as well as lower oil and gasoline prices.

American Airlines reported a record March load factor of 75%, with traffic gaining by 10.9% from a year ago.

AMR Corp., parent to American Airlines, thus, saw some buyers for its new 4.5% convertible. It rose about 2.5 points outright to 92 bid, 92.75 as the stock rose 81 cents, or 6.19%, to $13.90.

Delta Air Lines Inc. was another airline taking off. Traffic was seen in the 8% issue, which added about 1.5 points on an outright basis to 75.5 bid, 76 offered. Delta shares added 38 cents, or 4.7%, to $8.47.

Travel issues up in sympathy

With spring break a recent memory, summer plans are already being hatched, and the rosier economic data has caused many analysts to boost travel volume estimates. Thus, a couple of travel-related issues in the convertible market rose in tandem with the airline paper Friday.

"Apparently all of those newly employed people need to fly somewhere," quipped one sellside market source, referring to the jobs report that sparked the rise in airline paper. And, he added, "Those travelers will need a place to stay."

Hilton Hotels Corp.'s 3.375% convertible had some decent action, as one dealer put it. The issue was up slightly, pegged in late afternoon at 107.5 bid, 108.75 offered. Hilton shares closed up 31 cents, or 1.89%, to $16.75.

Royal Caribbean Cruises Ltd. has been busy the last couple of days, a buyside trader said, and both of its zero-coupon convertibles firmed nicely, by 1 to 1.5 points outright on Friday. He added, though, that there might be some pressure coming down the pike, as the bonds have run up beyond put prices.

Tyco fans thrive on headlines

While the Tyco headlines seem they will never go away, buyside traders said holders of Tyco paper who like the name are relishing in the volatility created by the sensational news on the tape.

"Don't we all love drama? If you like Tyco - and now that they have shed some of the weight of these executives who were draining it, we think they are a very good place to be invested - then, these headlines just thrill you," one hedge fund trader said.

"Of course the mistrial is infuriating, from a taxpayer standpoint because we are footing the bill on that and the next one [as prosecutors have pledged a retrial]. But the company is better off that this all came out and those people are history with the company now."

The judge in the corruption trial of former Tyco chief executive L. Dennis Kozlowski and former chief financial officer Mark Swartz declared a mistrial on Friday after nearly six months of testimony and nearly two weeks of scandal-ridden jury deliberations.

Juror No. 4 - a woman who had nearly brought the case to a mistrial last week by giving what was interpreted by some as the "okay" hand gesture in the courtroom toward the direction of the defense table - was the apparent culprit in the breakdown of jury deliberations and ultimately the trial.

The judge declared the mistrial, saying he had no choice since there apparently had been efforts to sway a juror. But all the parties are returning to court May 7 to set a possible date for a second trial.

"The trial is just a lingering pimple on the face of Tyco. Whether it clears up now or later doesn't matter, we like what the company is becoming. They have made some huge strides on their balance sheet and operations," said another buyside trader at an outright convertible fund.

"We're focused really on the earnings coming up."

Tyco's 2.75% convertible due 2018 gained about 0.5 point on swap or 1 point outright to 137.375 bid, 138.875 offered. The 3.125% convertible due 2023 added about 0.75 on swap or 1.25 points outright to 148 bid, 148.25 offered.

Tyco shares were up 45 cents on the day, or 1.56%, to $29.22.

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