Massey sinks on FBI probe concerns; Transocean steady; Cameron trades off; Coinstar jumps

By Rebecca Melvin

New York, April 30 - Investors reacted Friday to fallout related to two recent energy disasters, the Massey Energy Co. coal mine explosion that claimed the lives of 29 miners April 6 and the Transocean Ltd. oil rig explosion in the Gulf of Mexico that killed 11 people on April 20 and has led to the worst environmental disaster in some years.

Massey Energy convertibles slid in active trade as their underlying shares sank amid reports that the Federal Bureau of Investigation is conducting a criminal investigation into the blast.

Massey said in a statement that it would cooperate with the FBI investigation.

Transocean's convertibles were off slightly outright but were steady compared to their underlying shares, which fell $6.19, or 8%, as it faces a federal lawsuit after its rig blast.

The three Transocean convertible bonds are out of the money and not very equity sensitive.

Transocean's woes affected another oil service name, Cameron International Corp., which saw its 2.5% convertible trade off, a New York-based sellside desk analyst said.

Meanwhile Coinstar Inc. convertibles jumped more than 15 points after the Bellevue, Wash.-based company posted a first-quarter earnings report that blasted past expectations.

"Volume for a Friday wasn't that bad," a New York-based sellsider said. "But it was concentrated in three or four names, the Cameron 2.5%, Rigs, Coinstar, and maybe Medtronic."

Trace volume has been above average for the last couple of weeks, beginning around April 16, a New York-based sellside analyst said. Activity has picked up because volatility has picked up, he said.

The CBOE VIX volatility index has risen to about 20% to 21% from about 17% to 19% in recent weeks, the analyst said. At the same time, the S&P 500 index has fluctuated but remains little changed from that time. It was 1210 two weeks ago and it's 1190 now, he said.

Nevertheless, valuations of convertibles have remained strong because despite the weakness in equity, credit held on a little better, he said.

Volatility has increased due to worries surrounding the euro-sovereign debt crisis and because of the investigation into Goldman Sachs, the sellsider said.

QBE prices deal

QBE Insurance Group Ltd.'s new zero-coupon convertibles due 2030 closed flat at about 60.75 bid, 60.85 offered on their secondary market debut.

The notes priced at 608.2077 at the cheap end of price talk to yield 2.5% with an initial conversion premium of 30%. Price talk was at a yield of 2% to 2.5% with the initial conversion premium fixed.

The notes will be issued through QBE Funding Trust V but are guaranteed by QBE Insurance.

The size of the deal was increased to $850 million from $700 million by an immediate exercise of a $150 million greenshoe.

Bank of America Merrill Lynch is the bookrunner and will work with RBS as the joint lead managers on the Regulation S offering.

Proceeds will be used to redeem £310 million of existing LYONs issued in 2007 on May 17 and for general corporate purposes.

QBE is a Sydney, Australia-based insurance company.

The market appreciated the size of the deal, but a lethargic common stock gave investors little to get worked up about, said a London-based trader.

"We think they're OK, actually," the trader said. "I guess it's just not that exciting because they're big but their stock is not very volatile...It's quite a big deal, but a very narrow spread."

The notes came cheap, and they were trading "very close to the bond floor, so you can't go too far wrong," the trader added.

Investor participation leaned toward hedged players.

"I think it's more hedge funds that have been buying this rather than outright investors," the trader said.

April supply volume lackluster

April U.S. market convertibles issuance totaled $4.02 billion in nine deals, according to data compiled by Prospect News, which was down 17% compared to $4.40 for April 2009.

Barclays Capital, which called the volume "lackluster," had an even lower figure for April new issuance of $2.6 billion. The New York investment bank didn't include a $1.15 billion issue of common equivalent securities priced by Popular Inc. during the month or a $260 million add-on from DryShips Inc.

Annualized volume at $29 billion is the second lowest since 2002, Barclays said.

Nevertheless valuation was attractive. Average cheapness of 6.29%, not including MGIC Investment Corp.'s issue, was in contrast to the tight pricing in March, during which cheapness was 1.85%.

Massey, Transocean hit

Massey's 3.25% convertibles due 2015 traded at 86.5 versus a share price of $38.00 during the session, according to a New York-based sellside desk analyst. But shares of the Richmond, Va.-based coal miner ended lower than that at $36.63, which was down $4.53, or 11%, on the day.

Massey's 3.25% convertibles were indicated to close at 84.99, compared to a previous close of 89.49, according to a pricing source.

In March, the paper was 97 bid, 97.5 offered versus a share price of $50.00.

The FBI wants to find out whether certain safety devices and procedures were bypassed or tampered with, among other things, people said, according to a Wall Street Journal report.

Transocean's 1.5% convertibles, or A paper, traded at 99, and was about 0.5 point lower in the last one or two days, a sellsider said.

The RIG A paper doesn't really have any equity participation, an analyst said. "It's way out of the money."

The RIG B paper has a delta of 7%, and the RIG C also is way out of the money.

Coinstar shoots up

Coinstar's 4% convertibles due 2014 traded at 136.5 versus a share price of $47.00, which was up from a previous level of about 117 to 118.

Shares of the company, which owns and operates self-service coin-counting machines, shot up $6.15, or 16%, to $44.36 on Friday.

The Coinstar paper priced last September.

Late Thursday, the Bellevue, Wash.-based company reported first-quarter earnings of $6.4 million, or 21 cents per share, compared to 13 cents per share that analysts expected.

Revenue surged 47% to $350.1 million, above analysts' expectations.

Kenneth Lim contributed to this report

Mentioned in this article:

Cameron International Corp. NYSE: CAM

Coinstar Inc. Nasdaq: CSTR

Massey Energy Co. NYSE: MEE

QBE Insurance Group Ltd. ASX: QBE

Transocean Ltd. NYSE: RIG

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