Massey Energy, Alpha Natural better bid as coal names in focus; LDK trades up; RTI better

By Rebecca Melvin

New York, Jan. 3 - Trading in the convertible bond market was spread out over various names and generally quiet, but firm, as credit markets were strong and stocks rallied on Monday, the first trading day of 2011, market participants said.

It was "not too busy this morning," a New York-based sellside desk analyst said.

A second sellside trader said, "very little seems to be going on today," as action has yet to pick up from the typical lull between the year-end holidays, Christmas and New Year's.

Pricing was firm, however. In Monday's action, the convertibles of a pair of coal producers were better bid amid headlines that Australian coal exports are potentially threatened due to severe flooding in that country, which accounts for a large percentage of the world's coking coal used for steelmaking.

Massey Energy Co. was among the day's top-volume names, and its 3.25% convertibles were up slightly outright with higher shares.

Alpha Natural Resources Inc.'s convertibles were better bid as the underlying shares gapped up, reaching a two-year high.

LDK Solar Co. Ltd.'s 4.75% convertibles due 2013 traded higher by 0.25 point to 0.5 point as shares popped by as much as 9% after news that the Chinese and U.S.-based photovoltaic producer was placing privately $240 million of convertible preferred shares with China Development Bank and two institutional investors in China. The underlying shares ended higher by 5.5%.

Also trading were RTI International Metals Inc.'s convertibles, which were 104 versus a share price of $27.60, or up about 0.5 point on an outright basis.

The convertibles of CommScope Inc. were not heard in trade after a report that the Hickory, N.C.-based communications infrastructure services provider has a bank meeting scheduled for Wednesday to launch a proposed $1 billion seven-year term loan, for which proceeds will be used to help fund the buyout of the company by the Carlyle Group for $31.50 per share in cash.

Stock rally fades late

The rally in equities Monday faded somewhat moving into the close, but the major indices still ended to the upside as demand for stocks continues.

"People [are] stretching to be long, but nothing specific," a New York-based sellside trader said.

Another sellsider, this one from the West Coast, said he was not exactly sure what "the hoopla" over stocks is all about.

"Certainly the argument could be made that the selling in the bond market has created equity demand. That aside, I'm at a loss," the sellsider said.

"Converts are exceptionally quiet....valuations are looking a tad stretched. Also history would show that people tend to kick positions in January...after conservative year-end marks and anticipation of upcoming primary [activity]," the sellsider said.

Coal producers better bid

Massey Energy's 3.25% convertibles due 2015 were seen bid at about 98.75 at the close, which was up slightly from a 98.6 bid on Friday, according to a pricing source.

Trace data had the paper down by about 0.3 point at 98.15 at the end of the session, after having traded as high as 99 during the session.

A New York-based sellside desk analyst said his firm traded the paper at 98.5 versus a share price of $55.10 during the session.

Shares of the Richmond, Va.-based metallurgical coal producer stepped up to a nearly 4% gain before paring back late in the session to end up just 2.5%, or $1.33, for the day, settling at $54.98.

Massey Energy's 2.25% convertibles due 2024 didn't trade on Monday, according to Trace data, and were shown having last traded at 97.9 last week.

Meanwhile, Alpha Natural's 2.375% convertibles due 2015 traded at 133.5 versus a share price of $60.00 during the session, according to one source. And the paper was seen bid higher at 137.93 at the close, compared to 133.39 bid on Friday, according to a second pricing source.

Abingdon, Va.-based Alpha Natural is a supplier and exporter of metallurgical coal with operations mainly in the central and northern Appalachian regions.

Alpha Natural's shares made a move Monday similar to Massey's, jumping $1.44, or 2.4%, to $61.47 in heavier-than-normal trade.

The moves in the coal producers extend gains last week, when they rose in response to the U.S. jobless report, which showed a decrease by 34.000 to 388,000 in the number of people filing first-time claims for unemployment for the week ended Dec. 25.

Analysts had expected a higher figure of first-time filings for unemployment of 415,000.

LDK up slightly

LDK's 4.75% convertible senior notes due 2013 traded Monday at 99 bid, 99.125 offered, which was up from 98.75 bid, 98.875 on Friday.

Another sellsider reported a trade as high as 99.5 for the LDK 4.75% convertibles.

Last month, about $32 million of the notes may have been exchanged, according to the sellsider, after the company launched an exchange offer for up to $300 million of the $395 million outstanding of the 4.75% convertibles.

The company is offering new notes with the same terms and conditions but without the existing notes' April put and with a cash consideration.

The tender was being conducted to reduce the total principal outstanding of the existing notes.

On Monday, LDK, a vertically integrated manufacturer of photovoltaic products, said it had signed a definitive agreement with China Development Bank Capital Corp. Ltd., a subsidiary of China Development Bank Corp., Excel Rise Holdings Ltd. and Prosper East Ltd., investment funds affiliated with China Construction Bank Corp., and an investment fund affiliated with another major Chinese bank, under which those investors have subscribed to $240 million of series A redeemable convertible preferred shares of LDK Silicon & Chemical Technology Co., Ltd.

The LDK subsidiary will hold and operate LDK Solar's polysilicon business.

According to a news release, the preferred shares are convertible into ordinary shares of the polysilicon subsidiary at the option of holders at an initial conversion ratio of 1:1, subject to customary anti-dilution provisions and to an investment internal rate of return of 23% for the fiscal year 2010 and 2011 as calculated by targeted net profit.

LDK will be required to compensate the investors with cash if it fails to achieve such net income targets; and the investors will waive such compensation if the polysilicon subsidiary succeeds in conducting an initial public offering in 2011.

The investors can redeem the convertible preferreds within two years at 100% of the subscription price plus a 23% annual internal rate of return, according to the release.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

CommScope Inc. NYSE: CTV

LDK Solar Co. Ltd. NYSE: LDK

Massey Energy Co. NYSE: MEE

RTI International Metals Inc. NYSE: RTI

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