James River improves after earnings; Alpha Natural slips; Chesapeake recoups; CACI adds

By Rebecca Melvin

New York, May 3 - After turning in mixed earnings reports, a pair of coal companies were in focus Thursday among convertible bond players, and other energy names also garnered attention.

James River Coal Co. saw its two convertible bond issues trade higher by 2 to 3 points after the Richmond, Va.-based coal producer reported a wider, but better-than-expected, loss for its first quarter as metallurgical coal shipments improved and the company cut costs.

Alpha Natural Resources Inc. slipped a couple of points to 90 after the Bristol, Va.-based coal producer swung to a loss that was wider than expected and cut its 2012 production outlook. Still, the company forecast that steelmaking, the market for its higher grade, metallurgical coal, may improve later this year.

Chesapeake Energy Corp.'s convertibles recouped a chunk of their losses sustained in a swoon Wednesday after earnings.

Chesapeake's convertibles regained about 0.75 point, a trader said.

But the Oklahoma City-based natural gas company confirmed after the market close that the company and its chief executive Aubrey McClendon have been notified by the Securities and Exchange Commission that an informal inquiry has been opened.

The agency indicated that the probe should not be construed as an indication of any violation of federal securities law, Chesapeake noted, but it nevertheless requested the retention of certain documents.

The market for Endeavour International Corp. was seen at about 88 bid, 90 offered on Thursday, although it was not reported in trade, as the underlying shares of the Houston-based oil and natural gas company extended losses after a 24% slide on Wednesday following a wider first-quarter net loss.

Endeavour's net loss widened to $35.3 million, or 94 cents per share, from $7.5 million, or 30 cents per share, a year earlier. Revenue rose 7.5% to $51.2 million. Excluding items, the company posted net loss of 42 cents per share, compared with analysts' estimates of 28 cents per share.

In a sector other than energy, CACI International Inc.'s convertibles were lower outright, but better by about a point on a dollar-neutral, or hedged, basis, a New York-based trader said, after the Arlington, Va.-based information technology and professional services provider reported disappointing quarterly revenue.

CACI's revenue forecast going forward also missed expectations as the company, which provides services primarily for the U.S. government, is affected by cutbacks in spending in the public sector.

James River adds on earnings

James River's 4.5% convertible due 2015 traded at 47.75, and at the close was seen at 46.5 bid, 48 offered, versus the underlying share price of $4.44, a Connecticut-based trader said.

James River's 3.125% convertibles due 2018 traded at 37.5 during the session and was seen at the close between 36.5 bid, 37.5 offered.

James River shares slipped from initial gains to a loss of 19 cents, or 4%, to $4.44.

"It was a good report. There are still a lot of issues. Anything that trades below 50 has a lot of hair on it, but it was a good report," a trader said of James River's quarterly results.

A Connecticut-based analyst said that the response to the earnings news was a "knee jerk reaction" and that "Street estimates go down from here."

A trader said the far dated, 3.125% convertibles "were really for sale." But they traded up slightly from the mid 30s, getting lifted at 37.5.

The closer-dated, 4.5% convertibles "had gone radio silent," but they were also up 2 to 3 points on Thursday.

The 9.5-point to 10-point spread between the two bonds reflects the different maturities and coupons on the two issues.

The 2015 convertibles trade close to a 30% yield to maturity, while the 2018's are 23% yield to maturity, an analyst said.

"This reflects higher risk, and trouble that the company may have servicing this piece of debt," the analyst said.

He thought though that most players would agree that 2018 to 2019 maturities are safer as the coal industry should recover well before that.

James River said its first-quarter loss increased to $15.7 million, or 45 cents a share, but was still below the 65 cents per share loss that analysts were expecting. The loss, however, was wider than the 7.6 million, or 28 cents a share, loss in the year-earlier quarter.

Sales rose 70% to $279.8 million. Analysts were expecting the company to post revenue of $277.5 million.

James River also said it is withdrawing its 2012 capital expenditure guidance of $125 million because of market volatility.

Alpha Natural trades down

Alpha Natural's 2.375% convertibles due 2015 stood at 90 at the end of the session, after earlier having traded at 91.5, according to Trace data. That represented a 2-point slide.

Alpha Natural shares slipped 53 cents, or 3.5%, to $14.95 on Thursday.

The Bristol, Va.-based coal producer posted a wider-than-expected quarterly loss and cut its 2012 production outlook, but the company forecast that the market for steelmaking may improve later this year.

Weak demand from power utilities for Alpha Natural's thermal, or steam coal, would further cut production and double exports of coal used to generate electricity.

Due to a U.S. mild winter and lower natural gas prices, which have encouraged power plants to switch to natural gas from coal where possible, demand for coal has fallen, the company said.

Because coal-fired power generation has fallen to below 40% of total U.S. electricity generation, Alpha Natural will make further production cuts, lowering its 2012 outlook target to 100 million tons to 116 million tons from a previous goal of 107 million tons to 124 million tons.

For the first quarter, Alpha Natural lost $29.1 million, or 13 cents a share, compared to net income of $49.8 million, or 41 cents a share, for the year-earlier period.

Excluding items such as expenses arising from Alpha's acquisition of Massey Energy and other costs, the company's adjusted loss was $58.2 million, or 27 cents a share. Analysts on average had expected a loss of 6 cents per share.

Sales rose to $1.93 billion from $1.13 billion.

Alpha Natural completed a $7.1 billion takeover of Massey Energy in June.

Mentioned in this article:

Alpha Natural Resources In. NYSE: ANR

CACI International Inc. Nasdaq: CACI

Chesapeake Energy Corp. NYSE: CHK

Endeavour International Corp. NYSE: END

James River Coal Co. Nasdaq: JRCC

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