Rovi bounces back after early stumble; SandRidge quiet after earnings; Chesapeake steadies

By Rebecca Melvin

New York, May 4 - Rovi Corp. convertibles bounced back after an early stumble Friday after the Santa Clara, Calif.-based digital entertainment company reported that it swung to a loss in the first quarter, missing analysts' estimates.

On an outright basis, the Rovi convertibles ended down nearly a point, but on a dollar-neutral, or hedged, basis, the Rovi convertibles improved slightly by about 0.25 point, market sources said.

Other convertible issuers with earnings news influencing Friday's session included Houston-based natural gas company Cheniere Energy Inc., which reported a wider first-quarter loss due to higher costs associated with building its natural gas export terminal, and Oklahoma City-based oil and gas company SandRidge Energy Inc., which reported adjusted profit that beat analysts' estimates in the first quarter as oil output and prices increased.

Meanwhile, Chesapeake Energy Corp.'s convertibles looked to have steadied after selling pressure earlier in the week resulting from earnings news and reports on questionable business practices of its chief executive officer Aubrey McClendon.

Fitch Ratings said on Friday it revised Chesapeake's outlook to "negative" from "stable," and it affirmed its existing ratings on the company.

Trading volume in Chesapeake's various convertible bonds had quieted Friday from outsized action Wednesday.

"Sellers have eased up, and the credit seemed a little better," a New York-based trader said.

Another name mentioned in trade was Micron Technology Inc., with shares of the Boise, Idaho-based chipmaker a little stronger on positive news about the Elpida bankruptcy, a New York-based trader said.

Elsewhere, convertibles trading was described as quiet, with the universe called flat to weaker in tandem with the broader markets.

"To string any of the light volume together, and make anything of it is difficult," a New York-based trader said. "It was literally a bunch of generic stuff, and not a lot of any one thing.

Equities ended sharply lower, notching their worst week of 2012 as selling pressure kicked into a higher gear after a disappointing U.S. jobs report.

Hiring slowed in April from previous months, with an increase of just 115,000 jobs, the U.S. Labor Department reported. That was below expectations for 170,000 new jobs.

Meanwhile, the unemployment rate fell to 8.1% as 342,000 workers dropped out of the labor force.

The Dow Jones industrial average fell 168.32 points, or 1.3%, at 13,038.27; the Standard & Poor's 500 index slid 23.47 points, or 1.6%, to 1,369.10; and the Nasdaq Composite index fell nearly 68 points, or 2.3%, to 2,956.34.

Rovi improves dollar neutral

Rovi's 2.625% convertible due 2040 was quoted 100.5 bid, 102 offered versus an underlying share price of $26.20 in afternoon trading Friday.

The bonds had traded down to as low as 98 early in the session as the underlying shares sank more than 15%. Later they bounced back with shares to the 101 and change level, which was down from about 102 previously. That was down about a point on an outright basis but better by about 0.25 point on a dollar-neutral basis.

Shares had dipped to as low as $23.32, but ended well off that level at $26.80, which was down $1.39, or nearly 5%.

"The stock got pounded," a New York-based trader said.

"It sold off early and bounced back, so it ended not that different," a trader said. It had been 102 and change versus an underlying share price of $28 to $29.

Rovi reported a loss of $4.6 million, or 4 cents a share, for the most recent quarter, compared to net income of $17 million, or 15 cents per share in the year-earlier period.

Revenue rose 14.6% to $175 million from the year-earlier period.

Analysts were expecting earnings of 43 cents per share on revenue of $177.4 million.

The company has missed estimates for four straight quarters.

Cheniere strong

Cheniere's 2.25% convertibles due in August were about 0.3 point stronger during the session at 98.8, according to Trace data.

Cheniere, which is a $2 billion market cap company, reported a loss of $56.4 million, or 43 cents a share, in the three months ended March 31, compared to a loss of $39.8 million, or 60 cents a share, in the first quarter of 2011.

The company blamed results on liquefied natural gas terminal and pipeline development expenses and lower natural gas marketing and trading expenses.

Revenue fell 11% to $70.5 million from $79.2 million a year earlier.

SandRidge in focus

SandRidge's 8.5% convertible preferreds were seen at 114 bid, 115 offered on Friday, a New York-based trader said.

SandRidge's other convertible preferreds, including a 7% perpetual preferred, were not seen in trade, and none of the shares are traded widely, the trader said.

There was some concern, he said, among convertibles players regarding SandRidge's association with Chesapeake. The head of SandRidge is the former co-founder of Chesapeake Energy along with McClendon.

There was no excessive selling in the name, however, the trader said.

SandRidge said its oil production increased 33% to 3.4 million barrels from the year-earlier period. Meanwhile, U.S. crude oil prices rose during the quarter to an average $103 a barrel, which was 9% higher from the year-earlier period.

Nevertheless, the company reported a net loss of $232 million, or 58 cents a share, for the quarter, which was narrower compared to a loss of $316 million, or 79 cents a share, in the year-earlier period.

Adjusted income was 4 cents a share, which was higher than the 2 cents per share that analysts were expecting.

Revenue rose 28% to $341 million, which was short of the $380.5 million that analysts were expecting.

Chesapeake steadies

Chesapeake Energy's 2.5% convertibles due 2037 ended the trading session at around 85.5 versus the closing underlying share price of $17.39. That was up about 1.5 points outright from Wednesday but down from the upper 80s earlier in the week.

A second series of the Chesapeake 2.5% convertibles due 2037, which is a newer exchanged issue that trades at a slight discount to the original convertible, wasn't heard in trade.

Chesapeake's 2.75% convertibles due 2035 ended the session at 90.25, according to Trace data, which was little changed from its previous range.

Chesapeake shares added 20 cents, or 1.2%, to $17.39 on Friday. The shares tumbled on Wednesday by more than 15% but have traded up the other four days this week.

Fitch Ratings said its revised outlook stems from a still aggressive capital spending program for 2012 in a very weak natural gas environment.

The company's 2012 spending plans remain essentially unchanged in terms of magnitude and will create a large funding gap between cash flow from operations and capital spending and leasehold acquisitions, which is expected to be filled mostly from proceeds from asset sales and various monetizations, according to Fitch.

The Oklahoma City-based natural gas company reported Wednesday a net loss of $71 million, or 11 cents a share, for the first three months of the year, which was a narrower loss than in the year-earlier period.

On an adjusted basis, the company earned 18 cents a share, which was well below estimates for 28 cents a share for the quarter.

Revenue was $2.4 billion, which was below estimates, but higher from $1.6 billion in revenue reported in the year-earlier period.

Mentioned in this article:

Cheniere Energy Inc. NYSE: LNG

Chesapeake Energy Corp. NYSE: CHK

Micron Technology Inc. NYSE: MU

Rovi Corp. Nasdaq: ROVI

SandRidge Energy Inc. NYSE: SD

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