Alpha Natural jumps on debut; Cobalt International rises on hedge; Electronic Arts flat

By Rebecca Melvin

New York, May 8 - Alpha Natural Resources Inc.'s newly priced 3.75% convertibles traded up on their debut in the secondary market on Wednesday, expanding between 5.5 points to 5.7 points on a dollar-neutral, or hedged, basis after the $300 million issue priced at the talked price points before the market open, market sources said.

Alpha Natural's existing 2.375% convertible notes due 2015, of which about $181 million was being repurchased with proceeds of the new deal, were higher by about 2 points to 97.75 or 98.

Alpha Natural's 3.25% convertible notes due 2015, of which about $226 million is being repurchased with proceeds of the new deal, were up nearly 3 points in trade at 98.75 to 99.

Cobalt International Energy Inc. traded actively at lower pricing on an outright basis, but was higher on a hedged basis, after news that investors of the Houston-based oil and gas exploration company were selling about 50 million shares in a secondary offering.

But Electronic Arts Inc. traded about flat dollar neutral - although higher outright - after the Redwood City, Calif.-based video game publisher reported a fiscal fourth-quarter loss but guided for better-than-expected full-year results. Electronic Arts shares surged 17%.

Meanwhile, stocks continued to drift higher, with earnings reports a main market driver in the absence of major U.S. economic news. The S&P stock index hit its fifth straight record high, adding 6.72 points, or 0.4%, to 1,632.68. The Dow Jones industrial average gained 48.92 points, or 0.3%, to 15,105.12, notching its second straight day above 15,000. The Nasdaq stock index added 16.64 points, or 0.5%, to 3,413.27.

New Alpha Natural trades up

Alpha Natural's newly priced 3.75% convertible bonds traded up to as high as 109.75 on Wednesday, which looked to be up about 5.5 points on a dollar-neutral basis using a theoretical delta of 65%, according to a New York-based convertibles analyst.

Around midday the level was called 108 bid, 109 offered versus an underlying share price of about $7.13, according to a syndicate source.

A third source put the new paper at 108.5 bid, 109 offered versus an underlying share price of $7.14. That meant the new issue was up about 5.7 points on a dollar-neutral basis using a theoretical delta of about 70%.

Shares of the Abingdon, Va.-based coal producer gained 48 cents, or 7.1%, to $7.21 in heavy volume.

Alpha Natural priced $300 million of 4.5-year convertible senior notes in an overnight deal to yield 3.75% with an initial conversion premium of 50%, according to a term sheet.

The notes have contingent conversion at a 130% price hurdle. They are non-callable, and they have net share settlement.

Barclays was the active bookrunner on the deal, with passive joint bookrunners J.P. Morgan Securities LLC, BofA Merrill Lynch, Citigroup Global Markets Inc., Morgan Stanley & Co. LLC, BMO Capital Markets Corp. and Deutsche Bank Securities Inc.

"The stock helped bail them out," a New York-based trader said of the deal's first-day performance. He thought shares were higher on optimism over improving fundamentals. "The deal has alleviated part of the funding need for their upcoming maturities."

"The premium was very high optically, but vol. is very high in this name, in around the mid 50% range - although I don't know if people valued it at that - but that made it seem reasonable," he said.

A credit spread on this paper, which is under five years, was seen in the area of 650 basis points over Libor.

Existing Alpha bonds up

Alpha Natural's existing 2.375% convertible notes due 2015 traded up about 2 points to 97.75 or 98.

Alpha Natural's 3.25% convertible notes due 2015, which were issued by Massey Energy Corp., a wholly owned subsidiary of Alpha Natural, traded up nearly 3 points to 99.

There are still a couple years left outstanding on the issues, so it wasn't trading up to par.

Alpha Natural used proceeds of the new deal to repurchase the existing notes, or about $181 million of the 2.375% convertible notes, and $226 million of the 3.25% convertible notes.

The overnight deal is registered and has an over-allotment option for up to $45 million of additional notes.

Cobalt expands dollar neutral

Cobalt's 2.625% convertibles due 2019 were seen at 111.75 bid, 112.125 offered at the end of the session, versus an underlying share price of $26.70.

Cobalt shares fell $2.08, or 7.2%, to $26.70.

The bonds were lower outright by more than 2 points, but on a dollar-neutral basis they were better by a point or more.

Precipitating the trade was the secondary offering in which shares are being offered to the public by shareholders at $26.80, which was below the closing mark for the shares on Tuesday, before the offering was announced.

Electronic Arts flat

Electronic Arts' 0.75% convertible senior notes due 2016 were seen at 102 versus an underlying share price of $21.20.

That was down about 2 points outright but flat, or in line, on a dollar-neutral basis.

Electronic Arts shares surged $3.15, or 17%, to $21.56 on the day in extremely heavy volume.

The company reported fourth-quarter earnings that missed expectations for $0.55 per share, but it guided higher for fiscal 2014, suggesting that the company's turnaround initiatives are doing some good.

The company sees current fiscal first-quarter earnings of $0.62 per share on revenue of $450 million. For full-year 2014, earnings are now expected to be $1.20 per share, which is a dime better than estimates, on revenue of $4 billion.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Cobalt International Energy Inc. NYSE: CIE

Electronic Arts Inc. NYSE: EA

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