Convertibles better bid; Transocean, Vale up; Best Buy off; Health Care REIT sells add-on

By Rebecca Melvin

New York, June 15 - The convertible bond market saw better bidders on Tuesday as pricing looked stronger in tandem with higher equities, but offers were in somewhat short supply as investors remain skittish about the markets' general direction.

Players will be watching for follow-through over the next few days, a New York-based trader said.

"[We've] gotta have a few days of buying in equities and credit markets, especially high yield, and that should help get converts moving again," the trader said.

Pressure seemed to be relieved for Transocean Ltd. and the other players in the Gulf oil leak - other than BP plc - after a letter from leaders of a House panel implied BP was more liable for the disaster than the other companies.

"It was the letter that was the key," a sellside analyst said of strength in Transocean, and the other companies, including Cameron International Corp., Anadarko Petroleum Corp. and Halliburton Co.

The letter "laid out a pretty damaging fact pattern for BP," the analyst said.

Rep. Henry Waxman, who chairs the House Subcommittee on Energy and Commerce, sent a letter with Rep. Bart Stupak to BP chief executive Tony Hayward ahead of his testimony before the committee.

The letter dated June 14 outlined questions raised by the committee's investigation into the spill, and asserted that BP's "carelessness and complacency have inflicted a heavy toll on the Gulf."

Secondary movers

Brazilian mining company Vale SA was in trade and better as some of that company's other convertible paper matured and left the market.

Those bonds were trading ahead of the match up of Brazil versus North Korea in the soccer World Cup, which continued to draw the attention of market participants on Tuesday.

Best Buy Co. slipped along with its underlying shares after the consumer electronics retailer posted a slightly higher profit that missed estimates.

Microsoft Corp.'s new 0% convertibles due 2013, which debuted in the secondary market last week, traded at 101.25 versus a share price of $26.35, compared to 100.5 versus a share price of $25.85 on Monday and 100.10 versus a share price of $25.40 on Friday.

And Health Care REIT Inc. reopened its issue of 3% convertible senior notes due December 2029 to add $152.01 million to that issue.

The broader market staged a strong rally that climbed past key technical lines to settle at a three-week high.

"Today is a good sign but investors are cautious - they have been fooled before and they are jumpy after May's performance," a New York-based trader said.

Transocean extends gains

Transocean's 1.5% series B convertibles due 2037 were seen settling at 88.44, compared to 87.7 on Monday, according to a pricing source.

Transocean's 1.5% series C convertibles due 2037 traded at 83.22 on Tuesday, compared to 81.7 on Monday; and Transocean's 1.625% series A convertibles due 2037 traded at 97 compared to 96.3 on Monday.

Shares of the Vernier, Switzerland-based company jumped $3.73, or 8.3%, to $48.51.

The House Energy and Commerce Committee told BP that although its investigation into the causes of the April 20 oil rig explosion in the Gulf is continuing, its understanding to date is that the blast appeared to be related to decisions the company made for economic reasons.

The 14-page letter also said BPs operations appeared to violate industry guidelines.

What is happening is that given some of the information coming out, greater potential liability is being assigned to BP and less liability for the other participants.

"Clearly it was a large legal uncertainty," an analyst said.

Meanwhile, the market will be watching for more information this week, not the least of which is president Barack Obama's Oval office speech Tuesday night.

What market participants will be listening for is what the president has to say about regulations, and about the timing and guidelines for any ongoing moratorium on drilling. His overall tone toward the industry will also be noted.

"There's going to be more regulation; nobody is denying that," an analyst said.

In addition to the president's Oval office speech, which will be his first since taking office, market waters are looking for developments arising from the president's meeting with BP officials on Wednesday and BP officials in congressional hearings.

The letter was encouraging from Transocean's perspective, the analyst said.

Vale improves amid tighter supply

Vale Cap Ltd. 6.75% mandatory convertibles due 2012, or ticker symbol CJS, settled up 1.44 points, or 1.9%, at 78.22.

Vale Cap Ltd. 6.75% mandatory convertibles due 2012, or ticker symbol CJT, traded up 1.26 points, or 1.7%, at 77.20.

Shares of the Rio de Janeiro-based company rose 84 cents, or 3%, at $27.78 on Tuesday.

The Vale 5.5% mandatory exchangeable notes, of which there were two issues, went away yesterday, a New York-based sellside desk analyst said.

Mining names were generally better on Tuesday as the equity world rallied, and cyclical names which have been underperforming, also improved. But in convertibles, the other notable mining name is Newmont Mining Corp., and those convertibles weren't seen in trade at his firm Tuesday, the analyst said.

Best Buy weaker after earnings

Best Buy's 2.25% convertibles due 2022 were last offered at 106.5 versus a share price of $38.35, a Connecticut-based sellside analyst said late in the session Tuesday.

Earlier the market for the Best Buy convertibles was 106 bid, 106.875 offered versus a share price of $38.50, the analyst said.

Previously the paper was in the 108 range, according to a pricing source.

Shares of the Richfield, Minn.-based company fell $2.49, or 6.1%, at $38.56.

Best Buy said stronger U.S. sales of notebook computers, mobile phones and appliances were partially offset by declines of televisions, gaming, music and movies in comparable-store sales. But U.S. same-store sales were still higher.

For the quarter ended May 29, Best Buy reported earnings of $155 million, or 36 cents a share, compared with $153 million, or 36 cents a share, a year earlier, which included 6 cents of restructuring charges. Revenue rose 6.9% to $10.79 billion.

Consensus estimates called for earnings of 50 cents a share on $10.93 billion in revenue.

Mentioned in this article:

Best Buy Co. NYSE: BBY

Health Care REIT Inc. NYSE: HCN

Microsoft Corp. Nasdaq: MSFT

Transocean Ltd. NYSE: RIG

Vale SA Nasdaq: VALE

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