By Rebecca Melvin
New York, May 2 - Convertibles traders were busy on Thursday as earnings season continued at full tilt and as the broader markets reversed Wednesday's losses, notching solid gains. The S&P 500 stock index made a fresh intraday high and closed up 1% at 1,597.97.
NetApp Inc. and Intel Corp. were among the top volume names in convertible trade. Intel was busy on news that the chip maker has tapped its own chief operating officer Brian Krzanich to be its next chief executive, replacing Paul Otellini on May 16.
The two Intel convertibles were active but little changed.
Action in the NetApp convertibles was driven by the paper's upcoming maturity next month.
"The stock has been selling off some, and as it gets closer to the conversion price, there's a chance that the put could work," a Chicago-based trader said of NetApp.
MGM Resorts International was another notable name. Its convertibles added outright and on a dollar-neutral, or hedged, basis Thursday after the Las Vegas-based casino operator reported a surprise profit for its first quarter on improved revenue.
Hornbeck Offshore Services Inc. was also active, trading up about 4 points outright, but only in line, or unchanged, on a dollar-neutral basis compared with shares, which surged nearly 15% on an earnings beat.
Meanwhile, GT Advanced Technologies Inc.'s convertibles fell about 3 points on a 5% stock drop after the solar equipment maker reported a quarterly loss that was better than expected. But it missed on revenue estimates.
The GT Advanced 3% convertibles due 2017 were seen at 81.794, which was down 2.9 points, according to Trace data. The paper trades on about a 45% delta but wasn't reported in trade among market players queried.
Alpha Natural Resources Inc.'s convertibles were firm despite a 5% stock drop after the Bristol, Va.-based coal producer reported a narrower-than-expected first-quarter loss on lower revenue.
The Alpha Natural 2.375% convertibles due 2015 traded at 95.25 and at 95.5, which was up about a point. Convertibles in this space generally trade outright only.
For the convertibles market overall, "valuations continue to remain very full, with trade driven this week by outrights and nontraditional buyers," a trader said.
"Nontraditional buyers continue to keep prices where they are," he said.
MGM improves
MGM's 4.25% convertibles due 2015 traded up to 112.125 bid, 112.75 offered versus an underlying share price of $14.60, a New York-based sellsider said.
That was up by about 2 points on an outright basis and up by 0.5 point on a hedged basis, using a delta of about 40%, the sellsider said.
MGM is a low-delta name that trades more on a credit basis, but it was improved on Thursday as shares rose. MGM shares ended up 75 cents, or 5.4%, at $14.55.
"We were trading some of that today; it was a little bit better on earnings," the sellsider said. He added that the company posted a 3-cent-per-share profit, contrary to some estimates calling for a loss of 15 cents per share.
MGM swung to a profit for the first quarter, reporting net income of $6.55 million, which was better compared with a loss of $217.3 million in the year-earlier period. Excluding items, profit totaled 3 cents per share.
First-quarter revenue rose nearly 3% to $2.35 billion, beating the $2.34 billion average estimate.
The company said that Nevada saw a pickup in the level of betting. Profit was also boosted by record performance at MGM's Chinese unit.
Hornbeck trades up in line
Hornbeck's 1.625% convertibles due 2026 closed at about 111 versus an underlying share price of $49.00.
The bonds, which are the shorter-dated of two Hornbeck convertible issues, were previously around 107ish.
The bonds have picked up delta as the stock has risen and currently trade on a 60% delta, a trader said.
Shares of the Covington, La.-based offshore services company actually closed up $6.37, or 14.6%, at $49.98.
Shares, which have been recovering for several weeks from a big drop in early April, were "up big on earnings," a trader said.
"They did better outright than on swap," the trader said.
Hornbeck beat earnings estimates by 28 cents per share and also beat on revenue.
First-quarter operating income was $47.4 million, which was up 66% from a year earlier.
Bond refinancing during the quarter resulted in a loss on early extinguishment of $24.3 million, or $0.42 per share. Excluding the loss, first-quarter earnings would have been $0.59 per share, up from $0.17 per share.
Revenue hit a quarterly record of $147.5 million, which was up 23% from a year earlier.
Alpha Natural firm
Alpha Natural's 2.375% convertibles traded at 95.25 and 95.5.
The bonds trade outright.
Shares fell 34 cents, or 4.6%, to $7.13 on Thursday.
Alpha Natural reported a first-quarter loss of $110.8 million, or 50 cents a share, compared to $28.8 million, or 13 cents, a year earlier. Excluding restructuring and other one-time items, the loss was 47 cents a share, which was better than the 48 cent per share loss that analysts were predicting.
But revenue dropped to $1.33 billion from $1.93 billion a year earlier.
Other coal names were also lower on Thursday. The sector has been hit hard by a combination of factors, including competition from low-priced natural gas for electricity production, slack global demand for steel on the metallurgical coal side, and a tougher regulatory environment imposed by the Obama administration.
Alpha Natural reported that prices for both Appalachian thermal coal, typically used to produce electricity, and metallurgical coal, used to make steel, both fell, while the Powder River Basin prices edged higher.
Metallurgical coal pricing dropped to $103.28 per short ton in the first quarter, from $145.51 in the year earlier period and from $121.27 sequentially.
Nevertheless, the company raised its forecast for Appalachian thermal coal shipments for 2013 to between 27 million to 31 million tons, which is up compared to its previous forecast of 25 million to 30 million tons of coal shipped.
GT Advanced retreats
GT Advanced Technologies' 3% convertibles due 2017 traded at 81.7 while GT Advanced shares fell 19 cents, or 4.9%, to $3.67 on Thursday.
The Nashua, N.H.-based provider of equipment and services that support solar and LED industries reported a loss of $8.9 million, or 7 cents a share, compared to $86 million, or 71 cents per share, in the year-earlier period. That was better than the consensus estimate for a 15 cent per share loss.
Revenue fell 84% to $57.8 million from $353.9 million in the first quarter of 2012, which missed the average revenue estimate.
Mentioned in this article:
Alpha Natural Resources Inc. NYSE: ANR
GT Advanced Technologies Inc. Nasdaq: GTAT
Hornbeck Offshore Services Inc. NYSE: HOS
Intel Corp. Nasdaq: INTC
| MGM Resorts International: | NYSE: MGM
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| NetApp Inc. | Nasdaq: NTAP
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