Convertibles market quiet; Navistar steady before conference call; Patriot Coal around 30

By Rebecca Melvin

New York, July 5 - The convertible bond market was quiet Thursday after the markets were closed Wednesday in observance of the Fourth of July and as traders - those who were in - looked ahead to the closely watched U.S. monthly jobs report expected Friday.

"It was very, very quiet. There is just nothing to talk about," a New York-based trader said of Thursday's session.

There was some activity in Navistar International Corp.'s 3% convertibles, which traded little changed at about 94. The Lisle, Ill.-based maker of engines and commercial and military trucks has set a conference call on Friday "to provide an update to various operational matters related to the company."

Patriot Coal Corp.'s convertibles were last seen at 31.5 bid 32 offered, according to one sellsider, and were also quoted at 28 bid, 30 offered despite a powerful surge in the underlying shares.

The stock pop, which was up 30% intraday and came on the heels of a more than 30% rally in the previous trading session, was attributed to speculation that a financing deal for the St. Louis-based coal producer is imminent, a Connecticut-based analyst said.

Among the names that dominated the Trace list of traded names Thursday were Amgen Inc., Medtronic Inc., Isis Pharmaceuticals Inc.'s 2.625% convertibles and Amylin Pharmaceuticals Inc. These names were mixed and mostly in line with trading of the underlying shares.

The convertibles of Coeur d'Alene Mines Corp. didn't appear to respond to word that the precious metals concern will not be proceeding with its planned $350 million issue of eight-year notes. Coeur d'Alene cited "weak overall conditions in the debt markets."

In economic data, the ADP National Employment report Thursday showed that hiring by private employers picked up in June, with 176,000 new workers added to payrolls. The report is a precursor to the government's monthly nonfarm payrolls due out Friday.

In addition on Thursday, the Labor Department reported that the number of unemployment claims last week dropped by 14,000 to a seasonally adjusted 374,000, which was better than expected.

According to estimates, nonfarm payrolls are expected to have increased in June by 90,000.

Also hitting the markets was word that three central banks cut rates, including China, which lowered interest rates for the second time in less than a month, the European Central Bank and the Bank of England.

ECB president Mario Draghi said the ECB's fear of a broader slowdown across the euro zone had materialized, justifying the decision to cut its benchmark interest rate.

Navistar steady

Navistar's 3% convertibles due 2014 traded at 94 during the session and were seen at 93.75 bid, 94.125 offered versus an underlying share price of $29.64 late in the day.

Shares of the Lisle, Ill.-based engine and heavy duty truck maker slipped 25 cents, or nearly 1%, to $28.79.

The bonds appear to have gotten a little better over the last few sessions, a New York-based trader said.

A week ago, the bonds were at 92.75 versus an underlying share price of $28.00.

There are varied opinions about the bonds and what is next for the company. One trader said he continues to view the bonds as overvalued.

A second trader said, "Some large investors are buying the stock; anyone selling their converts down here is betting those stock investors are incorrect in their purchase"

Tuesday the company disclosed that it will hold a pre-market conference on Friday "to provide an update to various operational matters related to the company."

Gimme Credit analyst Vicki Bryan, who is negative on the name, said in an intraday note published Tuesday that operational matters could have to do with moves away from its controversial Exhaust Gas Recirculation, or EGR technology, which Navistar is heavily invested in. Others in the industry use the more conventional Selective Catalytic Reduction, or SCR, technology.

Bryan said that possibly buying SCR components and installing them on its own engines is a bad idea as any jerry rigging of existing EGR engines would be a costly patch that could further devalue the company as its cash continues to be drained.

At the same time, Bryan believes Friday's disclosure will be positive. And she views what would be truly positive for the company would be an announcement that the company will abandon its controversial EGR engine, which has not won EPA approval; that the chief executive Dan Ustian is departing; and that asset sales will be pursued to raise cash.

Another positive development would be a sale brokered by billionaire investor Carl Icahn, who owns 12% of the company's stock, Bryan said.

Patriot Coal around 30

Patriot Coal's 3.25% convertibles due May 31, 2013 were seen last at 31.5 bid, 32 offered on Thursday, and a second source said the market was 28 bid, 30 offered.

Shares of the St. Louis-based coal miner surged another 42 cents, or 23%, to $2.26 on Thursday. That gain was on top of a 30% climb on Tuesday.

The Patriot convertibles do not move with the shares.

Investors are awaiting word that the company has succeeded in negotiating a financing deal following a credit facility that was pulled at the end of May. The facility was supposed to fund redemption of the bonds next year. Although the coal sector has been hit by weak demand and pricing, Patriot Coal also cited a potential customer default for lowering its sales volume and price estimates.

Mentioned in this article:

Amgen Inc. Nasdaq: AMGN

Amylin Pharmaceuticals Inc. Nasdaq: AMLN

Coeur d'Alene Mines Corp. NYSE: CDE

Isis Pharmaceuticals Inc. Nasdaq: ISIS

Medtronic Inc. NYSE: MDT

Navistar International Corp. NYSE: NAV

Patriot Coal Corp. NYSE: PCX

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