Hornbeck Offshore gains in trade; AMR, Continental active; Intel bobs; Emmis eyes exchange

By Rebecca Melvin

New York, July 6 - The convertible bond market was described as "slow" on Tuesday, the first trading session of the week after a long holiday weekend, and one in which equities opened significantly higher but sold off throughout the day to end with fractional gains.

Hornbeck Offshore Services Inc. was an active name in the convertibles market, trading little changed, but higher compared to a slump at the end of last month for the provider of offshore oilfield services.

A pair of airline convertibles, AMR Corp. and Continental Airlines Inc., saw trades as well and was higher in tandem with shares that opened significantly higher but pared gains later on.

Intel Corp. saw its older-dated paper in trade, retracing a 1-point loss notched on Friday, as shares opened higher and managed to hold on to a gain of 28 cents, or 1.5%, to close at $19.48 on Tuesday.

Meanwhile, Emmis Communications Corp. announced terms of its exchange offer for the 6.25% series A cumulative convertible preferred stock. One sellsider called the exchange offer "terrible" for holders, and that paper, which is closely held, closed down 2% on the day on the Nasdaq stock exchange.

"It was a pretty slow day. Volumes have been muted for awhile, but high-yield names were not too bad on Thursday and Friday. I don't know if that activity was representative for today though," a New York-based sellside analyst.

Over the last couple of weeks, sentiment has gotten weaker, as more macro data, including payrolls reports, has lagged expectations, the analyst said.

Short-dated paper in favor

In general, investors are looking for short-term paper throughout the entire convertibles space of both high-yield and high-grade quality, the analyst said.

"People are more comfortable with investment-grade paper, but that's still pretty rich in terms of valuation even though there has been a pull back," an analyst said.

Blue chip names like Intel and Xilinx Inc. are not trading that actively because they have gotten sold predominantly into outright hands, and those investors are holding it.

Hornbeck better

Hornbeck's 1.625% convertibles due 2026 traded at 76 to 76.5 during the session, sources said.

"At 76, they are getting back to where they traded in mid June; they were a little weaker last week," a New York-based trader said.

Hornbeck stocks and bonds have been volatile due to uncertainty over offshore drilling in the Gulf of Mexico.

"They were up in mid June because they were awarded a BP contract," an analyst said.

Shares of the Covington, La.-based offshore supply vessel provider dropped from highs - as did most of the stock market Tuesday - to notch a loss of 30 cents, or 2%, leaving the stock to stand at $14.94.

That level is half its 52-week high of $30.55.

AMR, Continental in trade

AMR's 6.25% convertibles due 2014 traded at 95 versus a share price of $6.70 on Tuesday, according to one sellsider. A second sellsider put the price higher by about half a point at 95.5 on a hedge of about 89%. On May 6, the AMR convertibles traded at 98.25 versus a share price of $6.75.

Shares of the Fort Worth-based airline opened higher but slid down, to close lower by 7 cents, or 1%, at $6.40.

After the close, AMR's principal subsidiary, American Airlines Inc., reported a June load factor of 86.8%, an increase of 1.6 points versus the same period last year.

Traffic increased 3.2% and capacity increased 1.3% year over year.

Domestic traffic increased 1.2% year over year on 0.6% more capacity.

International traffic increased by 6.6% relative to last year on a capacity increase of 2.4%.

American boarded 7.6 million passengers in June.

Continental's 5% convertibles due 2023 traded at 109.5 on Tuesday, versus a share price of $20.70, according to a sellsider. Continental is a Houston-based airline.

Intel ebbs and flows

Intel's 2.95% convertibles due 2035 traded at 94.5 during the session and settled closer to 94. It was a point higher compared to Friday, when it was down a point at 93.

The Intel 2.95% paper is non-callable until 2035 but has a provisional call after 2012 if shares are at $40.50.

"These bonds are such long-term paper, and so heavily weighed in the index, that they are much more popular with the outright investors than with hedge players," a sellside analyst said.

The new Intel 3.25% convertibles due 2039 are non-callable and have a soft call in 2019 if the stock price is over $34.00.

Both bonds are trading AAA in spread. "They are a high-yielding, stock alternative, outright plays," the sellsider said.

Although they have a relatively high delta of about 80% on the Intel 3.25% paper, and a 60% to 70% delta on the 2.95% paper, they have no gamma, and don't appeal to hedge players.

Emmis trades 2% lower

Emmis' 1.625% convertible preferred shares closed on the Nasdaq stock exchange at $20.00, which was down 50 cents, or 2.4% after the Indianapolis-based diversified media company announced that it is offering to issue 12% pay-in-kind senior subordinated notes due 2017 in exchange for any and all of its 1.625% preferreds.

The exchange offer is required under the company's merger agreement with JS Acquisition, LLC, a company formed by Emmis chairman and chief executive officer Jeffrey H. Smulyan to take the company private. The financing for the transaction will be provided by an affiliate of Alden Global Capital. Alden holds 41.4% of the preferreds.

The company initially announced plans for the exchange in April.

Holders who exchange will receive $30 principal amount of notes for each $50 liquidation preference of preferreds. No accumulated dividends will be paid.

The new notes will be callable at par at any time.

The exchange offer expires Aug. 3.

Mentioned in this article:

AMR Corp. Nasdaq: AMR

Continental Airlines Inc. NYSE: CAL

Emmis Communications Corp. Nasdaq: EMMS

Hornbeck Offshore Services Inc. NYSE: HOS

Intel Corp. Nasdaq: INTC

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