Tyson gains dollar neutral on S&P upgrade; Horizon Lines unchanged despite lower shares

By Rebecca Melvin

New York, Feb. 25 - Tyson Foods Inc.'s convertibles moved up outright and gained a point on a dollar-neutral basis in active trade Friday after Standard & Poor's raised its credit rating on the Springdale, Ark.-based meat processing company, market sources said.

S&P raised its rating back to investment grade with a stable outlook.

"That's pretty much the only thing that's trading," a New York-based sellsider said of Tyson.

There were pockets of weakness in the convertibles market in the past holiday-shortened week as selling hit the equity markets, but overall the convertibles market maintained a decent bid. Convertibles were thinly traded, however.

U.S. financial markets were closed on Monday in observance of Presidents Day.

Elsewhere, Horizon Lines Inc.'s convertibles were essentially unchanged in active trade at 92.75 bid, 93 offered, despite a slide in the underlying shares that continued for a second straight day after the Charlotte, N.C.-based shipping company announced the settlement of an antitrust suit and suspension of its stock dividend.

Elsewhere, UAL Corp. and AMR Corp. were notable in that they recovered ground lost earlier in the week due to higher oil prices related to the political unrest and violence in Libya.

"The airlines are tied to oil prices since a good chunk of airline operating expense is fuel," a Connecticut-based sellside analyst said.

Crude oil prices stabilized on Friday, spurring a bounce back in the broader markets, including stocks, after word that Saudi Arabia will boost its oil output to compensate for disruptions in Libya and following selling for much of the week due to worries over the volatile situation in Libya.

The airlines' rebound came despite continued elevated prices for jet fuel in regions like New York.

The New York harbor jet fuel price was up at $3.09 per gallon, its highest level of the year, and compared to $3.05 per gallon on Thursday and $3.07 per gallon on Wednesday, the analyst said.

But airlines use crude oil and heating oil for hedging and other financial benchmarks, the analyst said by way of explanation of the anomaly.

In other news, the U.S. economy grew slower than initially estimated in the fourth quarter at an annualized rate of 2.8%, which was revised down from 3.2%.

Government investment contracted more than expected and consumer spending was less robust than initially estimated, a Commerce Department report showed.

Economists had expected gross domestic product growth to be revised up to a 3.3% pace.

For all of 2010, the economy grew 2.8% instead of 2.9%.

Tyson gains dollar neutral

Tyson Food's 3.25% convertibles due 2013 were quoted at 130.625 versus a share price of $18.80, which was up more than 3 points outright and up a point on a dollar-neutral basis.

"They are up that way - up dollar neutral," a New York-based sellside trader said.

S&P's upgrade was mainly driving it, he said.

Shares of the meat processing company settled higher by 59 cents, or 2.2%, to $18.85 in volume that was above the three-month average volume.

The company said Wednesday that it amended a $1 billion credit facility to lower the fee structure on that credit that will cut the company's interest expense.

The facility contains provisions that satisfy a corporate credit ratings test for investment-grade status.

Horizon trades unchanged

Horizon Lines' 4.25% convertibles due 2012 traded unchanged at 92.75 bid, 93 offered on Friday, a New York-based sellside trader said.

Shares of the Charlotte, N.C.-based shipping company extended losses, trading down 32 cents, or 6.9%, to $4.42 on Friday, in addition to a 9.6% slide on Thursday.

The convertibles printed at 93.5 on Wednesday, prior to news out on the company.

The news is that the shipping company has settled an antitrust suit with the U.S. Justice Department for $45 million and said it will take a $30 million charge in its fiscal 2010 results.

Horizon said it may have to breach financial covenants as it expects weak first-quarter results due to the seasonality of its new trans-Pacific service between the U.S. West Coast and China.

The company also suspended its quarterly dividend effective immediately and said it was in discussions to sell its logistics business.

Separately, the company announced management changes, namely that Stephen Fraser will be interim chief executive and president, succeeding Charles Raymond, who is retiring. Alex Mandi has been named as the chairman.

Horizon, which owns or leases a fleet of 20 U.S.-flagged containerships and operates five port terminals, said it is in discussions with some of its lenders to waive a judgment default that will arise from the plea agreement.

Horizon's stock and convertibles were weak after the settlement news.

"It also trimmed its EBITDA basis from what they previously talked about," a sellside analyst said.

A New York-based sellside trader said with prints at the 92.75-93 range, the bonds have a 9.7% yield to maturity.

UAL, AMR revive

UAL's 4.5% convertibles due 2021 traded up 6 points outright at 150.125 on Friday, according to Trace data.

UAL's 6% convertible senior notes due 2029 traded up 4.5 points to 291.6.

AMR's 6.75% convertibles due 2014 printed at 108.249, which was up 1.2 points on the day, according to Trace data.

The airlines had pulled back earlier in the week due to higher fuel prices.

Brent crude had jumped to $115 per barrel and Nymex West Texas intermediate surged to more than $100 per barrel. On Friday, the Nymex West Texas benchmark was at about $96 per barrel at mid-afternoon.

"It's a psychological relief," a Connecticut-based sellside analyst said, who also said that the midweek pull higher might have been an over reaction to the geopolitical situation since he didn't see any change in the situation in the Middle East or north Africa for the better on Friday.

"It's definitely up in the air," he said, but as far as the airlines are concerned - of which AMR is the worst off of the group due to its ongoing union labor costs - there are different things that it can do to cope with higher fuel costs.

They can raise fares, impose surcharges, and cut back on the number of flights they make. They can also cut back costs in other areas other than those that are non-negotiable like labor costs, the analyst said.

"Airlines still want to make money," he said.

Mentioned in this article:

AMR Corp. NYSE: AMR

Horizon Lines Inc. NYSE: HRZ

Tyson Foods Inc. NYSE: TSN

United Continental Holdings NYSE: UAL

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