Patriot Coal convertibles busy; Kodak gains on executive bonus plan; Theravance firms up

By Stephanie N. Rotondo

Phoenix, July 11 - Convertible bond traders are starting to see distressed players coming into the market, sources told Prospect News on Wednesday.

But there is also alot of demand for "cash substitute names," a trader said.

"People are looking for safety, short duration and high quality," he said. On the other hand, others are wiling to "roll the dice" on shakier names like Patriot Coal Corp. and Eastman Kodak Co.

Speaking of both names, Patriot remained an actively traded name, though price movement was nil. Kodak meantime moved higher as the company sought to tie executive bonuses to the success of its reorganization effort.

Theravance Inc. was also on the rise following the release of positive results on one of its drug candidates on Tuesday.

In the primary, Beazer Homes USA Inc. priced a $100 million offering of 7.5% tangible equity units late Tuesday. The deal was moving north of par, even as the company's stock drifted down.

Patriot active, but steady

Patriot Coal's 3.25% convertible notes due 2013 continued to be active Wednesday as investors continued to react to the company's bankruptcy filing on Monday.

"I was amazed at how much Patriot traded again today," a trader said.

The trader said the convertibles were trading in a range of 6¾ to 9, which he deemed "not much different" from previous levels.

Another trader, however, quoted the debt at 7¾ bid, 8 offered, up 1 to 1½ points from the previous day.

The stock meantime closed down 3 cents, or 14.07%, to 18.7 cents.

Patriot filed for bankruptcy late Monday following reports that the company had already lined up debtor-in-possession financing. The St. Louis-based coal producer received approval to access $677 million of the $802 million facility late Tuesday.

Citigroup Inc., Barclays plc and Bank of America Merrill Lynch facilitated the DIP loan.

The facility consists of a $375 million term loan, a $125 million revolving credit facility and $302 million in letters of credit from previous loans that were rolled over.

Patriot will use $377 million of the DIP loan to repay current debt, leaving the remainder to fund operations while it goes through the bankruptcy process.

Kodak moves forward

Kodak's debt was getting a boost Wednesday as the Rochester, N.Y.-based company sought approval to tie executive bonuses to the company's turnaround success.

A trader said the 7% convertible notes due 2017 were higher at 18 bid, 19 offered.

"They've been moving up steadily," he said.

"Lots of things sold off at the end of the quarter, especially this kind of [distressed] paper," he said, adding the move was "maybe too much."

Kodak's equity was also rising, gaining modestly to end at 27.4 cents.

Under Kodak's proposed compensation plan, 15 executives would receive as much as a total of $8.82 million in bonuses based on how effective they are at reorganizing the company and how much recovery creditors receive.

Kodak filed for Chapter 11 protections in January.

Theravance trends upward

A trader said Theravance's 3% convertible notes due 2015 continued to gain ground, a trend set Tuesday.

He pegged the issue at 125 versus a stock price of $29.45 at midday. Paper had been 122 bid, 122¼ offered versus a $28.18 share price on Tuesday.

The stock closed up $1.01, or 3.57%, to $29.32.

On Tuesday, the South San Francisco-based pharmaceutical company said that it had received "positive topline results" from a study of its TD-1211 drug, which is a potential treatment for chronic, non-cancer pain patients with opioid-induced constipation.

The results allow the company to move into the third phase of testing.

Beazer brings new deal

Beazer Homes brought a $100 million issue of 7.5% tangible equity units late Tuesday.

Come Wednesday, the units were trading at $25.15 at midday, according to a trader. He added that the paper had traded as high as $25.50.

After the bell, another trader said he saw a $24.90 bid for the units and an offer at $25.25.

"They probably traded right around the issue price," he said.

Issue price was $25.00 per unit.

Meanwhile, the equity traded down a dime, or 3.36%, to $2.88 on Wednesday.

The registered tangible equity units are comprised of a prepaid stock purchase contract and a 6% senior amortizing note due July 15, 2015.

The threshold appreciation price is $3.55, and the reference price is $2.90. The settlement rate is a minimum of 7.0373 shares of common stock and a maximum of 8.6207 shares.

The units will be listed on the New York Stock Exchange under the ticker symbol "BZT." Settlement is expected July 16.

Credit Suisse Securities (USA) LLC, Goldman Sachs & Co., Deutsche Bank Securities Inc. and UBS Securities LLC are serving as the joint bookrunners for the offerings, and KKR Capital Markets LLC and Moelis & Co. LLC are serving as co-managers for the offerings.

Proceeds are expected to be used for growth capital, including about $100 million for potential land investments in Florida, California, Texas, North Carolina and Arizona, and for general corporate purposes, including the repayment of outstanding debt.

Beazer is an Atlanta-based homebuilder.

AMR gaining ground

AMR Corp.'s chief executive, Tom Horton, has agreed to look at all available options for the Forth Worth-based bankrupt airline as it seeks to reorganize.

In a letter to employees sent out Tuesday, Horton said he had changed his mind after evaluating the company's prospects. He had previously vigorously maintained that AMR - the parent of American Airlines - remain independent.

The news gave the company's bonds a boost, a trader said.

He quoted the 6¼% benchmark convertible notes due 2014 at 63 bid, 63¼ offered.

The stock ended up nearly 6 cents, or 12.33%, to 54.04 cents.

AMR is reportedly planning to begin talks with other airlines within the next month. U.S. Airways has already been pushing for a merger with the company and, at the National Press Club's upcoming annual luncheon, CEO Doug Parker will talk about why the industry as a whole needs consolidation.

It is expected that parker will outline the reasons why U.S. Airways and AMR should combine.

However, news outlets reported that Parker has not yet received a call from AMR.

Mentioned in this article:

Patriot Coal Corp. Pink Sheets: PCXCQ

Eastman Kodak Co. Pink Sheets: EK

Theravance Inc. Nasdaq: THRX

Beazer Homes USA Inc. NYSE: BZH

AMR Corp. OTCBB: AAMRQ

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