Convertibles mixed; Wyeth firmer; Nabors slightly better; Peabody lower, holds up better than stock

By Rebecca Melvin

New York, Oct. 27 - Convertibles trading was mixed Monday, but pricing seemed mildly better in continuation of a trend that began late last week, convertibles players said.

"Of course, bouncing a little from recent levels is like saying the patient's fever is down to 104.5," a New York-based sellside trader said.

Convertibles prices have swung to what many are calling multi-decade lows amid the turmoil of the current financial crisis. They improved slightly in the last couple of days, starting with investment-grade names.

Wyeth was one such improved name. Among other benchmarks, Nabors Industries Inc. was a little better on Monday despite overall weakness in the energy and commodity sectors.

Sources Monday referred to an article in this week's Barron's that urges investors to "bottom-fish" convertibles, which represent a safer way to play financials, autos and other risky industry groups.

A New York-based sellside desk analyst acknowledged that a little extra press was good for the asset class, but he was skeptical that convertibles would attract many retail players given their added complexity compared to stocks.

Another sellsider said that while he agreed that the asset class was cheap, he thought all asset classes are cheap and that capital is scarce.

Stocks weren't able to hold on to gains notched intraday and instead tumbled to end lower again as the specters of global economic recession and fund redemptions remain high.

The Dow Jones Industrial Average lost 203 points, or 2.4%, to 8,175.77; the S&P 500 lost 27.85 points, or more than 3%, to 848.92; and the Nasdaq Stock Market ended down 46 points, or nearly 3%, to 1.505.90.

Peabody Energy Corp. convertibles traded lower but didn't weaken as much as their underlying shares.

There was a flicker of activity in convertibles primary issuance Monday, but sources agreed that it didn't indicate any real sign of life.

Environmental Power Corp. plans to price $10 million to $25 million of five-year unsecured convertible notes in a registered deal being sold via Chicago-based Ziegler Capital Markets.

"This is really a PIPE," a New York-based syndicate source said, adding that its pricing wouldn't reveal anything to players looking for the public market to revive.

The public market "is going to be on hold for the next little while, possibly through the end of the year," the syndicate source said.

With fund redemptions occurring, and until investors are more comfortable with the capital positions they'll be in, corporate issuers will just have to wait, he said.

Once the market does revive, the source suggested, it will rely more on fundamental investors, and there won't be "the type of efficiency of pricing that we had in previous years. [Instead,] low-premium price structures will dominate."

Environmental deal aimed at retail

Environmental Power's planned $10 million to $25 million of five-year unsecured convertible notes is a registered deal but will be aimed uncharacteristically at retail investors, according to a Ziegler Capital source.

A New York-based sellsider reacted to the deal, saying: "It's not going to sell; it's too small of an issue, and that works against retail participation because there isn't going to be the liquidity that retail investors need."

Another source upon hearing said: "Good luck with that EPG."

The Environmental Power offering may be increased to up to $50 million.

The deal is expected to be launched Wednesday.

The notes will be sold in denominations of $10,000 and will mature Jan. 1, 2014.

Tarrytown, N.Y.-based Environmental Power is a developer, owner and operator of biogas renewable energy projects.

Its subsidiary, Microgy Holdings LLC, has entered into bond project financings in Texas and California. Proceeds of the notes will be contributed by Environmental Power to Microgy Holdings as equity.

Wyeth shows resilience

Wyeth's floating-rate convertibles due 2024 have traded in good size in the last few session at 96.25 bid, 96.50 offered. But at the same time, there have been smaller trades of 1 to 2 million bonds printing in the area of 95 bid, 95.50 offered, according to one sellsider.

"It's very odd. The buyer seems to be oblivious to the lower prints. Leads me to the belief it's not a convert guy," he said, adding that round lots had been trading below 96 before that.

The convertibles pay a coupon pegged a six-month Libor minus 50 basis points. The common stock traded lower on Monday, ending at its low for the day, down $1.60, or 5%, at $30.79.

The Madison, N.J.-pharmaceutical company said on Monday that trials of its improved Prevnar vaccine suggest that it is as safe as the original and may offer broader protection against infections in infants and young children.

Specifically, the data indicate that PCV13 may be as effective as Prevnar in helping to prevent invasive pneumococcal disease due to the seven serotypes shared by the vaccines and may provide expanded coverage for six additional serotypes found worldwide, the company said in a release.

The data were presented at the joint annual meeting of the Interscience Conference on Antimicrobial Agents and Chemotherapy and the Infectious Diseases Society of America in Washington, D.C.

The candidate vaccine includes the 13 most common pneumococcal serotypes associated with serious PD. Seven of these (4, 6B, 9V, 14, 18C, 19F and 23F) are included in Prevnar. The six additional serotypes (1, 3, 5, 6A, 7F and 19A) are associated with the greatest burden of residual, or remaining, invasive disease. Both vaccines contain CRM197, an immunological carrier protein with a 20-year history of use in pediatric vaccines.

Nabors a little better

Nabors' 0.94% exchangeable senior notes due 2011 traded at 76.5 versus a share price of $12.75 on Monday. The shares were higher most of the session but turned sharply lower about two hours before the end of the session, ending down 47 cents, or 3.7%, at $12.37.

The Bermuda-based drilling contractor said Monday that its chief financial officer, Bruce Koch, has resigned after 18 years. Nabors did not give a reason for Koch's departure.

Peabody ends better than shares

Peabody Energy's 4.75% convertible due 2066 traded at 66 versus a share price of $30.00 on Monday. Shares of the St. Louis-based coal company closed much lower at $26.30, which was down $3.38, or 11%, on the day.

The convertibles were indicated to close at about 65.6, little changed from the earlier trade, compared to a Friday price of 68.9.

Peabody competitor Arch Coal Inc. reported earnings that beat expectations, but the company lowered its outlook, citing near-term softening of coal demand.

Mentioned in this article:

Wyeth NYSE: WYE

Nabors Industries Ltd. NYSE: NBR

Peabody Coal Corp. NYSE: BTU

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.