Patriot firms, trader says it's short covering; Navistar inches up after Icahn increases stake

By Stephanie N. Rotondo

Phoenix, July 12 - Patriot Coal Corp. remained one to watch in the convertible bond market Thursday.

The St. Louis-based coal producer filed for bankruptcy late Monday. Initially, that meant a huge decline for the bonds. Since then, the debt has been steadily inching higher. One trader opined that short covering was the reason.

Elsewhere, Navistar International Inc. paper was "up again," a trader reported. Though the paper is still down from where it began the week, the gains were notable, he said.

Patriot Coal inches higher

A trader said that Patriot Coal was "certainly one to look at," seeing the 3.25% convertible notes due 2013 "up again" at 10 bid, 10¼ offered.

"I'm not too sure why they are up," he said. "Their Chapter 11 filing was highly anticipated. I wouldn't be surprised if guys are short these in the 30s and 40s.

"Their balance sheet is not attractive," he added.

Patriot Coal's equity meantime increased nearly 11 cents to 29.5 cents.

The company filed for bankruptcy late Monday after rumors swirled all day that such an event was about to occur. The filing came as the company - along with the coal arena in general - has suffered due to slowing demand and increased federal regulations.

Icahn increase helps Navistar

Navistar's convertibles were gaining ground again Thursday following news that investor Carl Icahn had increased his stake in the company to 13.19%.

The move follows a similar action by fellow activist investor Mark Rachesky on Wednesday.

"That's important," a trader said, seeing the 3% convertibles due 2014 at 88½ bid, 89 offered.

"That's still slightly in on the week," the trader added.

The stock was also gaining, earning 43 cents, or 1.87%, to close at $23.43.

With Icahn's stake around 13% and Rachesky's at 14.9%, both are bumping up to a 15% takeover-defense limit imposed by the company. Should either investor attempt to go over the 15% mark, the company would be required to offer investors options to purchase additional shares, thereby offsetting the increased stakes.

Navistar is a Lisle, Ill.-based manufacturer of heavy- and medium-duty commercial trucks, engines, school buses and military vehicles.

Trader: NetApp a 'good name'

NetApp Inc.'s 1.75% convertibles due 2013 were on the active side, a trader said Thursday.

He pegged the issue in a 108-109 context versus a $28.38 stock price at midday.

"That name can get pretty active," he said. "It's a good name; people like the volatility."

The stock closed down 39 cents, or 1.39%, at $28.37.

NetApp is a Sunnyvale, Calif.-based data storage company.

Beazer's new issue gains

Beazer Homes USA Inc.'s new $100 million issue of 7.5% tangible equity units was trading up on Thursday.

A trader called the issue up 40 cents at $25.32. The issue price was $25.00 per unit.

Meanwhile, the equity traded down 2 cents to $2.86.

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 Monday.

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

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.

Mentioned in this article:

Beazer Homes USA Inc. NYSE: BZH

Navistar International Inc. NYSE: NAV

NetApp Inc. Nasdaq: NTAP

Patriot Coal Corp. Pink Sheets: PCXPQ

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