Transocean extends gains; Omnicare down after earnings; NetApp active; Trico Marine sinks

By Rebecca Melvin

New York, Aug. 5 - Transocean Ltd. extended gains Thursday after the oilfield-services company reported quarterly earnings late Wednesday. Its credit was tighter, and fear over the name seemed to be dissipating with the improving Gulf oil spill situation, market sources said.

After the close of markets, however, Transocean, which leased its Deepwater Horizon rig to BP plc, said that in response to a request from Transocean to be indemnified against other claims, BP "has asserted that the facts are not sufficiently developed to determine who is responsible."

Omnicare Inc. convertibles were lower after the geriatric pharmaceutical-services company reported disappointing earnings and lowered its full-year earnings outlook, sending the underlying shares down 11%.

NetApp Inc. was also active, ending the session down about a point.

In the distressed arena, Trico Marine Services Inc.'s 8.125% convertibles plunged in active trade after the marine services company disclosed that it's renegotiating its debtor-in-possession financing.

Elsewhere, Allegheny Technologies Inc. and Molina Healthcare Inc. were in trade, with the Molina paper expanding about a point on shares that were down 11%, according to a New York-based sellside trader.

No new issuance was heard in the U.S. convertibles market, but in overseas activity Acer Inc. launched an offering of $500 million of 0% convertibles in five-year and seven-year tranches.

The Taipei, Taiwan-based PC and notebook manufacturer's bonds were indicated with a 0% to 0.875% yield to maturity/put and an initial conversion premium of 25% to 35% for the 2015 notes, and indicated with a 1.5% to 2.875% yield to maturity/put and an initial conversion premium of 27.5% to 40% for the 2017 notes.

Acer up in the gray

In the gray market, Acer's A tranche was indicated at issue price plus 3 points during the session, while Acer's B tranche was at issue price plus 1.5 points, according to Barclays Capital Research, based in London.

Barclays' convertibles analysts valued the Acer As at 100.2 to 104.4 at issuance on best to worst terms for investors, and put the B tranche at 98.8 to 106.5.

The valuation assumed a credit spread of 160 basis points to 200 bps, 32% volatility and 5% borrow, Barclays said in research published Thursday.

"Hence, we find both tranches attractive on mids or better and see more value in tranche B," the analysts wrote.

Acer is the No. 2 vendor in terms of market share in the worldwide PC market (14.1%) and No. 1 in the notebook market (19.6%), as of the first quarter of 2010.

In May, Acer signed an agreement with Founder Technology Group to help it expand into China, the analysts said.

"We believe this issue will appeal to investors due to the paucity of Taiwanese paper combined with exposure to the technology sector and, in particular, the potential for Chinese consumer exposure. The high bond floors will also be attractive," Barclays said.

Acer said proceeds will be used to procure raw materials overseas to support its business growth.

Transocean extends gains

All the Transocean convertibles were better again Thursday, after gaining Wednesday.

Transocean's 1.625% series A convertibles due 2037 traded at 99, compared to 98.625 on Thursday and 97.7 on Tuesday.

Transocean's 1.5% series B convertibles due 2037 traded at 94.25 on Thursday, compared to 93.75 on Wednesday and 92.3 on Tuesday.

Transocean's 1.5% series C convertibles due 2037 traded at 90.5 on Thursday, compared to 89.75 on Wednesday and 87.7 on Tuesday.

Shares of the Vernier, Switzerland-based offshore drilling contractor gained $4.37, or 8%, to $57.93 on Thursday, compared to Wednesday's jump of $3.17, or 6.3%, to $53.56.

One sellsider said all the Transocean convertibles were up about 0.5 point to 1 point.

On Thursday, the company said its 400-page contract with BP protected itself from lawsuits stemming from the explosion of the Deepwater Horizon rig in April. But the company also said that second-quarter profit fell 11% to $720 million, or $2.22 per share, compared to $808 million, or $2.49 per share, in the same quarter of 2009.

The profit drop was due to lower rig demand and increased expenses related to the BP oil well leak.

Omnicare lower after earnings

Omnicare's 3.25% convertibles due 2035 traded down to 83.5 bid, 83.875 offered, down from about 85.

The bonds were seen off outright by 1.5 points to 1.75 points. But one source said the bonds bounced back to 85 at the end of the session.

Shares of the Covington, Ky.-based geriatric pharmaceuticals company slid $2.73, or 10.8%, to $25.53 in heavy volume Thursday.

The company said earnings were down to $11.6 million, or 10 cents a share, from $38.7 million, or 25 cents per share, during the same period a year earlier. Revenue fell 1% to $1.52 billion from $1.54 billion.

Excluding restructuring and other charges, the company said it earned 48 cents per share. Analysts had expected net income of 62 cents per share on $1.53 billion in revenue.

The company also cut its outlook for the year, predicting adjusted earnings would be $2.00 to $2.10 per share, down from $2.60 to $2.70 per share. Analysts had expected $2.65 per share.

Omnicare also has outstanding convertible preferreds. One sellsider called the preferreds an "attractive setup," with good yield and relatively low premium.

"If they do get taken out, you do well, and Omnicare isn't going bankrupt," the sellsider said.

Trico Marine slumps

Trico Marine's 8.125% convertibles fell about 20 points to 25 on Thursday.

One sellsider said they printed last at 25.5, which was down from a previous level of about 45.

Trico Marine's 3% convertibles due 2027 printed during the session at 15.5, which was down only slightly. But near the market close, the 3% convertibles printed at 5, which was down 10.5 points from previous trades.

"Here's the reality, the 11.875% are trading with a slight impairment, which implies that the 8.125%'s are deeply impaired and the 3%'s are worthless," a sellsider said.

Shares of the Woodlands, Texas-based subsea services provider skidded about 23 cents, or 32%, to $0.50 on Thursday.

Trico said it is renegotiating the terms of its previously announced DIP financing in light of its operating results, according to an 8-K filed with the Securities and Exchange Commission.

Trico announced in June that it had obtained a commitment for a $50 million nine-month DIP financing facility from Tennenbaum DIP Opportunity Fund LLC.

At June 30, the company had $32 million of available cash, reflecting $22 million drawn from Trico Marine and Trico Shipping's working capital facilities during the quarter ended June 30.

In addition, Trico said all of its $769 million of consolidated outstanding debt was classified as current liabilities as of June 30.

According to the 8-K, Trico's cash and credit capacity have not been enough to allow it to meet its obligations, and its forecasted cash and credit capacity are not expected to be sufficient to meet its other commitments as they come due over the next year.

As previously reported, the company is in restructuring talks with its existing debtholders.

Trico said it may be forced to file for bankruptcy to implement a restructuring or achieve other changes to its cost structure.

The company's inability to meet past, current or future commitments could also necessitate a bankruptcy filing.

Mentioned in this article:

Acer Inc. Taiwan: 2353

Allegheny Technologies Inc. NYSE: ATI

Molina Healthcare Inc. NYSE: MOH

NetApp Inc. Nasdaq: NTAP

Omnicare Inc. NYSE: OCR

Transocean Ltd. NYSE: RIG

Trico Marine Services Inc. Nasdaq: TRMA

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