Huntsman converts fall as sale dropped; Transocean rises on new contracts; JetBlue slides on worries

By Kenneth Lim

Boston, Feb. 6 - The convertible market started the week slow, with the most action coming from chemical manufacturer Huntsman Corp.'s announcement that it was scrapping plans to sell itself.

The Salt Lake City company's change of mind sent its stock and convertibles sliding, but one Los Angeles-based analyst said the move throws up new questions.

"I don't know what will happen in the future, they may start buying shares back," the analyst said.

Drilling contractor Transocean Inc. managed to tap the recent buoyant outlook for the oil sector as word that it had new business in India for its mobile offshore drilling rigs sent its bonds upwards. An analyst said sentiment was strong for the industry in general: "All the drilling contractor guys, their fundamentals look great."

It was harder to stay afloat at higher altitudes, with JetBlue Airways Corp. hit by uncertainty about oil prices and unexciting passenger numbers.

Meanwhile, St. Paul Travelers Cos. Inc. saw its convertibles keep steady after the company took moves to improve its balance sheet and better prepare itself for future catastrophe-related payouts.

Investors also saw more to like about Gateway Inc.'s convertibles, pushing them up despite last week's poor earnings and an analyst's downgrade of the stock.

On the biotech side, OSI Pharmaceuticals Inc. revealed a new policy that would give shareholders a bigger say in future acquisitions. Investors answered by pushing its convertibles up.

Huntsman drops sale, converts follow

Huntsman (NYSE: HUN) said over the weekend that it was no longer in talks to sell the company after soliciting bids. Its directors cited pricing and timing among their reasons for calling off the sale.

The company's 5% mandatory convertibles, due 2008, changed hands at about 44.5 against a stock price of $20.30, said a trader, who added that the convertibles had come up about a point or so on a hedged basis but were down on an outright basis. On Friday, the same convertibles were bid at 47.62 and asked at 47.72 against a $22.95 stock. The shares closed down $1.90, or 8.28%, at $21.05 on Monday.

A buy-side analyst thought that the management may have been trying to know what the market thought was the company's fair value when it put the company up for sale, and felt that the market had undervalued the company.

"I think what they think is, 'If a private buyer comes in and levers it up and buys shares, why can't we do that?'" said the analyst, who thinks a share buyback could be possible. "It's an attractive convertible, if you like the equity."

Transocean rides wave of sentiment, new contracts

Houston-based Transocean said it had netted contracts totaling 15 years for five of its jack-up rigs, with revenue from these contracts estimated at $805 million. Those contracts were awarded by India's Oil and Natural Gas Corp. Ltd.

A trader with a hedge fund said the 1.5% senior unsecured convertibles due 2021were up slightly on a neutral basis in the middle of the day, although "activity has really been anemic." The bonds were bid at 119.36 and asked at 119.86 against a stock of $83.93, according to another trading source. They were bid at 116.25 and asked at 116.75 versus an $80.62 stock in the previous session. Transocean shares (NYSE: RIG) ended Monday at $83.93, up $3.31 or 4.11%.

An oil and energy analyst said the drilling sector in general is currently enjoying strong sentiment.

"We have a lot of new rigs coming to market in the next few years, and at this point it looks like the market can absorb it," the analyst said. "Some [oil] producers seem to be voting with their wallets that prices/supplies of rigs are going to remain tight over the next few years."

JetBlue slides on oil, load data

Despite flying more passengers in January, Forest Hills, N.Y.-based JetBlue saw lackluster trading Monday as new concerns about high oil prices mixed with poorer passenger load figures. The discount carrier's 3.5% senior notes due 2033 were bid at 87.77 and asked at 88.02 against an $11.07 stock on Monday, while the 3.75% senior debentures due 2035 were bid at 94.5 and asked at 95.5 against the same stock, said a trading source. The 3.75% bonds were bid at 88.25 while the 3.75% bonds were bid at 97.29 on Friday. Shares of JetBlue (Nasdaq: JBLU) closed down 5.79%, or 68 cents, at $11.07 on Monday.

JetBlue said on Monday that passenger traffic in January grew 25.1%, with 1.7 billion revenue passenger miles, up from 1.43 billion a year ago. Load factor, however, fell to 82.3% from 83.7%.

St. Paul praised for credit steps

Insurance and surety services provider St. Paul said on Thursday that fourth-quarter profit dropped to $179 million, from $303 million a year earlier, largely due to hurricane charges. The St. Paul, Minn.-based company's 0% convertible subordinated notes due 2009 were at 83.75 bid and 85.25 asked on Monday against a $44.13 stock - the same levels when the stock was at $44.79 on Friday. St. Paul shares (NYSE: STA) were 66 cents, or 1.47%, lower at $44.13 on Monday.

Analyst Kathleen Shanley of Gimme Credit wrote in a note that St. Paul had strengthened its balance sheet in 2005. "At year-end, holding company liquidity totaled $1.6 billion, with a debt/capital ratio of 21%, down from 24% a year ago," she wrote. "Needless to say, equity investors are chomping at the bit, wondering what the company will do with this cushion, and we wouldn't rule out the possibility that St. Paul will consider acquisitions in 2006."

Another analyst said that the company's bonds were "modeling a little on the rich side", and the company's putting aside reserves for asbestos and environmental charges were still unpopular. Still, "there was a fair amount of good in there [the results]."

Gateway converts rise on stock rally

Computer retailer Gateway's convertibles rose along with the computer retailer's shares on Monday. The Irvine, Calif., company's 1.5% senior unsecured convertible notes due 2009 changed hands at about 75.75 while the 2% senior unsecured convertibles due 2011 traded at about 68.5, both against a $2.45 stock. Gateway shares were up 10 cents, or 4.13%, at $2.52 on Monday.

Gateway (NYSE: GTW) had disappointed the week before with adjusted fourth-quarter earnings of 4 cents per share, prompting Bear Stearns analyst Andrew Neff to downgrade the stock to underperform from peer perform. Still, a buy-side trader said that despite the "miserable earnings," Gateway's credit has "held up well."

OSI gives shareholders more say

Melville, N.Y.-based OSI Pharmaceuticals' 3.25% senior subordinated convertibles due 2023 gained about 3/8 point on Monday to 96.5, while the stock gained about 0.74%, or 21 cents, to close at $28.58, after the company said it will now seek shareholder approval for any acquisition where the purchase price exceeds 20% of its market capitalization.

OSI (Nasdaq: OSIP) also wants to let stockholders with at least 20% of shares call a special meeting upon 90 days written notice.

"The OSI announcement is an encouraging one towards re-establishing more credibility in the OSI management following the Eyetech merger," said a buy-side biotech analyst. "Many larger investors viewed the Eyetech merger as an unwarranted, extraordinarily highly leveraged move left completely unchecked by any shareholder oversight."

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