Cemex drops outright, up on hedge; Peabody, Massey flat on hedge; Hawaiian Airlines on tap

By Rebecca Melvin

New York, March 17 - Cemex SAB de CV's recently priced 3.25% and 3.75% convertibles deteriorated on an outright basis Thursday but were slightly higher on hedge as the underlying shares moved lower for a second consecutive day.

Even though equities overall rebounded Thursday following a three-day slide, Cemex shares were still weak, having lost about 3% from Wednesday's open.

A pair of coal names - Peabody Energy Corp. and Massey Energy Corp. - were active in trade and were in line on a dollar-neutral basis, with their shares higher on speculation that the Japanese nuclear crisis will spur demand for coal-based electricity.

Quicksilver Resources Inc. fell after news that the company won't be taken private by the Darden family, however.

In the primary market, Hawaiian Airlines Inc. launched an offering of $75 million of five-year convertible senior notes that was seen pricing ahead of the open Friday, a syndicate source said. Initially, the paper had been expected to price after the market close on Thursday.

Otherwise, the convertible market was quiet, market sources said. Many brokers had vacated their desks in favor of a popular annual gathering in Los Angeles, and college basketball continued to divert attention, they said.

"Between the annual party on the West Coast and the basketball tournament, nothing got done," a New York-based sellside analyst said of Thursday's session.

Convertibles were "dead quiet," another sellsider said. But equities snapped back, with investors cheered evidently by perceived progress in stabilizing Japan's damaged nuclear plant, which has been releasing radiation following last week's powerful earthquake and tsunami.

A much needed power line may be connected to the plant soon, which promises to feed electricity to the systems needed to cool the nuclear material.

Market digests data

Also on Thursday there was encouraging U.S. economic data. The survey from the Federal Reserve's Philadelphia branch showed new orders soared. Production at U.S. factories, mines and utilities dipped last month but was actually higher in previous months than first estimated, according to the Federal Reserve.

Also the Labor Department reported that the number of people applying for unemployment benefits fell more than expected last week, while ongoing claims dropped to the lowest level since October 2008.

But a separate report from the Labor Department showed consumer prices edged higher last month, leaving the index up 0.5% in February and slightly higher than forecast.

A statement late in the session by president Barack Obama on Japan's nuclear crisis also appeared to calm concerns.

The president said all available U.S. resources were being brought to bear to help Japan wrestle the plant into control.

He said the damage poses a substantial risk to people who are nearby, but based on scientific evaluation, the risk beyond a 50-mile radius doesn't currently call for evacuation.

He advised all U.S. citizens to monitor the situation carefully and to stay informed.

In addition, he said that harmful levels of radiation were not expected to reach the U.S. West Coast, Hawaii, Alaska or Pacific U.S. territories.

The Dow Jones Industrial Average gained 161.29 points, or 1.4%, to 11,774.59; the Standard & Poor's 500 index rose 16.84 points, or 1.3%, to 1,273.72; and the Nasdaq rose 19.23 points, or 0.7%, to 2,636.05.

Cemex slips

Cemex's 3.25% A tranche convertibles due 2016 traded down to 96.5 bid, 97 offered versus a share price of $8.47 on Thursday, and they were also quoted at 97 versus a share price of $8.50 as well as higher at 97.75 versus a share price of $8.50. Those prices were lower compared to 99 versus a share price of $8.80 on Wednesday.

The Cemex 3.75% B tranche convertibles due 2018 traded down to 96.25 bid, 96.75 offered versus a share price of $8.47. That paper was also quoted at 97 and 97.75 versus a share price of $8.50. But that was also down from 99 on Wednesday.

Nevertheless, the drop still represented a slight gain on a hedged basis, a New York-based sellside analyst said.

The American Depositary Shares of the cement producer based in Monterrey, Mexico, closed down 3 cents, or 0.4%, at $8.47 on Thursday, which was on top of a larger drop of nearly 3% on Wednesday.

"Our marks actually show it up on a delta hedge basis," the analyst said.

Based on a 72% delta for the shorter-dated A paper and an 82% delta for the longer-dated B convertibles, both issues versus a share price of $8.47 were up 0.125 point on a hedged basis for the day.

"With the stock down, if you have delta in the name, it's going to be down as well," the analyst said.

Coal names flat dollar neutral

Peabody Energy's 4.75% convertibles due 2066 traded at 131.5 on Thursday, which was up 6 points outright, according to Trace data, and extended a 3-point gain on Wednesday.

But against a $2.45, or 3.6%, gain in the shares of the St. Louis-based coal producer to $70.12, the convertibles' rise only represented a lateral move.

"It was nothing crazy; in terms of dollar neutral, it didn't change," a sellsider said.

Massey was also flat dollar neutral, he said.

Massey Energy's 3.25% convertibles due 2015 were at 110.875 late in the session, according to Trace data, which was up 2.9 points on the day.

Shares of the Richmond, Va.-based coal producer gained $2.32, or 3.8%, to $63.15.

Quicksilver eyed

Quicksilver's 1.875% convertibles due 2024 traded at 107, which was off about two-thirds of a point on the day compared to shares of the Fort Worth, Texas-based natural gas producer, which fell 52 cents, or 3.6%, to $14.07 in heavy trade.

Quicksilver and the members of the Darden family announced early Thursday that they had determined not to pursue further a take-private transaction of Quicksilver Resources at this time.

The Darden family first announced that they were interested in a take-private transaction in October. Since that time, the Darden Family interests have retained a financial adviser and counsel and have engaged in discussions with a number of firms regarding equity financing for such a transaction.

The Darden Family interests decided not to pursue a take-private transaction at this time because they concluded that Quicksilver Resources' current capital structure and governance is superior to an alternate private structure for maximizing Quicksilver Resources' exploration and development opportunities, according to a statement.

Hawaii to price

Hawaiian Airlines, a Honolulu-based airline, launched an offering of $75 million of five-year convertible senior notes early Thursday that was expected to price after the market close.

Subsequently, shares of the company sank 60 cents, or 8.9%, to $6.11 in heavy volume.

The deal was talked to yield 4.625% to 5.125% with an initial conversion premium of 22.5% to 27.5%.

Citing the 2008 global economic plummet, the airline said in its regulatory filing that demand and discretionary purchases in general and air travel to Hawaii in particular, remains unpredictable.

"If this reduction in demand deteriorates, it may result in a reduction in our passenger traffic and, or, increased competitive pressure on fares," and its financial condition would be affected, the filing stated.

"We cannot assure that we would be able to offset such revenue reductions by reducing our costs," the filing stated.

The registered offering has an $11.25 million greenshoe and was being sold via bookrunner UBS Investment Bank with co-manager Imperial Capital.

The notes are non-callable with no puts. The notes are freely convertible after Nov. 15, 2015. They are provisionally callable prior to Nov. 15, 2015 if the share price is 130% of the conversion price for 20 or more trading days in a 30-day period.

The notes are will be settled in cash, shares or a combination.

In connection with the offering, the company expects to enter into note hedge and warrant transactions with underwriters and affiliates or institutional investors.

A portion of the proceeds will be used to pay the cost of the hedge transactions, with remaining proceeds earmarked to repay a portion of the company's existing credit agreement, and for general corporate purposes, which may include working capital.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Massey Energy Corp. NYSE: MEE

Cemex SAB de CV NYSE: ADS: CX

Hawaiian Airlines Inc. Nasdaq: HA

Peabody Energy Corp. NYSE: BTU

Quicksilver Resources Inc. NYSE: KWK

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