Convertibles better bid: SanDisk, Priceline, Intel off their lows; Peabody, Alpha Natural lower

By Rebecca Melvin

New York, July 1 – U.S. convertibles saw a better bid on the first day of the third quarter on Wednesday as equities and rates improved, indicating investors were more willing to take on more risk, market players said.

“It was more risk-on, and some people were topping up,” a New York-based trader said.

The improvement followed weakness on Monday and Tuesday as uncertainty related to the Greek debt crisis and then month end/quarter end weighed on the market.

“There was selling into month end and quarter end, and that’s why things were kind of down,” the trader said.

But on Wednesday, “everything was a little bit better,” the trader said.

The convertibles of SanDisk Corp., Intel Corp. and the Priceline Group Inc. followed the direction of their underlying shares but came off their lows on a swap basis, a trader said.

“They were beat up over the last week and are finding a little support, the trader said, calling the improvement better by about 0.25 point on swap.

The broader markets were stronger at the open but weakened by midday as the bailout situation in Greece reversed course again, pointing to the unlikelihood of a deal with creditors.

In a television address, prime minister Alexis Tsipras on Wednesday urged citizens to vote against the international bailout deal. The nation will have the opportunity to vote on the bailout in a referendum set for Sunday. But the address came a day after Tsipras’ conciliatory letter to creditors asking for a new bailout that would accept many of the creditors’ terms.

Also in the convertibles market, both Peabody Energy Corp. and Alpha Natural Resources Inc. were lower. But how much of the price moves were related to Peabody’s second-quarter profit warning was debatable.

“A lot of the damage has been done at this point. An incremental bad earnings report doesn’t mean much; it’s the larger liquidity event that people are looking at,” a New York-based trader said.

The trader was referring to the possibility of whether Alpha Natural could file for Chapter 11 bankruptcy or not.

“ANR has a bond due Aug. 1, and it is uncertain whether they will restructure or pay for it. That’s more important that a one-pager from the Wall Street Journal. I don’t need much more information than that,” the trader said.

Alpha Natural’s 3.75% convertibles were seen to have traded during the session at 35.5 to 36.

The Alpha Natural 4.875% convertibles traded at 7.

Shares of Alpha Natural fell a couple of cents, or 8%, to $0.278.

In equities, the Dow Jones industrial average gained 138.40 points, or 0.8%, to 17,757.91, the S&P 500 stock index added 14.31 points, or 0.7%, to 2,077.42, and the Nasdaq stock index gained 26.26 points, or 0.5%, to 5,013.12.

SanDisk, Priceline off lows

SanDisk was moving straight down with equities, but then held in slightly with the rest of the convertible market, a trader said.

The SanDisk 0.5% convertibles due 2020 traded at 96.84 on Wednesday, according to Trace data.

SanDisk’s 1.5% convertibles due 2017 traded at 129.6, which was up about a third of a point, according to Trace.

SanDisk shares ended down $1.81, or 3%, at $56.41.

“We’re not seeing huge moves. And there is no major chase for risk, but things were off their lows,” a trader said.

Intel had done a little bit better and was up a little as well, a source said. The Intel 2.95% convertible due 2035 traded at 119.869.

Priceline’s 0.9% convertibles due 2021 traded at 95.66, which was up 0.272 point, according to Trace data.

Priceline’s 0.35% convertibles due 2020 changed hands at 112, which was up from 110 on Tuesday.

Priceline’s 1% convertibles due 2018 traded at 135.129, which was up 0.8 point, according to Trace data.

Shares of the Norwalk, Conn.-based internet travel services company were up 1%, or $10.00, in the early going, but retraced gains to close down $1.02, or 0.09% at $1,150.35.

Peabody eyed

Peabody’s 4.75% convertibles were quoted at 14.75 bid, 15 offered at the close. Previously they had been in the 15 to 18 range.

But the drop was not as bad as expected. Earlier in the day, a New York-based trader had predicted the bonds would drop to 10 or lower.

“[Peabody] has a 10-22 second lien that came in March and priced at 97.5. It will hopefully pay its first coupon in September. It is trading at 59.5 now,” the trader said.

Peabody shares plunged about 25% out of the chute Wednesday after a profit warning issued late Wednesday. But shares closed off their lows to end down 41 cents, or 19%, at $1.78.

Peabody was hurt by weather related production and shipment problems and lower metallurgical coal prices. It said it expects second quarter adjusted EBITDA and adjusted earnings per share to come in below the original target range due to the weather issues and lower seaborne coal pricing.

During April, Peabody had forecast a per-share loss excluding items of between 49 cents to 59 cents.

But the St. Louis-based coal producer said part of the shortfall is a timing issue. It expects about $40 million of cost in the second quarter as a result of substantial rains and flash flooding in the Southern Powder River Basin that reduced production by 5.0 to 5.5 million tons. Normal production has resumed and it plans to make up the delayed shipments in the third and fourth quarter.

Peabody is slated to report earnings on July 28.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Intel Corp. Nasdaq: INTC

Peabody Energy Corp. NYSE: BTU

Priceline Group Inc. Nasdaq: PCLN

SanDisk Corp. Nasdaq: SNDK

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