Cheniere Energy jumps outright on government support of LNG exports; BorgWarner slips

By Rebecca Melvin

New York, May 23 - The convertible bond market was under pressure Monday, with bonds generally "better for sale" amid weaker broader markets as investors focused on the European debt crisis again after a another steep downgrade of Greece's credit rating, a warning on Italy's debt and a defeat of Spain's ruling party.

"It did seem like things were generally in; maybe a quarter point on swap," a New York-based sellside trader said of the "better for sale" market, which means offers were stronger than bids.

An exception to this rule was Cheniere Energy Inc., which saw its 2.25% convertibles jump as much as 5 points outright and settle 1 to 2 points off that high level at 90 to 91. Shares surged for a second straight day on a government move promoting liquefied natural gas exports.

BorgWarner Inc.'s convertibles moved in the opposite direction to Cheniere, and in agreement with the direction of most names. The BorgWarner convertibles were down slightly on a dollar-neutral basis as auto supply equities underperformed the market in general.

The convertibles of Cheniere and BorgWarner fall on "opposite ends of the spectrum," a trader said.

"One is a parity item and may trade a little bit on technical factors and the other is a credit story," the trader said, referring to BorgWarner and Cheniere, respectively.

Earnings in spotlight

There are some earnings reports out this week that could distract investors from the larger macro issues currently dominating the scene like Europe's debt problems.

Tech Data Corp., the Clearwater, Fla.-based technology products distributor, reported first-quarter earnings that missed estimates and its equity fell sharply by 12%.

After the market close Monday, GT Solar International Inc. reported better-than-expected earnings and raised full-year guidance. Shares of the Merrimack, N.H.-based solar company jumped 12% in after-hours trade after ending the session lower by 6%.

Fellow solar power company LDK Solar Co. Ltd. was weak during the session amid a combination of factors, including a downgrade on the underlying equity by Argus to "hold" from "buy" and in a carry through from last week when it canceled a straight debt deal.

Medtronic Inc. is expected to report fourth-quarter earnings on Tuesday. Its convertibles were slightly lower in Monday's session.

Ratings draw attention

The news weighing the market down began late Friday, when Fitch Ratings downgraded Greece's debt further into junk status. Then Standard & Poor's said Saturday that Italy was in danger of having its debt rating lowered if it could not reduce its borrowing and improve economic growth. And on Sunday, Spain's ruling Socialist party was defeated in local elections, potentially jeopardizing the country's deficit-cutting program.

The Dow Jones Industrial Average settled lower by 131 points, or 1%, at 12,381.26; the S&P 500 stock index fell 16 points, or 1.2%, to 1,317.37; and the Nasdaq Stock market lost the most, dropping 44 points, or 1.6%, to 2,758.90.

Whether the market has decided that it's going to continue in the downward direction remains to be seen.

The de-risking trade was on today and there was broad based pressure, but volume was light, a convertibles trader said.

"The market has been back and forth. Even though the market has been generally weaker the past couple of weeks, after a couple of days of risk off, then people put risk back on. There's still no clear direction," the trader said.

Cheniere adds

Cheniere's 2.25% convertibles due 2012 traded at 88 versus a share price of $11.70, according to a New York-based sellside desk analyst, and it settled higher at 90 to 91 after having traded up to 92, according to a second sellside analyst.

Shares of the Houston-based owner and operator of liquefied natural gas receiving terminal and natural gas pipelines in the Gulf Coast surged $1.72, or 17%, to $11.76.

Shares jumped Friday to a 52-week high and touched another 52-week high on Monday.

The shares surged for a second straight day, having added 30% Friday.

The convertibles added outright on Monday after the owner of liquefied natural-gas terminals last week won government approval to export to more countries.

"I saw a few prints on the tape as high as 92 [and] as low as 87," a New York-based sellside analyst said.

The shares surged for a second consecutive day on word that the U.S. Department of Energy has granted a subsidiary to the natural gas company's general partnership authorization to export domestically produced liquefied natural gas.

Permission from the Department of Energy to export natural gas from the Sabine Pass terminal in Louisiana caused Citigroup Global Markets to raise its target price on Cheniere stock to $15.50 from $10.00.

The Citigroup analyst Faisel Khan expects higher demand for natural gas in different regions of the world as power needs rise.

BorgWarner slips slightly

BorgWarner's 3.5% convertible notes due 2012 traded down as much as 9 points Monday, but with the paper over double par, the move wasn't considered significant. It ended the day around 207.

Shares of the Auburn Hills, Mich.-based auto parts supplier were lower by $2.49, or 4%, to $68.14.

"On a dollar-neutral basis, it didn't move much; it was down small," a sellside trader said of the paper, which trades at only a point and change over parity.

"It's moving on nearly a 100% delta, even though stock was down a bit, it wasn't a crazy price action," the sellsider said, adding that the sector underperformed the broader market.

Medtronic off

Medtronic's 1.625% convertibles due 2013 traded between 103 and 104 and lower by about 0.3 point.

Shares of the Minneapolis-based medical device maker ended down 95 cents, or 2.4%, to $41.26.

"There's no real delta in those right now. It's got a 40% premium name and trades right around par," a sellsider said regarding the Medtronic convertibles.

The paper is fairly short dated and the bond's value, in terms of bond floor, is around par. "If the stock took off, then the bonds follow along," a selllside trader said.

Analysts are looking for earnings per share of 93 cents on revenue of $4.29 billion. The consensus range is 91 cents to 93 cents for per share earnings and $4.14 billion to $4.38 billion for revenue.

Mentioned in this article:

BorgWarner Inc. NYSE: BWA

Cheniere Energy Inc. NYSE: LNG

GT Solar International Inc. Nasdaq: SOLR

LDK Solar Co. Ltd. NYSE: ADS: LDK

Medtronic Inc. NYSE: MDT

Tech Data Corp. Nasdaq: TECD

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