Symantec better hedged, slips outright on earnings; Ford sees cautious gains; Transocean, Chesapeake rise

By Kenneth Lim

Boston, Oct. 30 - The convertible market had a generally positive session Thursday as equity markets rallied, but sentiment remained shaky about the durability of any gains.

Symantec Corp. was lower outright but stood firm on a dollar-neutral basis after the company reported second-quarter earnings that beat Street estimates but provided guidance that fell short of expectations.

Ford Motor Co. was slightly better in line with its stock on optimism about possible federal aid for U.S. automakers, but observers said the news had little impact on the company's credit spreads.

Oil and gas plays continued to improve as the stock of Transocean, Inc. and Chesapeake Energy Corp. climbed further.

The overall convertible market saw higher levels Thursday, market sources said.

"It seems like people forgot about the forced sellouts," a sellside convertible trader said.

"We went from fubar on Monday to snafu on Thursday," said the trader, referring to military slang that suggested the market was fouled up beyond all repair Monday and business as usual Thursday.

But the trader was skeptical about the resiliency of Thursday's rally.

"It's odd," the trader said. "I'm not sure why some names, some of these investment grade names that have been so dislocated and were taken down only because of the credit crunch are not doing well, and some of these sketchy type names were trading up today. It's positive, but it's a little bit scary as well. But if that's what people believe, if that's what people want to buy, so be it...it doesn't make sense to me, but so be it. I don't think it's here to stay."

A Connecticut-based trader noted that liquidity remains dry.

"Generally things have been coming in still," the trader said. "Liquidity is still down, premiums are contracting in general."

Symantec slips outright

Symantec's convertibles were about 2 points lower on an outright basis Thursday but improved on a dollar-neutral basis after the company reported its second-quarter results.

The Symantec 0.75% convertibles due 2011 traded at 84.5 against a stock price of $13, while the common stock fell 17.65% or $2.61 to close at $12.20.

Symantec is a Cupertino, Calif.-based security and storage software maker.

"I think they reported a pretty solid quarter," a convertible trader said. "The convertibles were better bid, traded up a couple of points."

Symantec reported late Wednesday a fiscal second-quarter net profit of $140 million, or 16 cents per share. Excluding items, the company's earnings were 37 cents per share, about two cents above Street estimates.

But Symantec forecast a third-quarter adjusted income of 30 to 33 cents per share, below analyst estimate of about 36 cents per share.

"The stock is down because of the outlook that they gave, which actually isn't that big of a surprise given all the other results we've seen," a sellside convertible analyst said. "I think there's a bit of profit taking here, a bit of fear and uncertainty."

But Symantec's credit remains solid, the analyst said.

"They're still cash flow positive," the analyst said. "In today's markets, this is actually a pretty solid piece of paper to hold. That's why the converts are holding up better than the stock."

Ford gains with stock

Ford's 4.25% convertible due 2036 gained about a point outright as the stock finished higher on cautious optimism about calls for federal aid to U.S. automakers.

The Ford convertible note traded at 27.75 against a stock price of $2.15 Thursday. Ford common stock closed at $2.28, up by 5.56% or $0.12.

Ford is a Dearborn, Mich.-based car maker.

A group of U.S. state governors on Wednesday asked the U.S. federal government to help support the U.S. auto industry by providing loan deals to the vehicle manufacturers, while a lobby group representing American chief executives on Thursday asked the U.S. Treasury Department to inject capital into automakers.

"People are hoping that the federal government will do more to help the guys in Detroit," a sellside analyst said.

But the analyst said it remains unclear whether additional aid will help Ford.

"I think one of the concerns is if GM and Chrysler merge, where does Ford fit into the new picture?" the analyst said. "Is Ford going to be disadvantaged because of that? And even if the government provides loans to the automakers, it might help them to remain solvent, but I doubt it will improve their credit much."

Transocean climbs further

Transocean's 1.5% convertible due 2037 gained about 2 points outright Thursday after the company's stock gained on news of a new contract.

The convertible was indicated at 78 bid, 79 offered against the closing stock price of $79.63. Transocean common stock rose 9.08% or $6.63.

"We traded some of the RIGs, which continue to do better," a convertible trader said.

Transocean, a Houston-based offshore drilling contractor, announced a five-year contract worth almost $1.2 billion that is expected to start near the end of 2010.

Chesapeake keeps rising

Chesapeake Energy also improved about 4 points outright as its stock improved ahead of the company's results.

The Chesapeake 2.75% convertible due 2035 was at 70 bid, 71 offered versus a closing stock price of $22.07. Chesapeake common stock increased 6.88% or $1.42 Thursday.

Chesapeake is an Oklahoma City-based natural gas producer.

Chesapeake said after the market closed that it earned $486 million, or 85 cents per share, in the third quarter on an adjusted basis. Analysts were expecting about 88 cents per share.

Mentioned in this article:

Chesapeake Energy Corp. NYSE: CHK

Ford Motor Co. NYSE: F

Symantec Corp. Nasdaq: SYMC

Transocean, Inc. NYSE: RIG

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