Convertibles mixed as activity picks up; Massey Energy trades; Alliant Techsystems comes off slightly

By Rebecca Melvin

New York, Jan. 22 - Activity in the convertible bond market picked up Thursday, but pricing was patchy, with some sources seeing relatively firm levels, while others reported the tone was a bit heavy in places, especially since stocks, although volatile, were clinging to the downside

"[I] can't get a good feel for the market. My stuff is so off-the-run and spotty right now. It is very single name dependent," a Connecticut-based sellside trader said.

Another source said pricing was "sputtering out with stocks."

"It was a little bit lower with the market, at least in the high yield names," he added.

In addition to the usual suspects, like Transocean Inc., Nabors Industries Ltd., and Prudential Financial Inc., there were names in trade that had not been seen in a while.

Coal producer Massey Energy Co., which hadn't been seen recently, was changing hands, with its newest convertibles at 61 bid, 62 offered, as crude oil ended little changed after a U.S. government report showed a bigger-than-forecast gain in supply.

Minneapolis-based defense company Alliant Techsystems Inc., which has become a name in focus among hedge players, saw its convertibles come off slightly as its shares traded in negative territory Thursday.

There was good volume in Six Flags Inc. convertibles, sellsiders said, with the 4.5% notes due 2015 in the 14 to15 range.

"It traded into the 14 bid, and then back up to 15," a sellsider said of Six Flags.

And Greatbatch Inc. and Regal Entertainment Group qualified as "weird stuff trading," according to a New York-based director of convertibles trading.

In other news, only about 1% of holders of Enzon Pharmaceuticals Inc.'s 4% convertible notes due 2013 tendered under the company's modified Dutch auction tender offer, the company announced late Wednesday.

Meanwhile, the latest batch of economic data wasn't very rosy. The number of initial jobless claims surged to a seasonally adjusted 589,000 in the week ended Jan. 17, up from a revised 527,000 the prior week, according to the Labor Department.

It was higher than analysts' expected 540,000 new claims, up from 524,000, and matched the week of Dec. 20, which was the highest level of initial claims since 1982.

In addition, new housing starts fell 16.2%, and the figure was sharply below analysts' expectations for an annual rate of 610,000 units for December. And new building permits dropped 10.7% to 549,000 units from 615,000 units in November.

And market players followed with interest news that John Thain of Merrill Lynch agreed to resign less than a month after his firm was acquired by Bank of America Corp.

Massey in trade

Massey Energy's 3.25% convertibles due 2015 - which priced last August - traded at 61 bid, 62 offered against a share price of $14 on Thursday, which was steady to firmer compared with recent levels. Shares of the Richmond, Va.-based company ended down 94 cents, or 6%, at $13.78.

Crude oil for March delivery rose 12 cents to settle at $43.67 a barrel in New York. Prices are down 2.1% so far this year and are 51% lower than a year ago.

Transocean series C 1.5% convertible due 2037 were also mentioned in trade, and they changed hands at 79 bid, 79.5 offered. Transocean shares ended down 43 cents, or 0.86%, at $49.55.

"The whole market is down, with money coming out of the product, and out of hedge funds," a Connecticut-based sellside analyst said, explaining that in many instances the convertible paper of a company can be 50 basis points or more below comparable straight paper, even if the convertibles are putable before the other notes.

"There's been a flushing out and people have to hit low bids, and spreads look much wider than the straights, but it could snap back, based on underlying credit," the analyst said.

If credit and liquidity are good, however, the spreads are much closer, he said.

Alliant Techsystems comes off

Alliant Techsystems 3% convertible notes due 2024 traded early Thursday at 116 versus a share price of $84.98. Later it was left offered at 116, and the last trade on Trace was $115.25.

Alliant Techsystems' 2.75% convertibles due 2011 traded at 103 outright, down from about 104 on Wednesday.

On Jan. 4, the 2011 paper, which is not easy at all to find, according to a sellsider, traded at 102.4 versus a share price of $85.57.

Alliant was mentioned as an example of a good quality, low premium, high vega name, according to a sellsider, who said that people are still trading on both a yield and a convertible arbitrage basis, particularly since vol has increased.

"It will be a long time until things get exciting," the sellsider said. "But we should continue to see good vol, and then if and when the market does pop, and credit really stabilizes, and these spreads contract, then people should make some money," the sellsider said.

Very little Enzon tendered

The Enzon 4% convertibles traded at 79 on Thursday after the Bridgewater, N.J.-based biopharmaceutical company announced the conclusion of its tender offer with almost no takers, and as its shares churned in negative territory through the session, ending off their lows, but down 12 cents, or 1.9%, at $6.15.

That compares to 77.5 versus a stock price of $6.00 intraday two weeks ago when the tender was extended.

The modified Dutch auction tender offer for a portion of the 4% convertibles ended Wednesday, and the amount of notes accepted for purchase was about 1.09% of the $270.5 million principal amount of notes that were outstanding prior to the tender offer's expiration, the company said in a release, adding that it "will evaluate ways to continue to improve its capital structure."

As of the expiration date, $2.95 million of notes were validly tendered and not withdrawn.

"The spread must not have been right," one onlooker observed.

Enzon expected to accept notes for payment at a purchase price of $740 per $1,000 principal amount.

Mentioned in this article:

Alliant Techsystems Inc. NYSE: ATK

Enzon Pharmaceuticals Inc. Nasdaq: ENZN

Greatbatch Inc. NYSE: GB

Massey Energy Co. NYSE: MEE

Nabors Industries Ltd. NYSE: NBR

Prudential Financial Inc. NYSE: PRU

Regal Entertainment Group NYSE: RGC

Six Flags Inc. NYSE: SIX

Transocean Inc. NYSE: RIG

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