Transocean marks gains on spill containment progress; NII recovers; Xilinx slows down holds firm

By Kenneth Lim

Boston, June 7 - Transocean Ltd. led a mostly quiet market on Monday to trade a touch higher as the convertible strategy mostly held its own in the face of a tumultuous equity session.

NII Holdings, Inc. also firmed versus its stock as the credit came back from the previous week's hit.

Newly minted Xilinx, Inc. also fell as its stock slipped with the broader market, but on the dollar-neutral basis, the paper seemed to hold fine.

Monday's volumes were extremely thin, convertible traders said.

"It was very quiet," one sellside trader said. "There were some offer-side sellers, but no bids. It didn't seem like anyone wanted to make any bids."

Investors were reluctant to buy anything while uncertainty remained the dominant sentiment in the market, the trader added.

"I think they're waiting for the market to stabilize," the trader said.

"Waiting for Hungary to clear up [...] and the economic reports this week, I think they're pretty light. Until jobs on Thursday, there's not a whole lot on the table. We're entering a quiet period for economic news, and equities just seem to be sliding."

Another sellsider said outrights are especially wary about putting money to work when the markets are so choppy.

"Can you find a bargain? Of course," the sellsider said. "But who knows where they are? This market's not very rational at the moment. You think you've valued something correctly, but the market's not listening to you. A lot of guys keep getting hammered, they're just going to sit tight and wait it all out."

Convertibles hold up

But the bright spot in Monday's session was that convertibles in general outperformed their underlying equities.

"High yields were weak again today, but I thought it'd be down more from the equity market," a trader said.

"But it wasn't. Other than that, I saw some small sellers of high-yield issues, but not much else."

Another trader suggested that the underlying credits of convertible paper are holding up amid the volatility in stocks.

"I think that the markets in equities are weak, but it seems that convertibles are starting to assert themselves from a credit perspective," the trader said.

Transocean stays afloat

Transocean was again a highly traded name on Monday as crews made progress in capturing some of the leaking oil in the U.S. Gulf Coast.

The Transocean Series B 1.5% convertibles due 2037 gained about half a point outright to trade at 90.625. Common shares of the Switzerland-based offshore drilling contractor rallied to as high as $51.85 on Monday before being dragged lower by the broader market to close at $49.17, down by 2.05% or $1.03.

"RIGS were active once again," a trader said. "They seemed to hold in."

BP plc on Monday said it hopes to double the amount of oil that it is capturing using a containment cap over a leaking well in the Gulf. The well ruptured in April when a rig that BP contracted to Transocean and Halliburton Co. exploded.

Coast Guard Admiral Thad Allen said on Monday that crews are aiming to capture 20,000 barrels of leaking petroleum per day.

But the trader said there was still some wariness in oil and gas names.

"All these energy issues are waiting for BP and RIG to figure out what the damage done is," the trader said.

NII recovers

NII's 3.125% convertibles due 2012 added about 0.75 points on Monday, marking a solid recovery from the previous week's drop.

"NIHD held in really nice today and rebounded from last week's weakness," a sellside trader said. "We saw them as low as 92 last week and then today at the last, it was 93.75."

NII, the Reston, Va.-based wireless communications company that owns the Nextel brand, saw its common stock close at $36 on Monday, down by 2.13% or $0.78.

Xilinx slows down

Trading in the new Xilinx 2.625% convertibles due 2017 slipped about a half point on Monday at a bid of 98 versus the closing stock price of $24.29.

Xilinx common stock retreated by 2.67% or $0.67 on Monday.

Trading in the new notes was slower than when the issue made its secondary market debut on Friday, with a trader reporting only one trade early in the day.

The $520 million offering priced with an initial conversion premium of 20%, beyond the cheap end of price talk of a coupon of 2% to 2.5% and an initial conversion premium of 22.5% to 27.5%.

J.P. Morgan Securities Inc. and Deutsche Bank Securities Inc. were the bookrunners of the Rule 144A deal. There is an $80 million greenshoe.

Xilinx is a San Jose, Calif.-based maker of electronic equipment and systems.

The trader said the notes have come down with the stock, but on a dollar-neutral basis the convertibles are on firm ground.

"If you compare that to the stock, I don't think it's that bad," the trader said.

Mentioned in this article:

Transocean Ltd. NYSE: RIG

NII Holdings, Inc. Nasdaq: NIHD

Xilinx, Inc. Nasdaq: XLNX

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