Transocean climbs; Steel Dynamics, Priceline.com trade in line with shares; volumes thin

By Rebecca Melvin

New York, June 17 - The convertible bond market was little changed on a hedged basis Thursday, although Transocean Ltd., which trades outright, was better, having gradually pulled higher throughout the week so far as its spill liability outlook improved.

"If anything, the market seems to be getting stronger," a New York-based trader said.

Nevertheless, volumes were light, with Transocean once again dominating the action.

Equities, which were weaker for most of the session on disappointing economic data, pulled higher in the last hour of trade, and credit was looking pretty good.

That better credit outlook has motivated outright investors, who came back into the market this week with a better bid, sources said.

"I think trading volume of convertibles, and probably high yield as well, is way down....I don't see any credit concerns. American companies are enjoying strong cash flows and remain relatively reluctant to hire and to invest. Both hiring and investing probably is being inhibited by the radical tax, health care and regulatory proposals, which are making planning especially difficult at the moment," a New York-based outright buysider said.

Ford Motor Co. saw its newer 4.25% convertibles lower in line with their underlying shares. But the paper is off its recent lows.

Steel Dynamics Inc. was lower in line with its underlying shares after the Fort Wayne, Ind.-based steel producer guided downward for its second quarter.

Priceline.com Inc. convertibles were also in trade the day after the shares of the online travel company were upgraded to "buy" from "neutral" by a Goldman Sachs analyst, who said investors were overreacting to the negative implications that Europe and the falling euro have on the company.

Pier 1 Imports Inc. wasn't heard in trade after the home furnishings retailer posted a surprise profit for its first quarter. The amount of paper outstanding is minimal, however, at just $16.6 million on the Pier 1 6.375% convertibles due 2036.

Economic data coming out Thursday was disappointing. Initial jobless claims for the week ended June 12 rose unexpectedly by 12,000 to 472,000. That was higher than expected and the highest level in a month, following three consecutive weeks of declines.

In addition, the Philadelphia Federal Reserve regional manufacturing index dropped to a lower-than-expected 8.0 for June, down from 21.4 in May.

Meanwhile the May consumer price index declined 0.2% for the month. Economists polled had expected a 0.1% decline.

Transocean resumes climb

Transocean's 1.625% series A convertibles due 2037 resumed a climb that began on Monday, trading at 97.25 on Thursday, compared to 96.75 on Monday.

Transocean's 1.5% series B convertibles due 2037 traded at 90.25, which compared to 88 on Monday, and Transocean's 1.5% series C convertibles due 2037 traded at 85.5 on Thursday, compared to 82.5 on Monday.

Shares of the Vernier, Switzerland-based company jumped $2.41, or 5%, to $49.43 on Thursday.

The three issues were "all better today," a New York-based sellside analyst said.

Transocean continued to dominate trade as well, with the three issues accounting for a large chunk of overall volume.

The name started strengthening Monday when a letter from congressional leaders seemed to focus on BP plc's liability in the Gulf oil spill and thus relieving anxiety about the liabilities of Transocean, the oil-services company that owned the rig that exploded.

In addition to Transocean, there was a lot of Amgen Inc., Archer-Daniels-Midland Co. and Intel Corp. paper trading, according to Trace data, a New York-based trader said.

"Better than 50% of the volume so far is in the top three names," the trader said of volume. "So there doesn't seem to be any greater breadth in the market.

"The thing that is different this week, compared to recent weeks, is that there has been so far a better outright bid, and that is extremely important because it's the underpinning of the market.

"It means that people are willing to say I can own this paper at this yield. They are saying that credit isn't going to be a big issue."

Steel Dynamics trades in line

Steel Dynamics' 5.125% convertibles due 2014 traded at 110.5 versus a share price of $4.25 on Thursday, which represented about a 3-point decline outright from Wednesday.

The paper also traded at 112 on Thursday, according to Trace data.

The Fort Wayne, Ind.-based steel producer said late Wednesday that it expects its earnings for the second-quarter to fall short of expectations amid a decline in scrap prices. The company now expects second-quarter earnings of 20 cents to 25 cents per share, which is better than its 8-cent loss for the same period last year, to be sure, but lower than an expected 34-cents-per-share profit for the current second quarter.

The company also said its board has declared a quarterly cash dividend of 7.5 cents per share.

Second-quarter earnings will be affected by decreased metals recycling margins as scrap prices declined early in the second quarter, and by lower flat-rolled volumes and margins, the company said.

Production and shipping volumes in the company's steel operations were impacted by planned spring maintenance outages and by unexpected transformer repairs at the Roanoke Bar and Flat Roll divisions in June.

"Our steel operations had healthy earnings in April and May with some slowing of order entry for June at our Butler flat-rolled facility," Keith Busse, chairman and chief executive, said in a statement.

"We believe steel service center inventories of sheet products continue to remain low and anticipate buying activity to increase after the typical early July holiday and maintenance shutdowns by manufacturing companies," Busse said.

Mentioned in this article:

Ford Motor Co. NYSE: F

Pier 1 Imports Inc. NYSE: PIR

Priceline.com Inc. Nasdaq: PCLN

Steel Dynamics Inc. Nasdaq: STLD

Transocean Ltd. NYSE: RIG

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.