Ingersoll-Rand gains on better guidance; Symantec pressured by downgrade; Transocean slips

By Kenneth Lim

Boston, July 16 - Ingersoll-Rand plc gained on Friday after the company raised its second-quarter earnings guidance, as the broader convertible market struggled in the face of an equity sell-off.

Symantec Corp. continued to ease lower a day after the common stock received a downgrade by an equity analyst.

Transocean Ltd. backed off its recent rally, as investors took profits amid a broad market decline.

The convertible market in general followed underlying equities lower on poor inflation and consumer sentiment indicators.

"Almost everything is down today," a sellsider said. "We're sailing in economic headwinds here."

Trading volumes were slow, but not unusually thin for a summer Friday, the sellsider said.

"I guess it's about average for a Friday in the summer," the sellsider said. "There are some sellers out there, but very few buyers."

On the week, convertibles ended mixed to slightly weaker, the sellsider said.

"We had a pretty good start, but the market just couldn't hold on to it," the sellsider said. "It's a very volatile time right now."

Ingersoll-Rand lifts guidance

Ingersoll-Rand's 4.5% convertibles due 2012 rose about 1 point outright to trade at 197.75 versus a common stock price of $34.70.

The shares closed at $34.37, lower by 1.6% or $0.56.

"They got some interest today, saw a number of trades," a sellside trader said. "The company raised their guidance, beat expectations."

Ingersoll-Rand on Friday said it expects to report on July 23 second-quarter earnings of 74 to 76 cents per share, more than its initial guidance of 62 to 72 cents per share. Street expectations were for 70 cents per share.

The Dublin, Ireland-based air conditioning company also said it would sell its European refrigerated display case business.

The better guidance was a positive for the company, and the common stock's poor performance on Friday may have been a result of the broader market's drop.

"It's positive, so I'm not sure why the stock's down," the trader said. "They were up in the pre-market. I guess the rest of the market's not doing well, probably pulled them down as well."

But the convertibles do not offer much value beyond the stock at the moment, the trader said.

"They're too far in the money," the trader said. "Great if you bought them at issue, but not that much value right now."

Symantec retreats further

Symantec's 1% convertible due 2013 traded at 104.625 versus a common stock of $14.75, lower by 1/8 point.

The common stock closed at $14.59, down by 2.21%, or $0.33.

"They saw a bit of action yesterday, came in a little, and I guess today is kind of a continuation of that," a sellside analyst said.

RBC Capital equity analyst Robert Breza on Thursday cut his rating on Symantec's stock to "sector perform" from "outperform," citing concerns about a slower economic recovery.

Symantec is a Cupertino, Calif.-based computer security solutions provider.

"We believe Symantec is at risk for reduced forward estimates due to a prolonged economic recovery, an increasingly competitive environment that could pressure pricing, and tougher comparables due to FX risk," Breza wrote in a note.

The convertible analyst did not think that the downgrade was a significant obstacle for the shares and the convertibles.

"It's not like he's cutting them to sell or underperform," the analyst said. "Part of this is relative valuations to comparables."

Symantec is still a very strong credit and remains in a rather stable business, the analyst said.

"I'm not worried about the credit at all," the analyst said.

Transocean eases off gains

Transocean's 1.5% series A convertible due 2037 slipped 0.25 point on Friday to trade at 88.5 outright, while the 1.5% series C convertible due 2037 changed hands at 93, down by 0.125 point.

The Vernier, Switzerland-based offshore oil drilling contractor's common stock slipped 4.79% or $2.62 to close at $52.08.

"RIGs came off a little today," a trader said. "I guess they got a bit of a bump up yesterday, and today there was a bit of profit taking."

Transocean continues to face risks associated with the oil leak in the Gulf of Mexico, although an attempt during the week to place a new containment cap over the damaged well appeared to be working. Officials working on the leak on Friday cautioned against being too optimistic, however, stressing that the cap was still being tested.

"I think their exposure to this leak is still the biggest risk on the name," the trader said. "People don't really know how much they could eventually be liable for. And there's also concerns about the government targeting RIG that could affect their business in the future."

General Growth deal still developing

General Growth Properties, Inc.'s planned $2.15 billion offering of six-month mandatory exchangeables is still in very early stages, market sources said.

The company does not appear to have appointed bookrunners for the registered offering yet, a syndicate source said.

General Growth Properties plans to offer the notes through subsidiary New GGP, Inc. New GGP will eventually become the parent company after General Growth Properties emerges from bankruptcy reorganization.

The coupon will be 0.5% for the first three months and step up to 1% after that.

The notes will be mandatorily exchanged upon the completion of General Growth Properties' restructuring and a $2.5 billion common stock investment by Brookfield Asset Management, Inc.

Proceeds of the offering will be used to reduce the equity investment by restructuring plan sponsors The Fairholme Fund and Pershing Square Capital Management and by Teacher Retirement System of Texas.

General Growth is a Chicago-based real estate investment trust that focuses on shopping malls. The company filed for Chapter 11 bankruptcy protection in April 2009.

Mentioned in this article

General Growth Properties, Inc. NYSE: GGP

Ingersoll-Rand plc NYSE: IR

Symantec Corp. Nasdaq: SYMC

Transocean Ltd. NYSE: RIG

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