Walter gets whacked on earnings miss; Electronic Arts flat to lower on hedge; Navistar up

By Rebecca Melvin

New York, March 19 - Walter Investment Management Corp.'s convertibles were active and lower on both an outright and dollar-neutral, or hedged, basis on Tuesday after the Tampa, Fla.-based mortgage services company reported an earnings miss that dragged shares down 21%.

The mortgage services company's convertibles were down about 10 points outright and contracted about a point on a dollar-neutral basis, assuming about a 70% delta.

Electronic Arts Inc. saw its convertibles flat to lower by about 0.25 point on a dollar-neutral basis after the Redwood City, Calif.-based videogame publisher announced that John S. Riccitiello is stepping down as chief executive officer and board member effective March 30. The company also said that revenue and earnings for the current quarter will be at the lower end or below the lower end of previous guidance released Jan. 30.

Molycorp Inc.'s two convertible bonds were also trading fairly actively at pricing that was flat to lower on an outright basis.

But Navistar International Corp.'s convertibles moved higher after the Lisle, Ill.-based manufacturer of trucks and truck components and systems announced plans to pay down a portion of and amend its existing $1 billion term loan due 2014.

Overall, the convertibles market was more active than it was on Monday but it was weaker in tandem with the broader markets, a Connecticut-based trader said.

"Stuff in general has been coming in and it's been weak for the past week," the trader said.

Equities traded down initially but ended mixed after lawmakers in Cyprus rejected a European Union plan to stabilize the island nation's banks in part by seizing about10% of the value of bank accounts there.

The attempt had sparked market fears that such asset confiscation could be imposed elsewhere.

In the primary market, Sanchez Energy Corp. priced $225 million of perpetual convertible preferred stock, which the Houston-based oil and natural gas exploration and development company plans to use specifically to fund a portion of the $265 million purchase price of its previously announced acquisition of certain Eagle Ford Shale assets.

The $50.00 liquidation preference preferreds were priced with about a 10% initial conversion premium.

WAC gets whacked

Walter's 4.5% convertibles due 2019 fell to 100.5 bid, 101.5 offered versus an underlying share price of $33.50 on Tuesday. That was off from about 110.25 prior to the company's release of quarterly results.

Walter shares skidded $8.61, or nearly 21%, to $32.98 upon the release of the results.

Mortgage-related names have been a hot sector of late, and Walter is no exception. Its shares had climbed to as high as $49.61 by Feb. 19 from the beginning of the year, when the share price was $43.02. Since Feb. 19, the shares have pulled back, however.

On Tuesday the shares pulled back further after the company announced a loss for the quarter ended Dec. 31 of $34.1 million, or $0.98 per share, compared to a loss of $36.9 million, or $0.14 per share, for the same period a year earlier.

Core earnings after taxes for the fourth quarter were $22.5 million, or $0.64 per share, compared to $16.1 million, or $0.56 per share, in the fourth quarter of 2011. That represented a 3-cent-per-share miss from the $0.67 per share that investors were expecting.

Total revenue for the fourth quarter was $176.4 million, compared to $155.9 million in the year-earlier period.

Results for the quarter reflect a charge of $48.6 million related to the loss incurred by the company on the early extinguishment of its debt.

Looking ahead, the company said it expects EBITDA of $650 million to $725 million, which was well ahead of existing estimates.

Electronic Arts flat to lower

Electronic Arts' 0.75% convertible senior notes due 2016 traded down to 96.625 bid, 97.125 offered versus an underlying share price of $17.23. That was down about 0.25 point on a dollar-neutral basis compared with Monday's levels, according to a New York-based analyst.

A second source said the convertibles were unchanged to down a little.

"It's pretty challenged," the analyst said regarding the company and its sector in video game publishing.

Electronic Arts' shares fell $1.56, or 8.3%, to $17.15.

Precipitating the drop, the company announced that chief executive John Riccitiello will be stepping down by March 30 and that the company is at the low end or falling short of current guidance.

Navistar strengthens

Navistar's 3% convertibles due 2019 traded up to 103.75 bid, 104.25 offered, which was better by more than a point outright, versus an underlying share price of $36.70.

Navistar shares whipsawed, and ultimately underperformed the convertibles, gaining only 4 cents, or 0.1%, to $36.72 on the day.

"Navistar was better with the new bank debt deal," a Connecticut-based trader said.

"They are back from the dead," he said, referring to last year when the bonds dropped on heavy debt and poor execution of an engine that didn't comply with environmental regulations. Before Christmas, the bonds were trading around 90 when the company reported a fourth-quarter loss.

As for the story on Tuesday: "They took out some bank debt and refinanced it with better terms, and they are generally heading in the right direction," the trader said.

Mentioned in this article:

Electronic Arts Inc. NYSE: EA

Molycorp Inc. NYSE: MCP

Navistar International Corp. NYSE: NAV

Sanchez Energy Corp. NYSE: SN

Walter Investment Management Corp. NYSE: WAC

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