Convertibles flat; ATP edges up; Genco Shipping premium comes in; Smithfield Foods active

By Rebecca Melvin

New York, June 16 - Convertibles were little changed on Thursday as stocks turned mixed from a sharp decline Wednesday amid continuing concerns about the Greek debt crisis and mixed to disappointing economic data.

ATP Oil & Gas Corp.'s convertible perpetual preferred shares were little changed on their second day of trading Thursday. The late morning market in the name was quoted at 88.75 bid, 89.25 offered versus a share price of $15.26.

One bank had the paper crossing at 88.75 early in the day, and after the market close, there was an 89.25 bid, a trader said.

Genco Shipping & Trading Ltd.'s convertibles traded a little higher outright early Thursday, with the underlying shares up; but on a premium over parity basis, the convertibles contracted.

Genco shares retraced gains to end little changed on the day after the New York-based dry bulk shipping company presented at a Deutsche Bank industrials conference.

Smithfield Foods Inc.'s convertibles looked to have slipped intra-session, but they still traded higher on the day after the Smithfield, Va.-based meat processor posted better-than-expected fourth-quarter profit.

Market players said there was nothing notable to report in the convertibles market with similar trading action to that seen earlier in the week.

"There's nothing out there that's too shocking; there's nothing too compelling," a sellside trader said. "Everything is rich. It's tough to get excited with this paper."

The trader said that the current market is reminiscent of last summer's situation, which was also focused on the global economy and Europe's sovereign debt problems.

The difference, he said, is that last summer, convertibles were cheaper. "Credit is definitely better between last summer and now. Last summer, the Dow was below 10,000; things were looking pretty bad, but then there was no looking back from then until now," the trader said.

In economic news, the jobs picture remained mixed. There were fewer applications for U.S. unemployment benefits last week. But applications still remain higher than they should be for economic health.

Applications for unemployment benefits fell 16,000 to a seasonally adjusted 414,000, the second drop in three weeks, the Labor Department said Thursday.

It was viewed as positive that layoffs were slowing, but with applications still above the 400,000 mark, the job market remain weak compared to earlier this year.

Genco premium contracts

Genco's 5% convertibles' points of premium over parity came in to 45.7 points on Thursday, down from 48.5 points on Tuesday, with the 2015 paper trading at 83.5 versus a share price of $7.35 Thursday, compared to 81.6 versus a share price of $6.46 on Tuesday.

After the market closed, the Genco convertibles traded at 81.707 versus a share price of $6.96, which was 46.20 points, a New York-based sellside trader.

The New York-based dry bulk shipping company will continue to face challenging headwinds due to suppressed shipping rates expected to continue through 2011 and most of 2012, Genco chief financial officer John Wobensmith told an audience at Deutsche Bank's 2011 Global Industrials and Basic Materials Conference in Chicago Thursday.

"I've always said the next 12 months are going to be challenging on the rate front," Wobensmith said.

Although there will be periods of spikes to the upside in dry bulk rates, "our view is that toward the end of 2012 and getting into 2013 as new volume of coal and iron ore comes on, you'll get a more balanced picture in terms of supply and demand," Wobensmith said.

Nevertheless, the company should be able to ride out the suppressed rate environment given that it had $280 million in cash as of the end of the first quarter, Wobensmith said.

The company was founded in December 2004, had its initial public offering in July 2005 and has expanded to a pro forma fleet of 53 vessels from 16 vessels since that time. The $125 million of 5% convertibles priced in July 2010.

Baltic Dry Index rates are down this year from both 2010's and 2009's levels, due to among other things, flooding in Australia. Wobensmith said that increasing iron ore and coal production are major factors in the company's favorable outlook.

Smithfield slips a little

Smithfield Foods' 4% convertibles due 2013 were at 116.25 versus a share price of $21.30 at mid-afternoon, compared to an earlier, mid-morning market at 116.5 bid, 117 offered versus the same $21.30 share price, according to a Connecticut-based sellside trader.

The Smithfield, Va.-based pork producer earned 85 cents a share on revenue of $3.12 billion compared with $2.91 billion a year ago. Profits were driven by higher prices in its hog and pork units.

The company posted its first profitable year since 2008 on those higher prices for its products and announced a $150 million stock buyback over the next two years using cash on hand.

Net income of $98.4 million, or 59 cents per share, for the three months ended May 1, compared to a net loss of $4.6 million, or 3 cents per share, a year earlier.

Excluding a charge tied to early debt retirement, adjusted earnings were 85 cents per share, which was better than the 82 cents per share that analysts expected.

For the year, the company reported net income of $521 million, or $3.12 per share. In the prior year it lost $101.4 million, or 65 cents per share.

Gimme Credit analyst Vicki Bryan wrote in a note Thursday, "Mission accomplished. Smithfield has successfully navigated an impressive turnaround over the past three years from an equally dramatic fall from grace in 2007."

"As the world's largest producer and packager of pork, it was both creator and victim of a bloated hog market bubble that burst in the fall of 2007 and collapsed hog prices just as feed costs skyrocketed. It also found itself on the wrong side of a corn futures contract which persisted about 20% above the market for almost a year," Gimme Credit's Bryan wrote.

The turnaround included "slashing its hog herds, streamlining operations, selling its beef production capacity, and raising cash. As we expected, credit quality has dramatically improved as has market conditions. Revenue and margins are growing and leverage is significantly lower. Smithfield's financial condition should continue to improve through 2012," Bryan wrote.

Mentioned in this article:

ATP Oil & Gas Corp. Nasdaq: ATPG

Genco Shipping & Trading Ltd. NYSE: GNK

Smithfield Foods Inc. NYSE: SFD

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