Convertible market steady overall, sees heavier volume; Old Republic shakes off concerns

By Stephanie N. Rotondo

Phoenix, June 26 - The convertible debt market was being dominated by "large-cap investment grade names," a trader reported Tuesday.

But there was really no news out to drive that action, though the day did have more-than-typical volume, he said.

In the news was Old Republic International Inc. The company's convertibles were seen holding their ground, even as the company attempted to shrug off concerns surrounding its mortgage insurance business.

Meanwhile, a downgrade from Standard & Poor's wasn't even enough to spur action in James River Coal Co.'s convertible issues. One trader opined that it was fear of losing money that was keeping investors away.

Cemex SAB de CV's convertible notes were also holding steady. The company announced Tuesday that it was intending to meet with lenders later this week to discuss a refinancing proposal.

Old Republic active, steady

A trader said that there were "prints all over the map" in Old Republic International's 3.75% convertible notes due 2018.

He noted that paper was going out "pretty much flat" in a 92-93½ context.

As for the equity, "the stock was holding its own today, but it's down alot over the last few days," he said.

The stock ended the day unchanged at $8.33, though trading volume was nearly four times more than usual.

The activity in the convertibles and the equity came as the company played down concerns that North Carolina regulators would seize its money-losing mortgage insurance unit.

The unit has already been placed under supervision by regulators and is only allowed to pay 50 cents on the dollar on any incoming claims. If the unit were to be seized, it would constitute a default under debt covenants.

Old Republic had previously put in motion a plan that would separate itself from the weak link, but ultimately decided to forge ahead with it in tow, due to stakeholder objections to the spin-off.

In a conference call held Tuesday, the company maintained that it was confident it could refinance its debt or amend terms as it dealt with the struggling business.

However, it was also noted that losses at the business were expected for at least the next two years.

Due to its decision to keep its offspring - at least for now - Fitch Ratings said it had dropped Old Republic's status to negative from positive.

Coal in a balancing act

One notable of the day was a lack of any real action in James River Coal's convertibles following a downgrade from Standard & Poor's.

"There's no color at all in James River; the bonds haven't traded," a trader said.

However, he did note that the stock - along with others in the coal sector - was down.

"I don't think anybody knows where these things really are," he said of the convertibles. The paper doesn't trade often, he explained, and, as a result, he doubted anybody would be willing to pick up the name going into month-end.

S&P gave the coal producer its second downgrade in three months, dropping the company's corporate credit rating to CCC+.

The convertibles were pushed down a notch to CCC-, given the belief that holders would not receive more than 10% recovery in a default scenario.

James River's stock meantime fell 43 cents, or 14.73%, to $2.49.

Other coal names were also seeing weakness in their equities, but not so much in their converts.

Alpha Natural Resources Inc.'s 2.375% convertible notes due 2015 were "pretty much unchanged," a trader said, at 85 5/8. The trader saw Peabody Energy Corp.'s 4.75% notes due 2066 slip a touch to 78¼ bid, 78½ offered.

Another market source called the Peabody paper unchanged at 78 bid, 79 offered.

In the stocks, Alpha's equity lost 20 cents, or 2.52%, ending at $7.73, while Peabody's declined by 34 cents, or 1.58%, to $21.12.

Cemex convertibles hold in

Mexican cement manufacturer Cemex saw its convertible debt holding in Tuesday after the company announced upcoming meetings with creditors to devise a restructuring plan.

A market source deemed the 3.25% convertible notes due 2016 "about unchanged" at 79¼ bid, 80¼ offered. The 4.875% convertibles due 2015 were up slightly at 85½ bid, 86½ offered.

The stock was also climbing, gaining 12 cents, or 1.96%, to $6.24. There was nearly double the average volume in the stock during Tuesday's session.

On Friday and Monday, Cemex intends to meet with its lenders to discuss a refinancing plan. Of the things the company hopes to accomplish are an extension of maturities from February 2014 to February 2017 and revised operational and financial covenants.

Mentioned in this article:

Alpha Natural Resources Inc. NYSE: ANR

Cemex SAB de CV NYSE: CX

James River Coal Co. Nasdaq: JRCC

Old Republic International Corp NYSE: ORI

Peabody Energy Corp. NYSE: BTU

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