UAL jumps as lower oil boosts airlines; Advanced Medical, Lehman add; Hercules, ADM on deck

By Rebecca Melvin

New York, May 27 - UAL Corp. convertibles gained 3 or 4 points on Tuesday, the first trading day of the week after markets were closed Monday for Memorial Day, as its underlying shares jumped along with the airline sector in general in response to lower oil prices, market players said.

Both the UAL 5% and 4.5% convertibles traded at 52 versus a share price of $8 on Tuesday. UAL shares gained 8.9% on the day.

Continental Airlines Inc. was also getting a once over from convertibles players, with its 5% convertibles seen in the mid 90s as the Houston-based air carrier's underlying shares jumped 5%.

"[Continental] is one that still has some equity sensitivity. So it's good it you're looking for a volatility play," a Connecticut-based sellside trader said.

Outside of airlines, Advanced Medical Optics Inc. saw its 3.25% convertibles trade up, expanding on swap by about 0.375 point, as its shares added 5.6%. Advanced Medical's sister convertible issues weren't seen in trade, sources said.

Among financials, the convertible preferred shares of Lehman Brothers Holdings Inc. were mentioned in trade, gaining in line with the company's common stock.

Overall the day was pretty quiet however. Technology names, which led the stock markets higher, weren't mentioned as interesting trades in the convertibles markets.

"It was pretty quiet. People are generally still coming back from the holiday," a sellside trader said.

Another sellsider said of his desk: "A lot of people are out here."

After the close, three companies announced convertibles offerings that were expected to price on Wednesday or Thursday. After the market close on Wednesday Hercules Offshore Inc. plans to price $250 million of 30-year convertible senior notes and Archer Daniels Midland Co. plans to price $1.75 billion of three-year mandatory convertibles.

On Thursday, JetBlue Airways Corp. plans to price $160 million of 30-year convertible debentures.

UAL adds as sector climbs

Airline convertibles, which haven't been heard much in trade since the beginning of the year, are "looking interesting after getting clobbered," a Boston-based buyside trader said.

Airline stocks gained Tuesday as crude oil fell a second day in New York amid signs that U.S. fuel consumption is dropping because of a slowing economy and record high prices. Crude oil for July delivery fell as much as 55 cents, or 0.4%, to $128.30 a barrel.

Chicago-based UAL, parent company of United Airlines, saw its convertibles trade at 52 versus a share price of $8.

Others saw the 5% paper due 2021 lower at 50, versus the closing share price of $8.18, and the 4.5% convertibles due 2021 even lower at 48, compared to 48 and 46, respectively on Friday.

Shares of UAL (Nasdaq: UAUA) closed up 8.9%.

New York-based discount air carrier, JetBlue Airways saw its convertibles remain flat as its shares climbed 5% on Tuesday. But the gain was mostly erased in after-hours trading.

JetBlue's 3.75% convertible due 2035 were seen unchanged at 69 and its 3.5% convertibles due 2033, which the company plans to repurchase with proceeds of the new paper, were seen down 0.75 point at 97.

JetBlue said it intends to use proceeds from the offering together with cash on hand, if needed, to repay up to $175 million of its 3.5% convertible notes, which have a put on July 15.

JetBlue shares (Nasdaq: JBLU) added 21 cents, or 5%, in trade to $4.41.

Advanced Medical expands 0.375 point

The 3.25% convertible of Advanced Medical due 2026 were seen closing at 76.9 versus a share price of $23.28, compared with a close of 75.6 versus a share price of $22.14 on Friday.

Amid no particular news on Tuesday, shares of the Santa Ana, Calif.-based eye medical device maker (NYSE: EYE) advanced $1.24, or 5.6%.

Lehman adds

The 7.25% convertible preferred shares of Lehman closed at 1085, versus a share price of $37.20, compared to 1066.9, versus a share price of $36.11 on Friday.

The New York based investment bank (NYSE: LEH) saw its shares climb $1.09, or 3%.

"Financials were lower in the morning, and Lehman stock was trading lower; but by the end of the day it rallied back. I think the market was expecting a down day, but it was up instead," a buysider said of the Lehman trades.

Hercules, ADM on deck to price

Hercules Offshore plans to price $250 million of 30-year convertible senior notes talked to yield 2.875% to 3.375% for the coupon for the first five years, and then with principal accretion at the coupon rate, and with an initial conversion premium of 47.5% to 52.5%.

There is a greenshoe of $37.5 million.

The notes are non-callable for five years, with puts in 2013, 2018, 2023, 2028, and 2033.

The Houston-based offshore drilling company said it plans to use proceeds to repay amounts drawn under its revolving credit facilities, which totaled about $100 million as of May 23, to repurchase up to $50 million of common shares, and for general corporate purposes.

Goldman Sachs & Co., Bank of America Securities LLC and UBS Securities LLC are joint bookrunners.

Archer Daniels plans to price $1.75 billion of three-year mandatory convertibles, or equity units, at $50 each, with an option to purchase $25 million of additional equity units to cover over-allotments

The mandatories were talked to yield 6% to 6.5% with an initial conversion premium of 18% to 22%. Citi, J.P. Morgan Securities Inc., Banc of America Securities Inc. and Deutsche Bank Securities Inc. are joint book-running managers for the offering.

The Decatur, Ill.-based agriculture company plans to use proceeds for general corporate purposes, including repayment of short-term indebtedness and investment in long-term growth opportunities.

Meanwhile, JetBlue Airways plans to price $160 million of 30-year convertible debentures in two tranches, to yield 5% to 5.5%, with an initial conversion premium of 20% to 25%.

The series A convertibles will be non-callable for five years, with puts in years 2013, 2018, 2023, 2028 and 2033; while the series B convertibles will be non-callable for seven years, with puts in years 2015, 2020, 2025, 2030 and 2035. Otherwise the two tranches are the same, a syndicate source said.

The registered deal is being sold via Morgan Stanley & Co. and Merrill Lynch & Co.

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