Pioneer Natural gains on investor switch; Lehman trades below par; Indevus slides

By Rebecca Melvin

New York, June 4 - Pioneer Natural Resources Co.'s convertibles gained on a hedged basis Wednesday in active trade as investors eyed the Irving, Texas-based company's balanced exposure to oil and natural gas, a New York-based sellside trader said.

Investors bought Pioneer in favor of Penn Virginia Corp. because of the better diversification that Pioneer provides, the trader said.

"We saw accounts selling PVA to buy PXD, largely because PVA is basically a natural gas play, and given the rise in natural gas prices this year, people are looking to diversify out," the trader said.

Chesapeake Energy Corp. was also in play on Wednesday, but no price move was notched.

Energy and financials continue to dominate investors' attention, with insignificant moves in sectors like health care and very little in technology, convertibles players said.

Lehman Brothers Holdings Inc. traded actively, but below par, as investors continued to weigh the New York investment bank's liquidity position and its prospects relative to larger credit and mortgage market concerns.

Ambac Financial Group Inc. was under pressure after Moody's Investors Service said the New York-based bond insurer and MBIA were under review for potential downgrades. Ambac's mandatory convertibles were seen down about 3 points amid a 17% plunge in the company's common shares.

News in airlines didn't seem to spark much trade in convertibles in that sector. UAL Corp.'s convertible bonds were seen little changed outright, lower dollar neutral after the Chicago-based air carrier said it plans to cut as many as 1,100 more jobs, remove 70 aircraft from its fleet and reduce domestic capacity to trim costs.

"No airlines today," a New York-based sellside analyst said of trading via e-mail. But "a lot of action (rumors flying around??) on AMR shares though."

Indevus Pharmaceuticals Inc. saw its convertibles and stock drop after the biotech company said one of its drugs may be delayed by two years as regulators ask for more safety data.

In the primary market, UCBH Holdings Inc. announced plans to offer $135 million, or 135,000 shares, of non-cumulative perpetual convertible preferred stock, which may price after the close Thursday.

Meanwhile pricing of new deals was expected after the close on American Oriental Bioengineering Inc.'s $125 million of convertible perpetual preferred stock and NetApp Inc.'s $1.1 billion of five-year convertible senior unsecured notes.

Pioneer expands 0.5 point

Pioneer Natural's 2.875% convertibles due 2038 closed at about 141.75 bid, 142.375 offered, up about 0.5 point, dollar-neutral, as its shares closed 1.4% lower at $70.89.

"Valuations today, specifically within energy, were stronger. We traded 50 million of the PXD bonds; they modeled cheap. And we saw accounts selling PVA to buy PXD," a sellside trader said.

Pioneer, with revenue stream that is 50% oil based and 50% natural gas based, was viewed as a more balanced company, he said.

"Energy valuations continue to remain well bid, largely because of the volatility that we see in all of the sector," the trader said.

Shares of Pioneer (NYSE: PXD) closed down $1.03, or 1.4%, at $70.89.

Another convertible in trade was the new Chesapeake 2.25% bonds, which were 97.125 versus a stock price of $53.73 at the close but essentially unchanged on the day.

"The bonds were about unchanged on the day in terms of valuations. But they are the cheapest with the longest maturity, given the 10-year put. It's closest to par and a good defensive position from which to play the name," the sellsider said.

Shares of Oklahoma City-based Chesapeake Energy (NYSE: CHK) closed down $1.57, or 2.8%, at $53.73.

Ambac loses on downgrade warning

Ambac Financial 9.5% mandatory convertibles due 2011, with a $50 par value, were down about 3 points to 24.64 versus a stock price of $2.49 at the close. Shares of the bond insurer (NYSE: ABK) skidded 51 cents, or 17%, after Moody's warned it might downgrade Ambac Assurance Corp. and MBIA Insurance Corp.

Proceeds from Ambac's successful raising of $1.5 billion in capital, including $250 million of mandatories, in early March helped boost Ambac Assurance's capital position, Moody's said. But there is potential for further mortgage market deterioration, which could challenge the bond insurer's ability gauge ongoing capital needs accurately in the near term.

Ambac shares (NYSE: ABK) dropped sharply mid-session in heavy trade.

Meanwhile Lehman's 7.25% convertible preferred stock was trading at 999 late in the session, after opening at about 950 Wednesday, as its shares rallied in extremely heavy volume.

Investors took comfort in reports that the No. 4 U.S. investment bank may raise capital from an outside investor. In addition Standard & Poor's maintained its rating on the firm and Merrill Lynch gave it a "buy" rating.

"Lehman is not even in the same ball park as Bear," a sellside trader said. "They may have more losses and mortgages are going to be more or less of the same for awhile. But as long as the FED keeps rates low, and lets the banks make money on the spread, things should be OK."

Lehman shares (NYSE: LEH) closed up 79 cents, or 2.6%, at $31.40.

UAL slips on a dollar-neutral basis

UAL convertible bonds were mostly unchanged as their underlying shares jumped 7% after the No. 2 U.S. carrier announced additional cost savings plans Wednesday. Previously the company planned to cut 500 jobs and said that it would mothball some of its least fuel-efficient aircraft.

UAL's 4.5% convertible senior limited subordination notes due 2021 were seen at 52 and its 5% convertibles slightly higher at 52.75, versus a closing share price of $9.14. On May 27 the bonds traded at 52 versus a share price of $8.00.

Volume of UAL shares (Nasdaq: UAUA) was nearly double the three-month running average.

Indevus drops on drug delay

Indevus Pharmaceuticals' 6.25% convertible senior notes due July 2009 traded late in the day at 101.697 versus a share price of $1.26.

The 6.25s, which were exchanged for notes with the same coupon maturing in July 2008, were seen recently in the 122, 123 range.

Shares of the Lexington, Mass.-based biotechnology company (Nasdaq: IDEV) plunged 70% after it said approval of its main drug, an injectable testosterone, may be delayed by two years so that the company can conduct another safety study and re-apply for approval in 18 months.

"We were active in those bonds," a sellsider said.

UCBH to price $135 million

UCBH Holdings said Wednesday it plans to price $135 million of non-cumulative perpetual convertible preferred stock, talked with a dividend of 7.5% to 8% and with an initial conversion premium of 20% to 25%.

The preferreds have five-year hard call protection and are provisionally callable thereafter subject to a 130% price hurdle.

Merrill Lynch & Co. is the bookrunner.

The offering will be made under UCBH's automatic shelf registration statement filed with the Securities and Exchange Commission on Wednesday.

San Francisco-based UCBH Holdings is the holding company for United Commercial Bank, a state-chartered commercial bank serving Chinese communities and American companies doing business in China.

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